FHA Advantages

The Federal Housing Administration, operating under HUD, offers affordable mortgages for tens of thousands of buyers who may not qualify for other types of programs. They are popular with both first-time and repeat buyers.

The 3.5% down payment is an attractive feature but there are other advantages:

• More tolerant for credit challenges than conventional mortgages.
• Lower down payments than most conventional loans.
• Broader qualifying ratios - total house payment with MIP can be up to 31% of borrower's monthly gross income and total house payment with all recurring debt can be up to 43%. There is a stretch provision taking it to 33/45 for qualifying energy efficient homes.
• Seller can contribute up to 6% of purchase price; this money must be specified in the contract and can be used to pay all or part of the buyer's closing costs, pre-paid items and/or buy down of the interest rate.
• Self-employed may qualify with adequate documentation - two year's tax returns and a current profit and loss statement would be required in addition to the normal qualifying and underwriting requirements.
• Liberal use of gift monies - borrowers can receive a gift from family members, buyer's employer, close friend, labor union or charity. A gift letter will be required specifying that the gift does not have to be repaid.
• Special 203(k) program for buying a home that needs capital improvements - requires a firm contractor's bid attached to the contract calling for the work to be done. The home is appraised subject to the work being done. If approved, the home can close, the money for the improvements escrowed and paid when completed.
• Loans are assumable at the existing interest rate with buyer qualification. Assumptions are easier than qualifying for a new mortgage and closing costs are lower.
• An assumable mortgage with a lower than current rates for new mortgages could add value to the property.

Finding the best mortgage for an individual is not always an easy process. Buyers need good information from trusted professionals. Call (973) 307-0023 for a recommendation of a trusted lender who can help you.

2018 Spring Housing Update for New Jersey

2018 Spring Housing Update for New Jersey

With Q1 coming to an end, here are the latest updates and predictions for the 2018 New Jersey Real Estate Market.

Overall Outlook

• More NJ homes were sold in 2017 than in any year on record, and that trend is expected to continue throughout 2018.
• It is 10 years after the worst recession since the Great Depression.  The next recession is predicted to be at least 2-3 years away.
• While Tax Reform changes are causing the Spring Market to lag, an acceleration is expected as people come to understand their individual impact.  
• Rising Interest rates will have the biggest impact on the housing market.
• Unsold inventory is near record lows. It is down 53% from the peak and 11% year over year.

Employment and the Economy:

• 2017 was the 7th straight year with 2MM+ job gains nationwide which means more people are working and incomes are on the rise.
• We are currently in the 2nd longest economic growth period on record.
• Unemployment is currently at 4.1%.  The last time we saw a number that low was 18 years ago.
• The Fed is predicting that GDP will have a 5.4% growth rate which we haven't seen since 2003.  
• The Northeast is at a competitive disadvantage because of higher business and living costs.

Home Prices:

• New Jersey home price index is underperforming the US by 21% due to taxes and the high cost of living. Despite that, home prices are slowly rising.  
• Last year was the largest price increase in NJ since the Great Recession.  Prices overall in NJ are projected to increase 3.5%. Direct train line towns will see larger increases.  I can provide exact percentage projections for a particular town if you are interested in getting that information.  
• Mortgage delinquency is normalizing and is mainly found in urban and distant rural areas in New Jersey.

Home Sales and Inventory:

• Home sales in New Jersey increased by 5% in 2017 with a over 115,000 residential properties being sold.  It is the highest increase since the housing crash.
• January 2018 homes sales were the highest in 13 years.  Note:  those homes were under contract before the tax reform laws were passed.
• Residential transaction volume grew 10% in 2017 with $38.3 billion dollars of residential real estate sold in 2017 statewide. 
• Sales increased for all price ranges year over year.  In the <$600,000 range, sales increased by 5%.  From $600K to $1M, sales increased by 7%.  In the $1M to $2.5M range, sales increased 8%.  In the luxury market ($2.5M +), sales increased by 11% which is the biggest gain in years.
• Inventory is still historically low.  There are 27,000 fewer homes on the market than the peak in 2007.  That is 53% down from the peak and 11% yoy.  One reason is that home building never recovered. There were less than 10,000 new home building permits requested in 2017 compared to 22,000 in 2005.
• The top 5 counties with the lowest absorption rate (number of months it would take to sell out of current inventory) are:

1.     Middlesex – 3.2 Month Supply

2.     Hudson – 3.4 Month Supply

3.     Union – 3.4 Month Supply

4.     Monmouth – 3.9 Month Supply

5.     Essex - 3.9 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.

• Going forward, 95% of all home sale transactions will be millennials buying and baby boomers selling.

Interest Rates:

• Interest rates will continue to rise in 2018 due to economic growth.  
• For every 1% rise in interest rate, a homebuyer needs to reduce their purchase price by 9%.  Buyers who have been on the fence need to move forward.  If buyers wait and interest rates go up, their second choice house will be more expensive.  Sellers can expect that by the end of 2018, buyers will be able to afford less than today.

Investment Opportunity - Residential and Commercial Rental Units

• Multi-family units and commercial apartment buildings are attractive due to rising rent prices.  
• Newark is still evolving and is a great place to invest in residential and commercial rental units.
• Direct train line towns will provide rental opportunities due to easy access to NYC and Philly.

Initial 2018 Forecast:

• The Economy continues to be strong.
• The 2018 home market will be sluggish at first, but we should see steady increases in sales transactions later in 2018 and into 2019 and 2020.
• Interest rates rise by 1%.
• There is a strong demand for commercial real estate.
• Mid-term elections could create volatility toward year-end.
• Rental Rates will rise as new buyers can no longer afford the house/town they want because of rising interest rates and home prices. This is a great opportunity for investors with multi-family units.

This is intended as a brief update.  For a complimentary home evaluation, buying consultation or investment discussion please contact me at:  973-307-0023 or cheryl@thedarmaningroup.com.  

If you know anyone that would like to buy or sell real estate in New Jersey or around the globe, I can help!  Please pass along my information! 

Standard or Itemized

Taxpayers can decide each year whether to take the standard deduction or their itemized deductions when filing their personal income tax returns. Roughly, 75% of households with more than $75,000 income and most homeowners itemize their deductions.

Beginning in 2018, the standard deduction, available to all taxpayers, regardless of whether they own a home, is $24,000 for married filing jointly and $12,000 for single taxpayers.

Let's look at an example of a couple purchasing a $300,000 home with 3.5% down at 5% interest. The first year's interest would be $14,630 and property taxes are estimated at 1.5% of sales price would be $4,500.

The interest and property taxes would provide a combined total of $19,130 which is less than the $24,000 standard deduction. Unless this hypothetical couple has other itemized deductions like charitable contributions that would make the total exceed $24,000, they would benefit more from taking the standard deduction.

If the mortgage rate were at 8%, the combined total of taxes and interest would be almost $28,000 which would make itemizing the deductions more beneficial.

Tax professionals will compare available alternatives to find the one that will benefit the taxpayer most. For more information, see www.IRS.gov and consult a tax advisor.

Inventory Continues to be a Challenge

In any given market, inventories fluctuate based on supply and demand considering area and price range. The National Association of REALTORS considers a balanced market to be a six-month supply of homes.

If it takes longer than six months to sell, it is thought to be a buyer's market and less than six months, a seller's market. Most buyers and sellers probably feel a balanced inventory is more like three months' supply of homes.

The inventory of existing homes has been reduced to approximately 1.5 million houses which is 10.3% lower than a year ago. According to the Federal Reserve Bank of St. Louis there are 5.7 months' supply of new homes currently on the market in the U.S.

Inventory has a direct impact on price. When demand is constant, but inventory is reduced, price tends to increase because the same number of people are trying to buy a smaller than normal number of homes.

As easy as it is to recognize the signs of spring, one should be able to spot the direction prices will be moving. When prices and mortgage rates are increasing, buyers are affected by not being able to afford the same price or size of homes.

Your Refund Could be the Difference

One of the silver linings to filing your income tax return is finding out that you are going to receive a refund. If you happen to be one of these fortunate taxpayers, your next decision is what to do with it. With the average tax refund around $3,000, it could be the difference that makes a home a reality sooner rather than later.

Many would-be buyers think it takes 10% or more down payment to purchase a home, but actually, it can be much less. There are VA and USDA mortgages that have no down payment for qualified buyers. FHA has a 3.5% down payment program and FNMA has 3% down payment mortgages for qualified creditors.

Closing costs for originating new mortgages can easily range from two to three percent of the purchase price but most lenders will allow the seller to pay part or all of them based on the agreement in the sales contract.

While the average tax refund might not cover the down payment on the median price home, it certainly helps. Your refund could make it as simple as 1-2-3 to get into a home.

1. Get the hard, cold facts for the homes and mortgages in your area and price range.
2. Get pre-approved with a trusted mortgage professional.
3. Start looking at homes.

Call me at (973) 307-0023 or Cheryl@thedarmaningroup.com to get started.