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Regardless of whether you’re entitled to $250,000 or $500,000 of exclusion when you sell your home, prices have gone up so much in the past two years, you may be approaching the limit where you might have to pay tax on the excess when you sell.

Any improvements you have made to the home during your ownership can be used to raise your basis in the home which will reduce your gain. It is worth the effort to start reconstructing the list, both big ticket items and lower priced items that qualify.

While repairs to your home do not count as improvements, other money which either materially adds value, appreciably prolongs the useful life of the property, or adapts a portion of the property to a new use will qualify. Hopefully, you have contracts and agreements on the major items and receipts on things over $75.

If you have photographs before and after the improvements were made, it can help serve as evidence that they were in fact made.

The best proof is to record the expenses and receipts as close to when they are made instead of having to dig through boxes and invariably, either not finding them or worse yet, forgetting what was done altogether.

Download more information on this from IRS Publication 523 and the Homeowners Tax Guide.

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Selling and buying a lower priced home in an "Up" market can be to your advantage. The advantage is to maximize the sales price on your existing home and replace it with a less expensive one.

Moving down in an "up" market may be to your advantage in multiple ways. It is possible that your present home doesn’t meet your current needs like it once did. Making a move can allow you to "re-balance" the equity in your home to better reach your future goals.

The "up" market maximizes the sales price you can expect to receive, and it will free the equity in your home. A lower priced home will result in reducing your housing costs with lower property taxes, insurance, utilities, and maintenance…while improving your liquidity position.

It is not required to reinvest the proceeds of the sale. You may decide to get an 80% loan-to-value mortgage on the replacement home to get the best interest rate and avoid private mortgage insurance. This would allow you to put the excess proceeds into an income producing or growth investment, start a business, fund an education, buy a second home, take a spectacular trip, gift a down payment to a relative, or any other different projects.

The expression "other people’s money" describes borrowing money and using it to invest with the expectations of earning more than the rate you’re paying. Mortgage interest is one of the most attractive ways to borrow money because it is generally the lowest rate compared to other types of loans while having the option to get a fixed-rate mortgage for up to 30 years. Most other borrowed funds involve short terms and floating interest rates.

Rental real estate could be a possibility to invest part of the funds. There is a shortage of available rentals which has caused rents to increase like homes have appreciated. Single family homes for rentals provide large loan-to-value mortgages at fixed interest rates for long terms on appreciating assets with defined tax advantages and reasonable control not found in many other investments. For more information, download our Rental Income Properties Guide.

Homeowners who have owned and occupied their principal residence for two of the last five years are entitled to exclude up to $250,000 of gain for single persons and $500,000 of gain for married persons filing jointly. For more information, see IRS topic #701.

Contact your real estate professional to find out more information like potential sales price, what net proceeds you can expect to receive on a sale, available replacement homes, and the types of mortgages and rates available.

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The expression "putting your money where your mouth is" demonstrates a monetary sincerity to what could be empty words. In today’s competitive market where multiple offers are common, sellers want as much assurance as possible that the buyer is sincere and will close on the sale.

The seller who accepts a contract expects the buyer to follow through but, in most cases, doesn’t know the buyer either personally or by reputation. The earnest money submitted by the buyer with the contract shows their commitment to the terms of the offer.

If the amount is relatively small, the seller could be concerned that the buyer may walk away from the contract if they change their mind before closing. The lost time could be injurious to a seller who is trying to meet a deadline.

The more earnest money a buyer deposits indicates to the seller a higher level of commitment to the contract. Except for stated contingencies in the sales contract, if the buyer fails to close on the sale, the earnest money could be forfeited. Significant earnest money makes the seller feel more secure that the contract will indeed close.

There certainly are a lot of things that can dictate how much earnest money is appropriate. Local customs, price of the home and type of mortgage can all help to determine the proper amount. In some areas, it may be common for it to be one to five percent of the purchase price. In other areas, it might be a specific amount like $1,000 to $10,000 depending on the sales price. It really comes down to whatever the buyer and seller agree is the proper amount.

Another strategy is for the buyer to put up an adequate amount initially prior to inspections or other contingencies, and then, to put up an additional amount when the contingencies have been removed.

The earnest money demonstrates the buyers’ sincerity in making the offer and proceeding according to the agreement so the seller can take their home off the market and start making plans to move and give possession of their home. A higher-than-normal amount could also help the seller to choose yours in a multiple offer situation. Ultimately, both parties want to close as anticipated according to the contract and the earnest money helps facilitate that.

Your agent can explain what is customary for your area and price range. Many times, a disinterested party, like a title company, will hold the earnest money and the sales contract will provide how to dispose of it should the contract not close.

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A current inventory of all the personal items in your home is important and even necessary, if you are faced with filing a police report or insurance claim. The homeowner is usually asked if they have a home inventory. If not, the homeowner can reconstruct one to estimate the loss.

Imagine you are in this position; would you be able to make an accurate list of your belongings and their value? As an exercise, pick a room of your home, and, while being in another room, list all the belongings and their value. When you’re finished with the list, go into the room, and check to see how you did.

This little project should demonstrate the difficulty of reconstructing a list and depending on whether you missed a lot of items and the importance of having an up-to-date home inventory. Not only will this help you purchase the right amount and type of insurance, having an accurate inventory will make filing a claim easier.

An accurate accounting of your belongings can also help you and your insurance agent to see that your belongings are properly insured. Other reasons for a home inventory include creating a maintenance calendar and helping you declutter by getting rid of items no longer needed. Over half of households do not have a home inventory and the majority of those who do have them, haven’t updated them with new possessions purchased since it was done.

The peace of mind having one can be a strong reason for having a home inventory. It provides confidence that this area is financially organized and prepared should you have need of proving losses. It will help you and your family return to your normal life after an unsettling event.

Download our Home Inventory for more tips on creating one along with alternatives for documenting your belongings. If you don’t have another media, this will allow you to take pictures and list individual items along with values in a fillable PDF that can be stored safely in your online cloud.

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Buyers are becoming discouraged there are not enough homes on the market, especially, in certain price ranges. When they do find something they want, there may be multiple offers and they end up losing to another buyer.

Some buyers after experiencing several of these instances have decided to wait until the market changes. It is understandable but it may be a very long wait as well as being a very costly decision.

Inflation is affecting all sectors of the economy; prices on food, cars, and electronics are going up as well as housing and mortgage rates. Home prices rose 20.2% year over year in May 2022 over 2021, according to a recently released CoreLogic report.

The advantage to current homeowners wanting to move up is that their home is now worth more and it takes the sting out of the price they will have to pay for a larger home.

Unfortunately, first-time buyers and those who don’t currently own a home are seeing the prices continue to increase at a rate many Americans have never seen before. Waiting is most probably going to make it less affordable.

It is true that housing inventory is at very low levels but over six million homes sold last year so there was enough inventory available for six million buyers. For buyers, the problem was they sold fast and there was a lot of competition. The advantage for sellers is they sold fast and there was a lot of competition that increased the price they received.

It may not be as easy as if there were four to six month’s supply of homes for sale but when you purchase a home, these same dynamics will be working in your favor to build your equity with appreciation.

Successful buyers are positioning themselves to act decisively when the new listings hit the market.

  1. Working with a trusted real estate professional
  2. Pre-approved by a local lender
  3. Developed a plan to write a competitive offer
  4. Determined their limits financially and emotionally.

Six million people bought homes last year and you can be among the fortunate ones who buy one this year. Be committed to what it takes in a highly competitive market. Surround yourself with a competent and confident team that will produce the results you want.

For more information, download the Buyers Guide and schedule an appointment with us to get the facts about the best plan to get you into a home this year.

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"I’d wish I’d known that before I picked a mover." Having a checklist of questions might have prevented this issue. This list of questions will provide you with things to discuss when interviewing a moving company.

Fees

  • What is the charge for packing?
  • Does it include boxes? If not, what do they cost and will you deliver them?
  • Is there an additional charge to deliver some items to a storage unit?

Insurance

  • How is a damage claim handled?
  • What insurance do you provide and is there a cost?
  • Does the insurance cover items packed by the owner?
  • Can additional insurance be purchased?
  • If items are covered by my Homeowner’s insurance, whose insurance pays first?

Unusual Items

  • Can you ship my car(s)? Will they be in the moving van or towed?
  • What are the charges for shipping cars, lawn tractors, etc?
  • What items cannot be shipped?
  • If a shuttle truck is needed because of the location of my house or size of the drive way, is there an additional charge?
  • If packing and loading are on different days, can you leave the beds and other basics out for us to use?

Dates

  • What dates are available for our move?
  • What date will you pack and how long will this take?
  • What date will you load the van?
  • What date will the van arrive at my new location?
  • If my new home is not ready for delivery, how many days can it be delayed before there is a charge?
  • What is the charge for additional days or weeks?

Terms

  • Are there any additional fees that I’m responsible for that have not been discussed?
  • What are the terms of payment?
  • Is a down payment required?
  • When will the balance be due and who is authorized to accept it?

Download a Moving Guide with more suggestions and a link to change your address online with the United States Postal Service.

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A common concern for homeowners is that if they sell their home first, they may not be able to find another home to buy. It is understandable with the low inventories currently available in most markets, but a strong argument can be made to buy your replacement home first.

In fact, there are some advisors that would tell you not to sell at all. Instead, keep the home for a rental investment and refinance it to pull out some cash for the down payment and closing costs for the new one.

Many homeowners recognize that their home has been an excellent investment for them. Their home may have outperformed their retirement and other investments. In all likelihood, homeowners understand the management and benefits of a single-family home far better than they understand stocks, mutual funds, annuities, or ETFs.

Just as there are low inventories of homes for sales, there are shortages of available single-family homes for rent, as is evidenced by rent continuing to rise. Rising prices and rents contribute to the rates of return that rental properties enjoy.

A homeowner, assuming they have good credit, can borrow the difference in their unpaid balance and 80% of the fair market value of their home. The proceeds are most likely not a taxable event and can be used to purchase the replacement home.

It is likely that the rent could cover the total payment on the refinanced former home. The seller, then, benefits from income, depreciation, equity build-up, appreciation, and leverage.

There is even a window of opportunity possible for the homeowner to rent it for a while, which covers his payment, allows the home to continue to appreciate, and then, sell and close it within two years and still be eligible for the section 121 exclusion of gain in a principal residence.

The homeowner may find that the investment is providing a better return than alternative investments and keep the rental beyond the two years. At some later date, if the homeowner wanted to dispose of the property and buy another more expensive rental, a section 1031 exchange may be available to avoid capital gains for a while longer.

Many economists feel that the low inventory situation in most of America is going to be a long-term event due to over a decade of underbuilding and maturity of the millennial generation. This will continue to propel both home values and rents; both of which are good for investors.

Buy before you sell but they don’t have to be at the same time; they can be years apart. Do a cash-out refinance on your current home for the proceeds to buy another home that meets your needs now. Then, convert your current home to a rental investment. Don’t wait because rising interest rates will increase your payments on not only the new home but the refinanced home also.

Talk to your real estate professional about what the fair market value of your current home is now, what you can expect to pull out of it and what it would rent for. Download our Rental Income Properties guide for more information.

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The primary negotiation in a home purchase takes place when the contract is agreed upon that includes the price, closing and possession. With inventory down over 19% in the past year and multiple offers being more of the norm than the exception, the first round of negotiations can be challenging.

Buyers and sellers alike feel relieved once it has resulted in an agreement, but experienced agents know there is more to come if there are contingencies for financing, inspections, or other things. The competition for the home may be so tough that the buyer waived their rights for what would be normal contingencies.

Financing is one of the most common contingencies in normal situations but when multiple offers are involved, the cash offers tend to have the advantage. If you don’t have the resources to make a cash offer, the next best position is to be pre-approved with a commitment letter from the lender. Arrange for the lender to confirm the pre-approval directly with the listing agent prior to the listing agent presenting the offer.

There have been buyers who know they don’t have the cash to close and apply for a mortgage anyway and try to reinsert the provision outside of the contract. Experienced listing agents will advise the seller to have the buyer provide proof of funds necessary to close and verify that they do indeed exist.

The purpose of an inspection is for the buyer to receive an objective evaluation about the condition of the home and its components to identify existing defects and potential problems. The expense for inspections can be several hundred dollars and it’s reasonable for buyers not to want to spend the money before they find out if they can come to terms with the seller. From a different perspective, sellers want to know quickly if the buyer is going to reject the home due to the inspections because they could be losing time. For that reason, inspection time frames are limited to a few days from acceptance of the offer.

Sometimes, buyers will expect sellers to make all the repairs listed on the report and this is where the second round of negotiations begins. If the seller refuses, the negotiations can go back and forth until the other party accepts the offer on the table.

When purchasing a new home from a builder, it is expected for everything to be in working order; after all, it is new. However, it is reasonable to expect that existing homes, that are not new, have a different standard. While it’s understandable that buyers would want to be aware about major items that are not in "working order", normal wear and tear of components based on its age should be expected.

In a highly competitive seller’s market, buyers might do whatever they can to get their contract accepted, realizing that there is another place to negotiate when they’re not competing with other buyers’ offers to purchase.

The negotiations involved in a home purchase are not complete until the buyer and seller have signed the papers and the title has passed to the buyer. Up until the closing is finished, any item that comes up could prolong the negotiations.

For this to be a WIN-WIN situation, both seller and buyer must feel good about the negotiations that led to transaction closing. Neither party should feel that the other party had an unfair advantage over them.

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In inflationary times, currently the highest in 40 years, the purchasing power of your money diminishes each day; essentially, buying you less. The biggest threat is to be without capital assets, like a home, that are benefiting from the increase in prices.

Your money buys less gasoline now, than it did a year ago, by close to 50%. Beef prices are up about 20% since last year. Used cars are about 35% more expensive than they were a year ago. Mortgage rates are near 5% after reaching their lowest of 2.65% in January 2021.

And then, there is the price of houses. CoreLogic reports that home prices increased year over year by 20% in February 2022. Their Home Price Index indicates an annual five percent increase in prices from 2014 to 2021.

For many people, the American dream of owning a home is slipping away. Adjusting your expectations for the perfect home and when you expect to achieve it, can be a legitimate, long-term strategy to making the dream come true. By delaying the gratification of getting everything you want in a home now and making compromises that would allow you to stair-step your way into the "forever home" could be the plan to incrementally reach your goal.

Owning a home in today’s market, even if it isn’t the ultimate home, provides a significant hedge against inflation. Not only is the home appreciating faster than the rate of inflation, the mortgage on the home produces leverage that increases a homeowner’s return on their equity.

Homeowners have both the home’s appreciation and its amortization working in tandem to increase their equity. Money in a bank account or the stock market can’t compare to the potential.

$40,000 invested in a certificate of deposit earning 1% would be worth $42,040 in five years. If the same amount was invested in the stock market that earned 6% annually, it would be worth $53,529. However, if the $40,000 were invested in a $400,000 home, with a mortgage at 5% for 30 years, that appreciated at 5% annually, the equity would be close to $180,000 at the end of the same five-year period.

Connect with us and let’s put together a plan to help you benefit from inflation.

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Rising interest rates compounded with increasing home prices are causing affordability issues for many buyers. To keep payments low, you won’t have to give an arm, but more buyers are considering getting an ARM, adjustable-rate mortgages.

Mortgage rates are near its highest point since 2009. "While housing affordability and inflationary pressures pose challenges for potential buyers, house price growth will continue but is expected to decelerate in the coming months." said Sam Khater, Freddie Mac’s Chief Economist.

A $400,000 home with 10% down payment and a 30-year term has the choice of a 5.27% fixed-rate or 3.96% for a 5/1 adjustable-rate mortgage. The principal and interest payment will be $1,992.40 for the fixed-rate and $1,710.40 for the adjustable rate saving the buyer $281.99 per month for five years.

There is an additional savings for the buyer choosing the adjustable-rate mortgage because the unpaid balance at the end of the five-year first period is $6,429 less than the fixed-rate. The total savings to the buyer on the adjustable-rate during the first period is $23,348 or $389.13 per month for sixty months.

At the end of the first period, the rate on the mortgage can adjust according to the then, current index plus the margin subject to the caps as specified in the note. These safeguards remove control from the lender or servicer from arbitrarily raising the rate.

The caps restrict the payments from going up more than a certain amount at each period or overall, for the life of the mortgage. A common cap might be that it cannot adjust more than 2%, up or down, at any given adjustment period or 6% above or below the initial note rate.

Adjustable-rate mortgages must adjust downward if the index indicates a reduction at the anniversary of the adjustment period. The overall trend has been lower rates for the past thirty years until recently.

Using an Adjustable Rate Comparison tool, you can project a breakeven point to determine at what point the ARM would be more expensive than the fixed-rate, assuming a worst case situation where the rates would increase the maximum at each period.

In the case of the previous example, the breakeven would occur at 7 years and 6 months. This means that if the buyer were to sell the home prior to that projection, the ARM would provide the cheapest cost of funds to purchase the home. On the other hand, if the buyer knew they would stay longer than that, it might be a safer option to go with the fixed-rate.

It is good to be aware of available options when financing a home. Analyzing, using the best information available, can help you make an informed decision. Make your own comparison using our ARM Comparison. Current interest rates can be found on Freddie Mac.