Recently, Freddie Mac reported on the benefits of homeownership. According to their report, here are the five benefits that “should be at the top of everyone’s list.”
- Homeownership can help you build equity over time.
- Your monthly payments will remain stable. The landlord can’t raise your rent!
- You may have some tax benefits.
- You can take pride in ownership of your home.
- Homeownership improves your community.
Let’s expand on each of Freddie Mac’s points:
1. Equity: Homeownership can help you build equity over time.
Every three years, the Federal Reserve conducts a Survey of Consumer Finances in which they collect data across all economic and social groups. The latest survey, which includes data from 2010-2013, reports that a homeowner’s net worth is 36 times greater than that of a renter ($194,500 vs. $5,400).
In a Forbes article, the National Association of Realtors’ (NAR) Chief Economist Lawrence Yun reported that now the net worth gap is 45 times greater.
2. Financial Stability: Your monthly payments will remain stable.
When you purchase a home with a fixed rate mortgage, the majority of the payment (principle and interest) remain constant. On the other hand, rents continue to skyrocket. Your housing expense is much more stable if you own instead of rent.
3. Tax Savings: You may have some tax benefits.
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 homeownership.
Here are four items from the Briefing Book:
- Mortgage Interest Deduction
- Property Tax Deduction
- Imputed Rent
- Profits from Home Sale
4. Pride: You can take pride in ownership.
Most surveys show that a major factor in purchasing a home is the freedom you have to design the home the way you want. From paint colors to yard accessories, you don’t need a landlord’s permission to make the house feel like a home.
5. Community: Homeownership improves your community.
The National Association of Realtors recently released a study titled ‘Social Benefits of Homeownership and Stable Housing.’ The study explained:
“Homeownership does create social capital and provide residents with a platform from which to connect and interact with neighbors…Owning a home means owning part of a neighborhood, and a homeowner’s feelings of commitment to the home can arouse feelings of commitment to the neighborhood, which, in turn, can produce interactions with neighbors.”
There are many benefits to homeownership. That is why it is still a critical piece of the American Dream.
Home buying and selling are complicated, detailed processes and, because they are often the most significant financial commitments of your lifetime, they can be highly stressful too. However, with a real estate professional on your side, buying or selling a home can be manageable, even enjoyable. Here are 5 reasons to hire a real estate professional when buying or selling a Kent, Covington or Maple Valley home.
- Rules, regs and paperwork. Each state regulates the contracts needed to buy or sell a home and these regulations change all the time. However, a real estate professional – ideally a Realtor – is up-to-date on the latest rules and regulations, and she can streamline the process for you.
- 180 steps to closing. According to the National Association of Realtors (NAR), there are 180 steps a full-service Realtor follows in return for their sales commission, including everything from pre-listing activities and entering a home into the MLS database to the home inspection and post-closing follow-up. Yes, 180! Let your real estate professional focus on those steps, while you focus on selecting the right home and getting ready for your move.
- Negotiation. Even if you enjoy a good negotiation, it can be very stressful, particularly when you are talking about a transaction worth hundreds of thousands of dollars. A real estate professional like me can take the emotion out of that process for you while putting years of negotiating experience to use.
- Home value. A real estate professional has the experience to price your home correctly, based on its true value and how current market conditions will affect the value. While you may know what you paid for your home and what you need to get out of it, a real estate professional can provide an objective value and her recommendations for putting a price tag on your home.
- Market conditions. The Seattle real estate market is one of the hottest in the country right now. An experienced and trusted real estate professional will stay on top of selling trends and know the ins and outs of the local real estate market to ensure you get the best deal possible.
If you are thinking of buying or selling a home this summer, contact Team Marti now for a no-obligation consultation of your situation.
Buying a home can be a daunting and complex process, but it doesn’t have to be. With the right Realtor, you can feel confident that you are being well represented and that she has your back. It can also help to understand real estate lingo. Here is part two of a Freddie Mac real estate glossary you can use to educate yourself on the home buying process.
Margin: A percentage added to the index for an ARM to establish the interest rate on each adjustment date.
Market Value: The current value of your home based on what purchaser would pay. An appraisal is sometimes used to determine market value.
Mortgage: A loan using your home as collateral. In some states the term mortgage is also used to describe the document you sign [to grant the lender a lien on your home]. It may also be used to indicate the amount of money you borrow, with interest, to purchase your house. The amount of your mortgage is usually the purchase price of the home minus your down payment.
Mortgage Broker: An independent finance professional who specializes in bringing together borrowers and lenders to complete real estate mortgages.
Mortgage Insurance (MI or PMI): Insurance needed for mortgages with low down payments (usually less than 20% of the price of the home).
Mortgage Rate: The cost or the interest rate you pay to borrow the money to buy your house.
Net Monthly Income: Your take-home pay after taxes. It is the amount of money that you actually receive in your paycheck.
Offer: A formal bid from the homebuyer to the home seller to purchase a home.
Points: 1% of the amount of the mortgage loan. For example, if a loan is made for $50,000, one point equals $500.
Pre-Approval Letter: A letter from a mortgage lender indicating that you qualify for a mortgage of a specific amount. It also shows a home seller that you’re a serious buyer.
Pre-Qualification Letter: A letter from a mortgage lender that states that you’re pre-qualified to buy a home, but does not commit the lender to a particular mortgage amount.
Principal: The amount of money borrowed to buy your house or the amount of the loan that has not yet been repaid to the lender. This does not include the interest you will pay to borrow that money. The principal balance (sometimes called the outstanding or unpaid principal balance) is the amount owed on the loan minus the amount you’ve repaid.
Real Estate Professional: An individual who provides services in buying and selling homes. The real estate professional is paid a percentage of the home sale price by the seller. Unless you’ve specifically contracted with a buyer’s agent, the real estate professional represents the interest of the seller. Real estate professionals may be able to refer you to local lenders or mortgage brokers, but are generally not involved in the lending process. [Note: A real estate agent and a Realtor are not the same thing. Click here to learn the difference.]
Refinance: Getting a new mortgage with all or some portion of the proceeds used to pay off the original mortgage.
Title: The right to, and the ownership of, property. A title or deed is sometimes used as proof of ownership of land.
Title Insurance: Insurance that protects lenders and homeowners against legal problems with the title.
Truth-In-Lending Act (TILA): Federal law that requires disclosure of a truth-in-lending statement for consumer loans. The statement includes a summary of the total cost of credit, such as the APR and other specifics of the loan.
Underwriting: The process a lender uses to determine loan approval. It involves evaluating the property and the borrower’s credit and ability to pay the mortgage.
[Source: Freddie Mac]
Buying a home can be a daunting and complex process, but it doesn’t have to be. With the right Realtor, you can feel confident that you are being well represented and that she has your back. It can also help to understand real estate lingo. Here is part one of a Freddie Mac real estate glossary you can use to educate yourself on the home buying process.
Amortization: Paying off a loan over the period of time and at the interest rate specified in a loan document. The amortization of a loan includes the payment of interest and a part of the amount borrowed in each mortgage payment.
Amortization Schedule: Provided by mortgage lenders, the schedule shows how over the term of your mortgage the principal portion of the mortgage payment increases and the interest portion of the mortgage payment decreases.
Annual Percentage Rate (APR): How much a loan costs annually. The APR includes the interest rate, points, broker fees and certain other credit charges a borrower is required to pay.
Application Fee: The fee that a mortgage lender charges to apply for a mortgage to cover processing costs.
Appraisal: A professional analysis used to estimate the value of the property. This includes examples of sales of similar properties.
Appreciation: An increase in the market value of a home due to changing market conditions and/or home improvements. [Because we are in a seller’s market, homes are appreciating faster than they would in a normal market. See our May 30, 2017 post for more info.]
Capacity: Your ability to make your mortgage payments on time. This depends on your income and income stability (job history and security), your assets and savings, and the amount of your income each month that is left over after you’ve paid for your housing costs, debts and other obligations.
Closing Costs: The costs to complete the real estate transaction. These costs are in addition to the price of the home and are paid at closing. They include points, taxes, title insurance, financing costs, items that must be prepaid or escrowed and other costs. Ask your lender for a complete list of closing cost items.
Commitment Letter: A letter from your lender stating the amount of the mortgage, the number of years to repay the mortgage (the term), the interest rate, the loan origination fee, the annual percentage rate and the monthly charges.
Contingency: A plan for something that may occur but is not likely. For example, your offer may be contingent on the home passing a home inspection. It the home does not pass inspection, you’re protected.
Counter-offer: An offer made in response to a previous offer. For example, after the buyer presents their first offer, the seller may make a counter-offer with a slightly higher sale price.
Debt-to-Income Ratio: The percentage of gross monthly income that goes toward paying for your monthly housing expense, alimony, child support, car payments and other installment debts, and payments on revolving or open-ended accounts such as credit cards.
Depreciation: A decline in the value of a house due to changing market conditions or lack of upkeep on a home.
Earnest Money Deposit: The deposit to show that you’re committed to buying the home. The deposit will not be refunded to you after the seller accepts your offer, unless one of the sales contract contingencies is not fulfilled.
Equity: The value in your home above the total amount of the liens against your home. If you owe $100,000 on your house but it is worth $130,000, you have $30,000 of equity.
Home Inspection: A professional inspection of a home to determine the condition of the property. The inspection should include an evaluation of the plumbing, heating and cooling systems, roof, wiring, foundation and pest infestation.
Index: The published index of interest rates used to calculate the interest rate for an ARM. The index is usually an average of the interest rates on a particular type of security such as the LIBOR.
Liabilities: Your debts and other financial obligations.
Loan modification: This is a written agreement between you and your mortgage company that permanently changes one or more of the original terms of your note to make the payments more affordable.
Loan Origination Fees: Fees paid to your mortgage lender for processing the mortgage application. This fee is usually in the form of points. One point equals 1% of the mortgage amount.
Lock-In Rate: A written agreement guaranteeing a specific mortgage interest rate for a certain amount of time.
Are you thinking about buying a home this year, but aren’t certain because it is a seller’s market? Are you waiting because home inventory is low and you are waiting for the perfect house? Here is one good reason to reconsider that plan — interest rates WILL go up — which means you could pay tens of thousands of dollars more for the same priced home next year. Check this out!
Home buyers: If you want to buy a home now, the demand is strong, so you’ll have to differentiate yourself from other buyers to make your offer stand out. Ideally, you’ll get pre-approved so you know how much you can afford to spend – and how much you can offer on your dream home.
Home sellers: If you’re a seller, demand for available homes for sale is strong, and you’re in the driver’s seat. You’ll likely get your asking price, or perhaps more, and your home may sell faster than it would in a “normal” real estate market.
Have questions? Team Marti can help! Contact Team Marti today.
Here’s one of this month’s featured articles from my February newsletter, in case you missed it.
Want to swap your For Sale sign for a Sold one? Here are three tips to help you be savvy about home selling.
1. Be Budget Conscious
An upgraded home will sell for more than a dated one. But there are two stipulations. First, upgrades need to be neutral enough to appeal to the masses; most buyers will walk away from brightly colored carpet, but they will put an offer on a home with beautiful wood flooring. Purchasing neutral upgrades, rather than opting for a more customized look, will always give you a greater return on your investment.
Second, every home has a top selling price based on its location. You can spend a million
dollars on your home, but if you live in a quarter-of-a-million-dollar neighborhood, you will never get that money back. Your home’s original purchase price and your renovation budget combined should not exceed what other homes in your neighborhood are selling for.
2. Know Your Home’s Value
Two homes on the same street with the same floor plan can sell for vastly different prices. How is this possible? Square footage is just one variable when looking at comparables to price your home. Upgrades, location, and even curb appeal can all affect a home’s value. If your neighbor’s home exterior is dated and yours is newly upgraded with stone veneer, your house will be worth more. Does your neighbor’s house back onto a park and yours back onto a highway? Then you should offer your house at a discount. Before you start setting a budget for your new house, speak to a real estate agent about what your current home is worth. It might be worth more—or less—than you think.
3. Online Marketing Is Important
The more people who see your home, the more offers you’ll receive. But in today’s real estate market, buyers might not be doing their viewing in person. With so many social media feeds and Internet real estate sites, serious home buyers often head online to do their research. They can view multimedia tours of your property, explore local school curriculums, and even research local crime statistics. If these buyers are interested, they will call their agent to set up a private viewing. Open houses, meanwhile, typically attract buyers at the start of their house hunt who are not yet serious about making offers. Only 5 percent of homes sell through open houses.
Right now we are in a seller’s real estate market, because the number of homebuyers exceeds the number of homes for sale. This means that, to buy your dream home, you need to stand apart from other home buyers. Not only do you need to have professional representation from an experienced Realtor to make a solid offer, but you also need to get mortgage approval to ensure a smooth home purchase.
We recommend starting with pre-qualification or pre-approval from a qualified mortgage lender or broker. The pre-approval process will tell you how much you can afford to spend on a home. Freddie Mac recommends that you focus on the 4 Cs which determine the amount you will be qualified to borrow:
Capacity: Your current and future ability to make mortgage payments
Capital or Cash Reserves: The money, savings and investments you have that can be liquidated
Collateral: The home that you want to purchase
Credit: Your history of paying bills and other debts on time
Before you start shopping for a new home, get mortgage lender and broker recommendations from your local Realtor. Work with that lender or broker to find out what your credit score is, how much down payment you’ll need and how much you can afford to borrow. Then you can begin your search with the confidence that you’ll qualify to buy the home of your dreams. Happy House Hunting!