Home loans that conform to the Fannie Mae and Freddie Mac guidelines tend to have better terms than non-conforming loans. That’s why it’s good news that the Federal Housing Finance Agency (FHFA) recently announced that the conforming loan limits have increased to $647,200 for 2022. This is a $98,950 increase from the $548,250 loan limits of 2021. In some higher-cost areas, the loan limits could be as high as $970,800, which is a whopping $148,425 increase from the $822,375 high-cost loan limits of 2021. Click here to view a map of all the loan limits across the US.
As for loans insured by the Federal Housing Administration (FHA), the loan limit for low-cost areas went up to $420,680, and the loan limit for high-cost areas went up to $970,800. There are also some special exception areas such as Alaska and Hawaii with higher loan limits. Here are two ways to benefit from this increase:
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Home prices jumped by a whopping 7.8% from the third quarter of 2019 to the third quarter of 2020 according to the Home Price Index published by the Federal Housing Finance Agency. Click here to view the full report. This marks the fastest year-over-year increase in house prices since 2006 as demand continues to outpace the supply of homes available for sale. This also signifies that house prices have risen for 37 consecutive quarters (9 years straight), since September 2011. Here are two ways to benefit:
1: Sell Your Home with Tax-Free Capital Gains
If you’ve lived in your house as your primary residence for two out of the past five years, you may be able to sell it at a profit without having to pay capital gains taxes. The limitations on this are $500,000 of tax-free gains for married couples filing a joint tax return and $250,000 of tax-free gains for individuals or married couples filing separate tax returns. For more info, see my article: How to Get the Primary Residence Capital Gains Tax Exclusion.
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A home appraisal is an estimate of your home's value. It's simply a professional appraiser's opinion of what he/she thinks your home may be worth.
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If you or anyone you know is buying a house this summer, chances are you’ll be dealing with competing for offers and low inventory issues. Here are three ways to avoid getting priced out of the house you want:
1 – Consider Your Overall Debt Strategy
For example, what would it look like if you used some of your down payment funds to pay off other debts instead of using those funds for a down payment? This may open the door to getting you qualified for a larger mortgage so you can bid higher on the house. Plus, home loans often carry a lower after-tax interest cost than other debts that may not be tax-deductible. Please see a CPA for details on the tax-deductibility of mortgage debt in your situation.
2 – Consider an Adjustable Rate Mortgage (ARM)
Depending on bond market conditions, the interest rate (and monthly payment) on an adjustable-rate mortgage can often be lower than a fixed-rate mortgage. If this is the case in your situation, you may be able to use an ARM to comfortably afford the home. Keep in mind that many ARMs have interest rates and payments that are fixed for a period of 5 years or 7 years. This means the only risk to you is that you keep the house for longer than the initial fixed period AND interest rates go up considerably after that timeframe.
3 – Consider the Use of Gift Funds
Gifts from friends and relatives can often be used for a down payment. Gift funds could be very useful if you find yourself in a bidding war where you’ve maxed out your mortgage options and the only other option is to come to closing with more cash.
Contact me for further details and to explore your mortgage options!
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#1: What does retirement mean to me?
Many people think of retirement as a time in your life where you can work if you want to, but not because you have to. In other words, how would you feel if you could work for fun and/or pursue your passions without worrying about money? This requires financial independence, or having enough money to:
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Bidding for a new home can get pretty fierce in today's market. Here are three potential solutions to avoid getting outbid on your new home:
- Turn in your loan paperwork BEFORE you place an offer.
In many cases, you are bidding against cash buyers who don't need to wait for financing approvals. Look at it this way: if you were the seller, would you prefer to do business with a buyer who needs to wait for financing approvals or a cash buyer who can close the deal quickly? With that in mind, it's important to be proactive and provide your mortgage lender with things like your source of down payment funds, your asset documentation, your credit report, and your income documentation. This way, you'll be in a better position to close the deal quickly and compete with those cash buyers.
- Pay cash, but do it right.
Keep in mind that you only have 90 days after closing to place a mortgage on a property that you bought with cash if you want to secure your tax deduction. (For more info, see my article entitled, 90 Day Rule for Cash Buyers.) In order to get that loan approval after closing, you'll need to document the source of funds that you used for your cash purchase. Talk to me for more details so that you can avoid problems down the road.
- Write your offer correctly.
Mortgage lenders are implementing some pretty significant changes this year to the legal requirements for mortgage paperwork as part of the Dodd-Frank Act. When real estate agents and loan officers aren't familiar with some of these changes, it causes unnecessary delays in the loan process. That's why it's important to work with someone like myself who keeps up to date on all the new requirements. I can work with your real estate agent to make sure you write your offer correctly in the beginning so that you won't have to redo the paperwork and delay the closing.
Contact me so that we can further explore any/all of these ideas together!
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Your length of credit history looks at how long your accounts have been opened. This has a 15% impact on your score. The longer your accounts have been opened, the higher your score will be; newly opened accounts will bring your score down. Here are three practical steps for you to improve your score in this area:
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If you’re thinking of paying cash for home improvements, you may want to think twice. Here are three reasons why you may want to consider a cash-out mortgage refinance or home equity loan instead:
1 – Preserve your cash: a large home improvement project could quickly deplete your savings. Think about this project in the context of the next 3-5 years. What other large expenses could crop up during that time period, and would it be useful to keep your savings on hand for those items?
2: Opportunity Cost of Money: would it more useful to invest that money in a college savings plan or retirement account? For example, if a home improvement loan costs less than what you’re earning in your investment accounts, you may be better off investing your money instead of paying cash for the improvements. Talk to your financial advisor for more details.
3: Possible Tax Advantages: you may be able to deduct the interest on your new mortgage or home equity loan if you itemize your tax deductions, and if your total aggregate mortgage and home equity balances are $750,000 or less. Please see a CPA or tax advisor for details.
Keep in mind that house prices have improved in many markets, so you may have enough equity in your home to refinance your mortgage or take out a home equity loan for home improvements. Also, interest rates are still very attractive, so you may want to act now instead of waiting.
Contact me to explore your financing options!
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Your timely payment history has a 35% impact on your credit score. Paying debt on time and in full has a positive impact. Late payments, judgments, charge-offs, collection accounts, and bankruptcies have a negative impact. If you have had any bankruptcies within the last 7 years, it will seriously affect your ability to borrow or establish new credit accounts. If you have had any judgments within the last several years, it is very important that you pay off the judgment and get a "satisfaction of judgment" from the court. Any unsatisfied or recent judgments will make a bad dent in your credit scores and adversely affect your ability to borrow. Usually, judgments and liens must be paid prior to the closing.
Timely mortgage payments are weighted heavily by the scoring systems and are one of the most vital requirements that lenders look for when evaluating your credit history. Many times, a single late mortgage payment within the last 12 months can hold up your file or make a big difference in your interest rate and loan terms. Your payment history on other debts (car payments, credit cards, etc.) is also given a lot of weight.
The credit scoring systems evaluate how many late payments you have had and whether they were 30, 60 or 90 days late. The worst situation is if you are currently in default. Additionally, the systems look at whether the late payments were consecutive. If you only have one or two minor late payments on your report with no other derogatory marks, your score will not be terribly affected, but you will have a tough time getting over the critical 700 level. Here are four practical steps that you can implement:
- Make all your payments on time.
- Past dues on any account will destroy your score - bring your delinquent accounts current immediately.
- Pay your bills before they go to a collection agency.
- Regularly check your credit report for accuracy and make sure that disputed bills are not negatively affecting your scores.
Let me know if you have any questions or if I can help in any way!