Save the Cost of Mortgage Insurance

During the banking crisis in the Great Recession, certain types of mortgages were unavailable that are once again being offered. Fortunately, the 80-10-10 mortgage is one of those making a reappearance and it can save borrowers a considerable amount of money.

The objective of an 80-10-10 mortgage is to avoid the expense of mortgage insurance for buyers wanting a 90% loan. A buyer can obtain an 80% first mortgage and a 10% second mortgage with a 10% down payment and not be required to have private mortgage insurance.

For example, a buyer could put $30,000 down on a home priced at $300,000 and get an 80% first mortgage without mortgage insurance. The borrower could get a second mortgage, either through the same lender or a third party.

In the example, the 80-10-10 would save a buyer $193.71 per month which can be a considerable amount of money over a ten-year period. The interest rate on the second loan will be higher than the first because there is more risk.

Helping buyers make better choices is a valuable service real estate professionals can provide. Having the right tools and information can make the decisions easier to understand. Using an 80-10-10 calculator, you can see what the savings might be for your situation.

Important Estate Documents

An estate plan is a collection of documents to ensure that your wishes are carried out because of death or incapacity to make decisions for yourself. Spouses, minor children, adult children, property and investments can all be factors that should motivate a person to undergo the process.

Will – this document specifies the way a person wants to manage and distribute his/her assets after their death. When a person dies without a will, the laws of the state where the person resided will determine the distribution of the property.

Durable Power of Attorney – this document grants to a designated person the authority to act on behalf of the principal in in legal affairs should the principal become incapacitated. Among other things, this would allow the attorney-in-fact to buy and sell property on the behalf of the principal.

Healthcare Proxy – this document grants that a designated person can legally make healthcare decisions on behalf of the principal when they are incapable of making and executing specific decisions stated in the proxy.

Living Will – this document directs physicians with respect to life-prolonging medical treatments in case they become unable to communicate their decisions.

Hippa Release – this document allows heath care providers to release your health care information to a designated person. Otherwise, they are required by federal law to protect the privacy of your health information.

Letter of Instruction – This document contains information and instructions about a person’s wishes upon death. It is intended to offer details on whom to contact and where to find important documents about personal and financial matters.

Requirements of these documents can vary from state to state and legal advice should be obtained. If you need a current estimate of value on real estate that may be involved, usually a price opinion from a licensed real estate professional will suffice. It would be my privilege to assist you with this at no cost or obligation.

2017 Spring Housing Update for New Jersey

With Q1 coming to end soon, here are the latest updates and predictions for the 2017 New Jersey Real Estate Market.

Overall Outlook

• The Recession that was projected last spring for 2018 is not coming to fruition.
• Home sales and prices will continue to rise over the next few years
• Mortgage delinquency in New Jersey is fading. It was down to 5.7% in 2016 from a high of      11.3% in 2012.

Employment:

• Job creation is improving which is the biggest predictor of housing.
• Higher job creation in 2016 will help New Jersey have a better housing market this year.
• The New Jersey economy seems to be poised for expansion.

Home Prices:

• Prices in the rest of the country have recovered to the 2005/2006 levels, but New Jersey home prices still remain lower than they were during that peak except in transit towns where prices have fully recovered.  This is good news, as prices in our state will continue to rise and not decline as they may in the rest of the U.S. 
• Nationally home prices are up 7%.  In contrast, New York is up 4.5% and Pennsylvania is up 5%.  New Jersey saw a big increase in 2013 when prices rose 4.2%, but then only 1.4% in 2014, 1.5% in 2015 and just .7% in 2016.  New Jersey saw strong appreciation in Q4 2016 when prices rose 1.3%, which is indicative of a solid upward trend for 2017.
• The slowing price increases are a result of weak income gains in NJ.  This limits a buyer’s ability to pay more for the same house.  Nationally incomes rose 3.9%. New York rose 3.3% while New Jersey rose only .4%.  Additionally, property taxes tend to go up each year more than .4%.

Home Sales and Inventory:

• Home sales are up 17% Y/Y statewide.
• Residential transaction volume is the highest it has been since 2012 with $34.7 billion dollars of residential real estate sold in 2016 statewide. 
• 2016 holds the all time record for home purchase contracts in New Jersey at 109,471.  The prior record happened in 2005, when it was 105,468.
• Inventory is still low.  There are 24,000 fewer homes on the market than the peak in 2008.  This will lead to more home price increases.
• The top 5 counties with the lowest absorption rate (number of months it would take to sell out of current inventory) are:

1.     Hudson – 2.9 Month Supply

2.     Essex – 4.0 Month Supply

3.     Union – 4.1 Month Supply

4.     Morris – 4.2 Month Supply

5.     Middlesex – 4.2 Month Supply

           

Note:  A balanced market is 5-7 months.  Anything over 7 months is a buyer’s market.  Anything lower than 5 months is a seller’s market.

• Luxury and vacation home sales are strengthening although homes over $2.5M have a higher absorption rate except in train line towns with employees who commute to New York City due to the Wall Street effect on the luxury market. 
• The Gateway Project will positively impact homes sales for NYC train line towns in New Jersey.  This project will double the rail system capacity in New Jersey by building a new NJ Transit hub in the old post office building across from Penn Station in New York City.  The project has been approved and initial work is underway.  Commute times will be significantly reduced for towns with longer commutes now.

Interest Rates:

• Rising Interest rates are occurring more rapidly than they have since the recession.  After increasing them .25% today, the Fed has promised to raise them 2 more times in 2017.  This impacts affordability for buyers and they must lower their price range in order to stay within their budget. 
• We have retained more affordability in our state which is great for 2017 because rising interest rates will not prevent a slow down in the housing market.
• Promised tax cuts and less regulation from the current administration could impact the economy, but right now experts are not sure whether it will be positive or negative. 
• Interest rates are projected to be 5% on average by the end of the year.

Investment Opportunity:  Newark

• Everyday 50,000 employees go to Class A office space and then leave in the evening.  Tax Abatement Pilot Programs (Payments in lieu of taxes) for developers in areas determined for re-development will help to change that.
• Renovated properties and new construction of lofts, condos, and apartments will create a great investment and first time homebuyer opportunities.
• Re-inventing Newark as a tourist destination will bring needed revenue to the area to restaurants and retail stores already present and new ones coming into the area.  See the Vogue article that recently came out at: http://www.vogue.com/article/newark-new-jersey-travel-guide-tips

Initial 2018 Forecast:

• Job Expansion shifts into 2nd gear.
• Household income continues to rise.
• Millennial Home Buying is in Full Swing.
• Financial Sector expansion crosses the river.
• Political chaos worsens with 2018 mid-term elections.

This is intended as a quick update.  If you have any questions or would like to discuss any of these topics in more detail, please contact me at:  973-307-0023 or cheryl@thedarmaningroup.com

If you know anyone that would like to buy or sell real estate, please pass along my information!

Tax Benefits of Home Ownership

U.S. taxpayers have enjoyed specific tax benefits for home ownership since personal income tax was introduced by the 16th amendment in 1913. While these benefits may not be the primary reason that motivates a person to buy a home, they are still tangible and not available to tenants.

The exclusion of capital gains tax on the profit made from a home is unique from other investments and provides homeowners significant savings. Single taxpayers can exclude up to $250,000 gain and married taxpayers up to $500,000 gain. During the five-year period ending on the date of sale, a taxpayer must have: owned the home for at least two years; lived in the home as their main home for at least two years; and, ownership and use do not have to be continuous nor occur at the same time.

Gain on the sale of a principal residence in excess of the allowed exclusion are taxed at the lower long-term capital gain rate of the owner.

A homeowner may take the standard deduction or itemized deductions in any tax year based on which will create the largest deduction. Property taxes and qualified mortgage interest are allowable itemized deductions.

Qualified mortgage interest is acquisition debt plus home equity debt not to exceed the maximum amounts. Acquisition debt is the amount of debt incurred to buy, build or improve a first and second home up to $1,000,000. Home equity debt is limited to $100,000 over the current acquisition debt on the combination of a first and second home and may be used for any purpose.

For more information, see your tax advisor or see IRS Publications 523, Selling Your Home and 936, Home Mortgage Interest Deduction.

Before You Pay Cash for a Home

The National Association of REALTORS® reports in its 2016 Profile of Home Buyers and Sellers that 12% of all buyers paid cash for their home.

Before paying cash for a home, a buyer should decide if they might put a loan on the home in the near future.  It may affect the ability to deduct the interest on a mortgage placed on the home at a later date.

Homeowners can currently deduct the interest on up to $1 million of acquisition debt which are the borrowed funds used to buy, build or improve a home. Paying cash for a home establishes acquisition debt at zero. The only deductible interest to the owner would be home equity debt which is limited to $100,000 over acquisition debt.

Paying cash certainly seems like a simple decision but it may limit a homeowner’s ability to deduct interest on a future mortgage. You can get more information about this from IRS Publication 936 or from your tax professional.