Its that time of year – everyone is organizing receipts and information for tax preparation. If you bought a home this year, refinanced your home or made energy improvements to your home, don’t overlook these important deductions.
MORTGAGE INTEREST – the interest paid on your mortgage is probably your biggest allowable deduction.
POINTS – If you purchased a home in 2016 and paid points to get a better interest rate, that expense is tax deductible. Points on refinance loans and home equity loans are also deductible but must be spread over the life of the loan instead of all in one year’s return.
ENERGY CREDITS – If you made any improvements that improve the energy efficiency of your home you may qualify for a tax credit. Those items could include insulation, windows, doors and roofs. A tax credit is better than a deduction because its a dollar-for-dollar savings instead of simply saving you whatever tax you paid based on your income bracket. There are limits on energy credits depending on what you purchased, so be sure to check with a tax professional.
PROPERTY TAXES – Property taxes paid on your primary residence are deductible. You may complain about your real estate taxes, but at tax time they work in your favor and can save a lot on your tax return.
Check with your tax professional to be sure you’ve taken advantage of all the possible tax savings on your 2016 taxes and going forward, keep receipts and information for this year organized to make next year’s tax preparation job easier.
Loan limits for mortgage loans backed by Fannie Mae and Freddie Mac will increase next year for the first time in ten years. In recognition of rising home prices nationwide, the loan limit for a conforming loan (not a jumbo loan) will increase from $417,000 to $424,100. For areas like the Seattle/Bellevue metropolitan area, which have a more expensive housing market, loan limits are much higher. In King, Pierce and Snohomish counties conforming loan limits will increase from $540,500 to $592,250 next year.
What does this mean if you’re planning to purchase a home in 2017? Jumbo mortgage loans (over the new limit of $592,250) generally have higher interest rates, require higher credit scores and larger down payments of 15-20%. These steep requirements can keep many highly qualified home buyers out of the market – buyers who have the income and employment history to qualify for a loan but don’t have a 20% down payment. When the conforming loan limit is raised, it opens the door giving qualified buyers with 3%, 5% or 10% down an opportunity to get in the game.
If you haven’t talked with a lender or Realtor® lately, now would be the time to start that conversation to see how the increase in loan limits could benefit you.
There are currently 76 new construction and resale condos listed for sale in downtown Bellevue (98004 zip code) with prices ranging from $274,999 to $1,983,000 reflecting a median list price of $797,260. (Median sale price – half the condos sold for more, half sold for less.)
During the first half of the year 124 condos (new construction and resale) sold downtown with sale prices ranging from $237,500 to $1,750,000 reflecting a median sale price of $599,443. (Peak sales months were March, May and June.)
During the same period in 2015, 131 condos sold with sale prices ranging from $212,000 to $2,035,000, a median sale price of $550,000.
Sales data for the first half of the year reflects a 9% increase in median sales prices this year over 2015.
27 of the 76 available condos represent the remaining new construction units at Washington Square. (The developer of Washington Square has been marketing those homes since 2009). Removing the 27 WA Square units from the available inventory leaves only 49 resale condos on the market downtown. With an average absorption rate of 21 condos per month, there is just over a two month supply of available resale condos in downtown Bellevue. (Since January 1st 9 condos have sold at WA Square.)
Local real estate activity tends to be sluggish in August – great weather is predictable, its peak vacation time, parents are busy getting children ready for school or off to college. With interest rates expected to remain low through the end of the year, and with limited available inventory, the fall market should present opportunities for buyers and sellers.
There is a common misconception, by first time home buyers and seasoned homeowners, that a 10% or 20% down payment is needed to purchase a home. There are excellent loan programs available that allow borrowers to obtain a mortgage with as little as 3% down and Fannie Mae guidelines have recently been updated to make home ownership more available and affordable.
FannieMae recently announced changes to income and eligibility criteria for its HomeReady mortgage program which will allow more borrowers to qualify for a mortgage. Features of the new program include:
income limits have been raised to 100% of area median income which will expand access to credit and make it easier for lenders to determine eligibility
more flexible loan underwriting
financing up to 97% loan-to-value for purchase of a residence and up to 95% LTV for limited cash-out refi loans
borrower is not required to be a first time buyer
lower mortgage insurance payments
flexible sources of funds can be used for the down payment and closing costs with no minimum contribution required from the forrower
more affordable and cancelable monthly PMI (private mortgage insurance, required for any loan with less than 20% down)
Fannie Mae is working to provide education for borrowers, expand access to credit and promote credit responsibility and successful homeownership.
If you’ve been on the fence about buying a home, talk with your Realtor® or lender for more information about the Fannie Mae HomeReady® program.
In this fast paced real estate market, there will occasionally be a condominium unit or community that seems to languish on the market. While condition and location are obvious elements that impact value and buyer desirability, there are other factors that owners have little control over that may impact resale value.
Overly Restrictive Pet Rules – many HOAs permit pets with realistic restrictions on the number of pets per home, size/weight and sometimes breeds. If your HOA bans all pets, or just dogs, that can narrow the window of buyers. Be up front about pet policies when listing your home for sale.
Parking – a condo with no assigned parking or that is difficult to access, is unsecured or uncovered,may have a more difficult time competing in the market. Your condo may have a better view or higher quality upgrades, but if there’s no parking the value may need to be adjusted to overcome parking objections. Sometimes there are owner spaces available for rent – be sure potential buyers know about that option.
Unusually High HOA Dues – unlike a house, when buyers apply for a loan to purchase a condo, the lender includes the monthly HODs in the buyer’s loan qualification calculations. The buyer may qualify to purchase the condo, but not qualify for the mortgage plus monthly HOA dues. If the monthly dues are on the high side, and there aren’t amenities or upgrade plans to justify the figure, it may take longer to find the right buyer. Provide detail of all the amenities and services included in the HODs as well as any future capital improvements planned.
High Non-Owner Occupancy Percentage – buyers, especially those planning to occupy the condo, prefer to invest in a community where there is stability with more owners than renters occupying the homes. And though rental caps are more difficult to enforce, lenders also like to see at least a 50% owner occupancy, or higher, in communities where they’re planning to lend.
HOA Litigation – just about any condo community built in Washington State since July 1990 has gone through litigation with the developer over defects or warranty issues.That process can take years to resolve, leaving unanswered questions regarding defects, repairs or future special assessments. Buyers are less likely to assume the risk and few lenders will approve a loan in a community until the HOA resolves the litigation.
Its difficult for sellers to control or change some elements that can impact their home’s value. As a seller its important to be educated about what’s happening in your community and how the HOA and Board are handling issues that impact all owners. Before you list your home for sale, know what’s happening in your community. The more you know, the more information you can provide to buyers and real estate brokers, potentially eliminating or resolving perceived negative issues that could impact a sale or market value.
The Federal Reserve raised interest rates by 0.25 percent this week, causing concern that increasing mortgage interest rates will follow, which could have a negative impact on the housing market. Its unlikely we’ll see any significant increase in mortgage interest rates in the immediate future. Could they rise next year, possibly, but not enough to cause concern. The latest increase in interest rates will likely be felt first for revolving credit (credit cards and home equity loans). For non-revolving loans, like mortgages, there should be little, if any, immediate impact. Any increase in mortgage rates does make buying a home more expensive, but its the credit card debt, which may become more expensive, that could be of concern for buyers who want to purchase a home next year.
Here’s a little perspective . . . many years ago I worked in the mortgage banking industry in Washington, DC. Mortgage interest rates were in the low teens and people still bought and sold homes. After that experience, any interest rate under 10% looks great to me! With current interest rates still so favorable, any slight increase isn’t likely to have a negative impact on area home values.
First time buyers, and even homeowners who haven’t purchased a home in quite some time, can be surprised when they learn there are closing costs in addition to their down payment required when purchasing a home. Early in the process, whether with your Realtor® or your lender, closing costs can be discussed to those costs don’t come as a surprise. Closing costs may include, but aren’t limited to:
loan origination fee
pro-rated homeowner insurance
pre-paid condo HOA fees
pro-rated real estate taxes
Typical closing costs can be estimated at about 3% of the purchase price. In addition to closing costs add the down payment for the total funds needed to close on your home purchase. Loan programs with as little as 3% are available and there are some down payment assistance programs, so its definitely worth your time to explore financing options with your lender before beginning your home search.
If you plan to buy a home in 2016, now is the time to meet with your lender and Realtor® to start the home search and loan approval process. Locally the “spring”market swings into gear in late January. Stay ahead of the game (and other buyers) by having your loan approval finalized and start educating yourself on which communities best fit your budget, lifestyle, commute needs, etc.