Don’t Miss these Tax Deductions

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.

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Conforming Loan Limits Increased

house on moneyLoan 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.

Downtown Bellevue Condo Stats

Bellevue evening skyline

  • 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.

Debunking Reasons Not to Buy a Home

money

courtesy flickr  401kcalculator.org

With the lack of available inventory, rising prices and more stringent mortgage guidelines, many buyers have chosen to abandon their search for a home and continue renting. It is a challenging market, but with incredibly low interest rates, and a bit of patience and planning, it may make financial sense to start paying your own mortgage rather than your landlord’s. A recent realtor.com article, “Top 6 Reasons to Not Buy a       Home – Debunked” listed the most common reasons people don’t buy a home and the reality checks showing why that goal might be within reach.

#1  I don’t have enough for a down payment  – In reality, few buyers purchase a home with 20% down. There are great FHA and conventional loan programs available for first time buyers with 3% to 5% down payments. Grants are another option for subsidizing a down payment. These typically require taking a home ownership course. Just remember, if you put less down, you’ll need private mortgage insurance (PMI).

#2  I can’t afford a mortgage payment  –  Monthly rents in the Seattle/Bellevue areas can approach or exceed a typical mortgage payment. There are rent vs. buy calculators available online to help you determine if renting or buying makes more sense, especially if you plan to stay in a home for several years.

#3  I don’t have a good enough credit history  –  You don’t need a 750+ credit score to qualify for a mortgage. Review your credit reports to be sure they’re correct, dispute any errors (this can take 60-90 days) and over the next 2-4 months make an effort to pay down credit cards and clean up your credit picture. If you don’t qualify for a mortgage now, that picture could change for the positive in less than six months.

#4  I don’t have any credit history  –  You can build credit history without a credit card. If you rent, provide verification that your rent payments have been on time (bank statements, a statement from your landlord); do the same for utility bills.

#5  I haven’t been at my job long enough  –  While work history is important, even if you’ve recently changed jobs you can still qualify for a mortgage, especially if your new job is in the same field and income range. If you’ve changed careers, a letter from your place of employment could help in confirming your job stability and growth potential.

#6  I can’t find a home I like in my price range  –  This could be the biggest obstacle facing buyers, especially first time buyers. Be realistic  –  don’t try to buy your last home first. You should find a condo or house that feels like “home”, but this will likely be the first home of two, three or more over the next several decades. You can move up to eventually buy your last or dream home.

Housing – What Can We Expect in 2016

January calendar

Image courtesy of Flickr by Jeff Djevdet

2015 definitely saw the continuation of price recovery for houses and condominiums in Seattle and on the Eastside. If you were in the market, either buying or selling a home last year, you were aware of the historically low levels of available inventory and escalating prices in most neighborhoods. With so few homes to choose from and so many buyers in the market, multiple offers were common, time on the market declined and prices rose in most communities. So what’s in store for 2016?

The Seattle/Bellevue area still ranks high nationally as a very desirable place to live and work. With a positive employment climate, more people are relocating to the area than are leaving which will continue to add to the housing crunch for buyers and renters. Interest rates are expected to rise this year but fixed rate mortgages aren’t expected to exceed 5% – still very attractive and affordable for buyers. Area housing prices are predicted to continue to increase, good news for sellers,  but at a more modest level than last year. Depending on which forecast you read, area housing prices will increase in the range of 4.5% to 6% this year.

Home values will continue to rise but at a more typical and sustainable pace than the last few years. Its likely demand will still exceed supply but with more households returning to positions of positive equity, more homeowners may finally have the ability to make plans to move up, downsize or relocate, improving inventory levels.

Is this year the perfect time to sell or buy a home? Demand for housing is high and we’re in a very strong sellers market  –  interest rates are low which benefits buyers and investors. Rents are skyrocketing; if you’ve been thinking about buying this would be an excellent time to purchase your first home and begin to build equity for yourself rather than your landlord. This could also be the time to maximize your equity position and buy a larger home, an investment property, downsize or think about a second or vacation home. How long will low interest rates last and property values continue to increase? That’s the sixty-four thousand dollar question. Major changes to the market aren’t anticipated, so its a safe bet that getting into a home now will result in increasing equity and a solid investment.

Rising Interest Rates – No Need to Over React

11942855114_79a3d587dc_m (1)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.