Date Archives: September 2022

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buying a home | 99 Posts
mortgage | 4 Posts
real estate news | 45 Posts
selling a home | 41 Posts
Uncategorized | 8 Posts
September
30

Selling your home upon retirement is a question millions of people grapple with. While it might seem logical to scale down when you retire, is it really the best option? 

There's no "one size fits all" solution for selling your home. Most people will find there are pros and cons to the choice they have to weigh before making a decision.

  • Pro: Selling Can Give You Retirement Income
    If you've worked hard to build equity in your house, selling it could be exactly the step you need to take to ensure a comfortable retirement. Plus, if you've been living in the home consistently in recent years, you may be eligible to shield much of the sale's proceeds from taxation. This can be the solution for retirees who find themselves without enough savings.

  • Pros: Selling Means Fewer Recurring Costs
    No matter how well-maintained your home is, there'll always be costs involved in keeping it running. Your HVAC system, plumbing, electrical wiring, and much more can all fail without much warning. By selling, you avoid all these inevitable challenges of home ownership. Plus, you may find that you can reduce the overall costs of your utilities.

  • Pros: Selling May Mean More Accessible Accommodations
    With age, many people face security and safety concerns they did not have in their youth. One of the most serious ones is the risk of a serious slip and fall, particularly when your home has many stairs. The cost of remodeling a home to make it more comfortable in retirement may be greater than what you are willing to invest in your retirement income.

  • Pros: Selling May Mean More Flexibility in Retirement
    Your desires in retirement might be very different from what you wanted from your home years or decades ago. You might want to move closer to relatives, for example, get into a community more in keeping with your needs, or even move to another country. In all these situations and more, maintaining your home can make it harder for you to focus on the present.

  • Cons: Renting May Not Be Worth It
    One of the biggest questions about selling is whether it makes financial sense. While your home might be appreciating in value, the cost of rent in your community is probably rising as well. If you know where you want to live after selling, take a close look at the nearby housing and the financial resources it will take for you to live comfortably there.

  • Cons: Sentimental Value Matters
    By the time they reach retirement, many people have spent decades in one home. There's simply no way to put a price on the sentimental value such a property can offer. It may make more sense to keep the home in the family if you consider it an important part of your legacy. This may be a matter to bring up with adult children or others with a close connection to the place.

  • Cons: It May Not Be the Right Time for Selling Your Home
    If your home is appreciating in value — or a minor improvement could substantially raise its sale price — it may be worth it to wait a little longer before making your move. In a "seller's market," a delay of just three months can make a big difference in what you can expect from your sale. If conditions are ideal, it may make sense to wait six months or even another year.

Ultimately, selling your home is a deeply personal decision. It's best made with input from a real estate agent you can rely on. Reach out to a Montague Miller & Company real estate professional to help you make your next move.

September
30

Selling your home soon? As you look at your finances and list your home, it's probably tempting to focus on your potential earnings. However, every real estate transaction comes with closing costs for the buyer and the seller.

You probably already know you're responsible for the agents' commissions, but what about the rest of your closing costs?

Before selling your home, make sure you understand all the closing costs you'll be expected to cover. Here are some common costs that may surprise you:  

  1. Pro-Rated Property Taxes
    You're responsible for all property taxes up to the date of the sale. That means if you're selling in July, you need to pay your property tax for the first seven months of the year — not wait until next year to file. Make sure you're aware of the final number because you must provide this to the buyers. This is required because buyers will get a bill next year for the whole year, including the months you still owned the home.

  2. Transfer Taxes and Fees
    Real estate transactions are essentially title transfers from one owner to another. Before your sale is complete, you must pay state and county or city fees in order to process this transfer. You may also need to pay transfer taxes. While most sellers are aware that it costs money to transfer a title, many are surprised by the final percentage, which can fluctuate wildly depending on your location. Make sure you're aware of the local requirement beforehand.

  3. Title Insurance
    If you think buyers are always responsible for buying a title insurance policy, think again. Many states now require sellers to cover the new homeowner's title insurance policy. This coverage is designed to protect the mortgage lender from any future claims, and they won't approve the transaction without it. Find out now if you will be responsible for the buyer's title insurance coverage.

  4. Home Preparations
    Staging a home for market success is about more than just cleaning thoroughly and rearranging the furniture. Your real estate agent will know which services are the most valuable, especially to sellers who want to ask for more money or sell more quickly. For example, renting a storage unit will make it much easier to clear out a third of your clutter and personal possessions, leaving a more neutral and walkable space for potential buyers. Carpet cleaning, painting, lawn care, and professional photography services are also important investments for serious sellers.

Of course, your final closing costs before selling your home will depend on a lot of different factors. From zip code and loan terms to the buyers' willingness to negotiate, these factors will help you figure out just how much to set aside for closing. Understand your responsibilities and prepare yourself for every possible expense.

September
7

Mortgage rates have been on a roller coaster ride this year, rising and falling amid inflationary pressures and economic uncertainty. And even the experts are divided when it comes to predicting where rates are headed next.1

This climate has been unsettling for some homebuyers and sellers. However, with proper planning, you can work toward qualifying for the best mortgage rates available today – and open up the possibility of refinancing at a lower rate in the future.

How does a lower mortgage rate save you money? According to Trading Economics, the average new mortgage size in the United States is currently around $410,000.2 Let's compare a 5.0% versus a 6.0% fixed-interest rate on that amount over a 30-year term.

Mortgage Rate
(30-year fixed)

Monthly Payment on $410,000 Loan
(excludes taxes, insurance, etc.)

Difference in Monthly Payment

Total Interest Over 30 Years

Difference in Interest

5.0%

$2,200.97

 

$382,348.72

 

6.0%

$2,458.16

+ $257.19

$474,936.58

+ $92,587.86

With a 5% rate, your monthly payments would be about $2,201. At 6%, those payments would jump to $2,458, or around $257 more. That adds up to a difference of almost $92,600 over the lifetime of the loan. In other words, shaving off just one percentage point on your mortgage could put nearly $100K in your pocket over time.

So, how can you improve your chances of securing a low mortgage rate? Try these eight strategies:

  1. Raise your credit score.

Borrowers with higher credit scores are viewed as "less risky" to lenders, so they are offered lower interest rates. A good credit score typically starts at 690 and can move up into the 800s.3 If you don't know your score, check with your bank or credit card company to see if they offer free access. If not, there are a plethora of both free and paid credit monitoring services you can utilize.

 If your credit score is low, you can take steps to improve it, including:4

  • Correct any errors on your credit reports, which can bring down your score. You can access reports for free by visiting AnnualCreditReport.com.
  • Pay down revolving debt. This includes credit card balances and home equity lines of credit.
  • Avoid closing old credit card accounts in good standing. It could lower your score by shortening your credit history and shrinking your total available credit.
  • Make all future payments on time. Payment history is a primary factor in determining your credit score, so make it a priority.
  • Limit your credit applications to avoid having your score dinged by too many inquiries. If you're shopping around for a car loan or mortgage, minimize the impact by limiting your applications to a short period, usually 14 to 45 days.5

 Over time, you should start to see your credit score climb — which will help you qualify for a lower mortgage rate. 

  1. Keep steady employment.

If you are preparing to purchase a home, it might not be the best time to make a major career change. Unfortunately, frequent job moves or gaps in your résumé could hurt your borrower eligibility.

When you apply for a mortgage, lenders will typically review your employment and income over the past 24 months.5 If you've earned a steady paycheck, you could qualify for a better interest rate. A stable employment history gives lenders more confidence in your ability to repay the loan.

That doesn't mean a job change will automatically disqualify you from purchasing a home. But certain moves, like switching from W-2 to 1099 (independent contractor) income, could throw a wrench in your home buying plans.6

  1. Lower your debt-to-income ratios.

Even with a high credit score and a great job, lenders will be concerned if your debt payments are consuming too much of your income. That's where your debt-to-income (DTI) ratios will come into play.

There are two types of DTI ratios:7

  1. Front-end ratio — What percentage of your gross monthly income will go towards covering housing expenses (mortgage, taxes, insurance, and dues or association fees)?
  2. Back-end ratio — What percentage of your gross monthly income will go towards covering ALL debt obligations (housing expenses, credit cards, student loans, and other debt)?

What's considered a good DTI ratio? For better rates, lenders typically want to see a front-end DTI ratio that's no higher than 28% and a back-end ratio that's 36% or less.7

If your DTI ratios are higher, you can take steps to lower them, like purchasing a less expensive home or increasing your down payment. Your back-end ratio can also be decreased by paying down your existing debt. A bump in your monthly income will also bring down your DTI ratios. 

  1. Increase your down payment.

Minimum down payment requirements vary by loan type. But, in some cases, you can qualify for a lower mortgage rate if you make a larger down payment.8

Why do lenders care about your down payment size? Because borrowers with significant equity in their homes are less likely to default on their mortgages. That's why conventional lenders often require borrowers to purchase private mortgage insurance (PMI) if they put down less than 20%.

A larger down payment will also lower your overall borrowing costs and decrease your monthly mortgage payment since you'll be taking out a smaller loan. Just be sure to keep enough cash on hand to cover closing costs, moving expenses, and any furniture or other items you'll need to get settled into your new space.

  1. Compare loan types.

All mortgages are not created equal. The loan type you choose could save (or cost) you money depending on your qualifications and circumstances.

For example, here are several common loan types available in the U.S. today:9

  • Conventional — These offer lower mortgage rates but have more stringent credit and down payment requirements than some other types.
  • FHA — Backed by the government, these loans are easier to qualify for but often charge a higher interest rate.
  • Specialty — Certain specialty loans, like VA or USDA loans, might be available if you meet specific criteria.
  • Jumbo — Mortgages that exceed the local conforming loan limit are subject to stricter requirements and may have higher interest rates and fees.10

When considering loan type, you'll also want to weigh the pros and cons of a fixed-rate versus variable-rate mortgage:11 

  • Fixed rate — With a fixed-rate mortgage, you're guaranteed to keep the same interest rate for the entire life of the loan. Traditionally, these have been the most popular type of mortgage in the U.S. because they offer stability and predictability.
  • Adjustable rate — Adjustable-rate mortgages, or ARMs, have a lower introductory interest rate than fixed-rate mortgages, but the rate can rise after a set period of time — typically 3 to 10 years.

According to the Mortgage Bankers Association, 10% of American homebuyers are now selecting ARMs, up from just 4% at the start of this year.12 An ARM might be a good option if you plan to sell your home before the rate resets. However, life is unpredictable, so it's important to weigh the benefits and risks involved. 

  1. Shorten your mortgage term.

A mortgage term is the length of time your mortgage agreement is in effect. The terms are typically 15, 20, or 30 years.13 Although the majority of homebuyers choose 30-year terms, if your goal is to minimize the amount you pay in interest, you should crunch the numbers on a 15-year or 20-year mortgage.

With shorter loan terms, the risk of default is less, so lenders typically offer lower interest rates.13 However, it's important to note that even though you'll pay less interest, your mortgage payment will be higher each month, since you'll be making fewer total payments. So before you agree to a shorter term, make sure you have enough room in your budget to comfortably afford the larger payment. 

  1. Get quotes from multiple lenders.

When shopping for a mortgage, be sure to solicit quotes from several different lenders and lender types to compare the interest rates and fees. Depending upon your situation, you could find that one institution offers a better deal for the type of loan and term length you want.

Some borrowers choose to work with a mortgage broker. Like an insurance broker, they can help you gather quotes and find the best rate. However, if you use a broker, make sure you understand how they are compensated and contact more than one so you can compare their recommendations and fees.14

Don't forget that we can be a valuable resource in finding a lender, especially if you are new to the home buying process. After a consultation, we can discuss your financing needs and connect you with loan officers or brokers best suited for your situation.

  1. Consider mortgage points.

Even if you score a great interest rate on your mortgage, you can lower it even further by paying for points. When you buy mortgage points — also known as discount points — you essentially pay your lender an upfront fee in exchange for a lower interest rate. The cost to purchase a point is 1% of your mortgage amount. For each point you buy, your mortgage rate will decrease by a set amount, typically 0.25%.15 You'll need upfront cash to pay for the points, but you can more than make up for the cost in interest savings over time.

However, it only makes sense to buy mortgage points if you plan to stay in the home long enough to recoup the cost. You can determine the breakeven point, or the period of time you'd need to keep the mortgage to make up for the fee, by dividing the cost by the amount saved each month.15 This can help you determine whether or not mortgage points would be a good investment for you. 

Getting Started

Unfortunately, the rock-bottom mortgage rates we saw during the height of the pandemic are behind us. However, today's 30-year fixed rates still fall beneath the historical average of around 8% — and are well below the all-time peak of 18.45% in 1981.16, 17

And although higher mortgage rates have made it more expensive to finance a home purchase, they have also eliminated some of the competition from the market. Consequently, today's buyers are finding more homes to choose from, fewer bidding wars, and more sellers willing to negotiate or offer incentives such as cash toward closing costs or mortgage points.

If you're ready and able to buy a home, there's no reason that concerns about mortgage rates should sideline your plans. The reality is that many economists predict home prices to continue climbing.18 So you may be better off buying today at a slightly higher rate than waiting and paying more for a home a few years from now. You can always refinance if mortgage rates go down, but you can't make up for the lost years of equity growth and appreciation.

If you have questions or would like more information about buying or selling a home, reach out to schedule a free consultation with your local Montague Miller & Company real estate professional. We'd love to help you weigh your options, navigate this shifting market, and reach your real estate goals!

Sources:

  1. Washington Post - https://www.washingtonpost.com/business/2022/08/04/mortgage-rates-sink-below-5-percent-first-time-four-months/
  2. Trading Economics - https://tradingeconomics.com/united-states/average-mortgage-size
  3. NerdWallet - https://www.nerdwallet.com/article/finance/what-is-a-good-credit-score
  4. org - https://www.debt.org/credit/improving-your-score/
  5. The Balance - https://www.thebalance.com/will-multiple-loan-applications-hurt-my-credit-score-960544
  6. Time -https://time.com/nextadvisor/mortgages/how-lenders-evaluate-your-employment/
  7. Bankrate - https://www.bankrate.com/mortgages/why-debt-to-income-matters-in-mortgages/
  8. NerdWallet - https://www.nerdwallet.com/article/mortgages/payment-buy-home
  9. Consumer Financial Protection Bureau - https://www.consumerfinance.gov/owning-a-home/loan-options/
  10. NerdWallet - https://www.nerdwallet.com/article/mortgages/jumbo-loans-what-you-need-to-know
  11. Bankrate - https://www.bankrate.com/mortgages/arm-vs-fixed-rate/
  12. MarketWatch - https://www.marketwatch.com/picks/as-mortgage-rates-rise-heres-exactly-how-more-homebuyers-are-snagging-mortgage-rates-around-4-01656513665
  13. Consumer Financial Protection Bureau - https://www.consumerfinance.gov/owning-a-home/loan-options/#anchor_loan-term_361c08846349fe
  14. Federal Trade Commission - https://consumer.ftc.gov/articles/shopping-mortgage-faqs
  15. Bankrate - https://www.bankrate.com/mortgages/mortgage-points/
  16. CNBC - https://www.cnbc.com/select/mortgage-rates-today-still-relatively-low/
  17. Rocket Mortgage - https://www.rocketmortgage.com/learn/historical-mortgage-rates-30-year-fixed
  18. MarketWatch - https://www.marketwatch.com/picks/continuing-home-price-deceleration-heres-what-5-economists-and-real-estate-pros-predict-will-happen-to-the-housing-market-this-year-01659347993
September
7

If you have a dark, unfinished basement that is primarily used for storage or laundry, you might be wondering if it's worth the time and investment to enhance the space prior to selling. After all, basements are versatile and can serve many different functions, all of which make them an attractive feature for buyers.

While finishing your basement prior to selling can serve as a significant value-add, recovering your entire investment can be challenging. Therefore, it's often not recommended to invest heavily in a new basement, unless you plan on using it yourself for a few years before selling. However, there are many affordable upgrades and enhancements you can do to make the space more appealing:

  • Enhance Your Lighting
    You'd be surprised how much of a difference good lighting can make in a basement. Basements are often thought of as dark and gloomy, but good lighting can really help reshape a buyer's perception. Switch to brighter LED lights. If you don't have enough lighting fixtures, invest in some standing lamps or table lamps. If your basement does receive any natural light, make sure nothing is blocking the window.

  • Add A Home Office
    If your basement is already finished, staging a home office can make a significant difference. With so many people working from home, a home office is a necessity these days. You can easily find an inexpensive desk and chair and add in a bookshelf or some filing cabinets. A home office is a great way to demonstrate the versatility of the space.

  • Partition The Room
    It can be hard to make the basement appealing when it's home to a water heater, washer, dryer, furnace, and other household appliances. If this is the case, you can attempt to divide the appliances from the remaining space with standing partitions or screens. Room dividers are very affordable and can make a big difference.

  • Add Vinyl Flooring
    If you're looking for an easy and affordable way to cover up the concrete, consider adding some vinyl flooring. Vinyl is becoming a popular option for basement flooring — it not only looks great, but it's also easy to install.

  • Keep It Dry
    The single most important thing a seller can do is keep the basement dry. Signs of water or dampness can be a major red flag for buyers, as it can signal more serious issues with the foundation. It might be worth investing in a professional to ensure the space is waterproof.

Sellers shouldn't feel like a full basement makeover is necessary, but keep in mind a little work can go a long way. At the end of the day, you don't want people to dread going down into the basement. Instead, make it a place that is inviting and accessible. Your Montague Miller & Co real estate professional can guide you on how to proceed.

September
7

Home improvement is the key to enhancing your home's value and increasing its ever-elusive curb appeal.

Of course, you probably already know that, but what you might not know is that upgrading your property doesn't have to be exp ensive or time-consuming. The right DIY home improvement projects improve your home, add value, and bring buyers to your door.

  1. Improve Your Landscaping
    Why hire a professional landscaper? You can save money by trimming, mulching, planting, and decorating your own home into a garden showplace. With one trip to your local garden shop or hardware store, you can get everything you need to give your landscape the wow factor home buyers love.

    • Design your dream landscape, and then bring it to life.
    • Seed your lawn. Cut back overgrown bushes so buyers can see your home.
    • Add seasonal color with potted and hanging flowers.
    • Enhance your landscape with solar lights and pavers that save energy.

  2. Beautify Your Bathroom
    You spend an awful lot of time in the bathroom. It should be a beautiful sanctuary that increases your home's value, not a shabby refuge. Change your perceptions and add value with these DIY home improvement projects.

    • Install trendy light fixtures.
    • Replace your sink with a designer vanity and a marble bowl.
    • Install a copper or chrome faucet and metal-coordinated accessories.
    • Eliminate unfortunate color choices with white wall paint.

  3. Welcome Light into Your Home
    If you have large windows that allow natural light into your home, lucky you. If you don't have large windows, try these light-enhancing projects.

    • Install brighter light fixtures.
    • Paint your walls white and replace your drapes with neutral-colored blinds.
    • Remove some furniture to open up your space.

  4. Up Your Energy Efficiency
    Green technologies save money, increase home values, and reduce your carbon footprint. When a potential buyer queries your utility company about your average energy bill, they'll like what they hear. You can perform several green upgrades yourself.

    • Replace light bulbs with energy-efficient versions.
    • Replace your stove, refrigerator, and small kitchen appliances with models rated high for energy savings.
    • Install solar-powered exterior lights.
    • Repair window seals to minimize hot/cold air exchange.

  5. Modernize Your Kitchen
    Home buyers love grand spacious kitchens. Even if your kitchen isn't as big as a buyer desires, you can complete these DIY projects to make it irresistibly grand.

    • Redo your kitchen floor with trendy wood-look, gray, wide-plank, or natural wood tiles.
    • Upgrade your stove, refrigerator, and dishwasher with popular stainless steel or black steel models.
    • Install a farmhouse sink and faucet for a country modern workspace.
    • Replace your countertops with granite. You'll need someone to measure and cut the openings and a buddy to help you lift them into place.|

  6. Make Your Home Intelligent
    Guys like gadgets. Okay, ladies like gadgets too. With a little time and effort, you can make your home gadget central. Internet-connected and digitally enhanced appliances and devices give your home an intriguing, high-tech feel.

    • Install a Wi-Fi-connected refrigerator.
    • Replace your stove with an intelligent version that lets you control cooking remotely.
    • Upgrade your home security system with cameras that let you watch your home and interact with visitors wherever you are.
    • Connect your coffeemaker to your alarm clock to brew your coffee when you wake up.

With these fixes, buyers will be more inclined to be flocking to your property and making top offers. And remember, it's not always the costly changes that give the best ROI, so consult your Montague Miller & Company real estate agent about which home improvement changes will be better suited for your home.