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USDA loans are one of many options available to finance a home purchase. However, their attributes and eligibility requirements make them unique from other types of home loans. Still, if a USDA home loan is an option for you, there are some big perks you might want to take advantage of.
A USDA home loan is a no-down payment mortgage for low- and moderate-income homebuyers in largely rural areas. USDA loans are part of a national program created by the U.S. Department of Agriculture to help create loans for first-time homebuyers or people who don’t meet conventional mortgage requirements. They are sometimes referred to as rural development or RD loans.
Along with no need for a down payment, USDA loans have another advantage: You could qualify for a low, fixed interest rate if you have low income.
Some drawbacks, though, are that the property must be located in a USDA-approved area, and borrowers cannot exceed income limits.
USDA eligibility requirements include:
The easiest way to find out if a home is in a USDA-eligible area is to check the USDA website. Homes purchased with USDA loans must be located in eligible rural areas. The USDA defines these areas as “open country or any town, village, city, or place, including the immediately adjacent densely settled area, which is not part of or associated with an urban area.”
USDA mortgages are only available in these rural areas as part of a government initiative to promote homeownership and economic growth. These loans can help attract and retain people in these locations.
The USDA guaranteed loan program is geared toward low- and moderate-income homebuyers. For this reason, applicants can’t earn more than certain income limits, which vary by metro area and family size. In more expensive areas, the income ceiling is higher. You can check income limits for your county and household size using the same property eligibility tool on the USDA website.
To prove income, you’ll need to provide the lender with documentation such as:
The USDA doesn’t impose a blanket credit score requirement for all borrowers, but typically, USDA-approved lenders look for a score of at least 640.
Different types of USDA loans cater to different buyers, each coming with its own requirements and reasons for use. Let’s break them down.
The USDA guaranteed home loan program (officially known as Section 502 Guaranteed) allows approved mortgage lenders to provide 30-year fixed-rate loans to borrowers in USDA-eligible locations. It’s called a “guaranteed loan” because the USDA guarantees 90 percent of the loan to lenders in the event you were to default on the mortgage.
Along with buying a home in a USDA-approved area, you’ll also need to meet an income requirement: no more than 115 percent of your area’s median household income (AMI). You can find income limits for your market using this tool.
Also known as Section 502 Direct, USDA direct loans offer low-rate home loans to individuals in rural areas in need of adequate housing. Unlike USDA guaranteed loans, you’ll apply for a direct loan through the USDA’s Rural Development Service Centers.
Direct loans are only available to households with low and very low income. (You can view income limits here). There’s also a limit on how much you can borrow, depending on the county where the home is located. (You can view area loan limits here.)
Direct loans have a fixed interest rate, which can be reduced to 1 percent if you qualify for payment assistance. The loan terms range up to 33 years, or 38 years for very low income borrowers.
The USDA repair loan program (Section 504 Home Repair) is similar to the direct program in that it caters to low-income individuals. But it’s different in that it provides loans only up to $40,000 and only to help improve or repair a home. It also offers grants to very low-income homeowners aged 62 or older to help remove hazards at home. These are capped at $10,000.
The major benefit of a USDA home loan is that there’s no down payment requirement. This can be a great program for homebuyers on a budget who are flexible about where they live. The cons mostly have to do with the restrictions on where you can buy or how much income your family can make.
To apply for a USDA loan, you’ll first need to determine if you qualify. Consult the USDA property and income eligibility maps. If you meet those parameters, next consider whether you’ll want or need a guaranteed or direct loan. Remember: Guaranteed loans have higher income limits, and you’ll apply for one through a USDA-approved lender. Direct loans, on the other hand, are reserved for lower-income borrowers who lack access to safe housing.
When you’re ready to apply, you’ll submit paperwork about your finances, including income, assets and debt, and undergo a credit check. If preapproved, you can begin searching for a home in an appropriate area based on USDA eligibility.
USDA mortgages come with two fees:
Both of these fees are charged to the lender, who then usually passes the cost on to the borrower. These fees keep USDA loans subsidy-neutral, which means that any losses incurred by the program are paid for by these fees instead of taxpayer dollars. Depending on the needs of the program, the fees can change annually.
Along with the two USDA fees listed above, you’ll need to cover regular mortgage costs. These may include:
USDA loans aren’t the only type of mortgage out there. If you’re not eligible for a USDA loan, you might be for an FHA or VA loan, or even a conventional loan. Here’s an overview of some key differences between these types of loans:
USDA loan | Conventional loan | FHA loan | VA loan | |
---|---|---|---|---|
Credit requirements | None, but 640 is standard | 620 | 580 | None unless lender requires |
Debt-to-income (DTI) ratio requirements | Up to 41% | Up to 43% | Up to 50% | Up to 41% |
Down payment requirements | None | 3% or 5% | 3.5% | None |
Source: bankrate.com
President Joe Biden has proposed an annual tax credit that would give Americans $400 a month for the next two years to put towards their mortgages.
Addressing the affordability crisis in the housing market in his State of the Union address on Thursday, Biden said: “I know the cost of housing is so important to you. Inflation keeps coming down, and mortgage rates will come down as well.
“But I’m not waiting. I want to provide an annual tax credit that will give Americans $400 a month for the next two years as mortgage rates come down, to put towards their mortgage when they buy their first home, or trade up for a little more space.”
Home prices skyrocketed during the pandemic, driven by relatively low mortgage rates, high demand and low inventory. At their peak, the median listed price for a home in the U.S. reached $465,000 in June 2022, according to data from the Federal Reserve Bank of St. Louis (FRED).
While the housing market experienced a price correction between late summer 2022 and spring 2023, prices remain historically high, propped up by lingering low supply. In June 2023, the median listed price for a home in the U.S. was $448,000. As of January 2024, this was $409,500, according to data from FRED.
While home prices have stayed high for the past three years, a rise in mortgage rates driven by the Federal Reserve’s aggressive hike rate campaign last year has led to many aspiring homebuyers being completely squeezed out of the market. In December last year, the reserve said that it would have stopped rising rates, but mortgages are yet to significantly come down.
High mortgage rates, together with the historic shortage of homes in the U.S.—due to the fact that the country hasn’t built enough homes to meet demand since the housing crash of 2008—have contributed to the current affordability crisis.
In late 2023, J.P. Morgan said that, based on then-current trends, housing affordability could be restored in 3.5 years. Newsweek contacted J.P. Morgan for comment by email on Friday morning.
Biden is now calling on Congress to provide a one-year tax credit of up to $10,000 to middle-class families who sell their starter home—a home below the median home price of the area where it is located—to another owner or occupant. The White House said that this proposal could help nearly 3 million American families.
On Friday, Biden’s announcement on the tax credit was met with a standing ovation and roaring applause by Democratic lawmakers, while about half of the House stayed seated.
The president also mentioned other measures to address the housing affordability crisis in the U.S. These included down-payment assistance for first-generation homeowners, tax credit to build more housing, and lowering costs by building and preserving millions of homes.
“My administration is also eliminating title insurance on federally backed mortgages,” Biden told lawmakers on Friday.
“When you refinance your home, you can save $1,000 or more as a consequence. We’re cracking down on big landlords who break antitrust laws by price-fixing and driving up rents. We’ve cut red tape, so builders can get federal financing,” the president said among the cheering of some lawmakers.
Update, 3/8/24, 8 a.m. ET: The headline on this article was updated.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com
The Biden Administration has just unveiled a number of proposals to make homeownership more affordable.
Aside from legislation to build and renovate more than two million homes, they are calling on Congress to approve a pair of new “mortgage relief credits.”
One targets prospective home buyers grappling with significantly higher mortgage rates, while the other addresses home sellers dealing with mortgage rate lock-in.
Both are intended to increase the supply of homes for sale, which has been below healthy levels for several years now.
The question remains whether incentivizing home buying is what’s necessary for the housing market at the moment.
The mortgage relief that targets home buyers would provide a tax credit of $5,000 for two years to first-time home buyers.
Generally, this is defined as someone without ownership interest in the three years preceding the home purchase.
In total, these new home buyers could snag $10,000 in tax savings over the first two years.
A tax credit directly reduces your tax bill, unlike a deduction, which simply reduces your taxable income.
This piece of legislation is intended to tackle the high mortgage rates currently available, which nearly tripled from below 3% to above 8% recently.
Per the White House fact sheet, the $10,000 in savings is the equivalent of reducing the borrower’s mortgage rate by more than 1.5 percentage points on a median-priced home.
At last glance, the median home was valued at roughly $418,000. Of course, these savings only exist for two years. More on that in a moment.
The Biden administration believes this credit could help more than 3.5 million middle-class families purchase their very first home over the next two years.
The other mortgage relief credit would incentivize home sellers, many of whom have been reluctant to sell because of their very cheap mortgages.
Known as the mortgage rate lock-in effect, it’s the concept of staying put for fear of losing your existing mortgage rate if you move. And having to replace it with a much higher one.
To offset this lock-in effect, middle-class families who sell their “starter home” to another owner-occupant would receive a tax credit of up to $10,000.
They define a starter home as one valued below the area median home price in the county where it’s located.
The Biden administration thinks this could unlock homes that no longer fit the needs of many households nationwide, and help an estimated three million families i the process.
On top of these tax credits, they are still pushing for $25,000 in down payment assistance to first-generation home buyers.
And they’re targeting the elimination of certain closing costs, such as lender’s title insurance, which could save the average homeowner $750 when refinancing.
While the new proposals might be well-intentioned, one has to wonder if they won’t simply stoke demand at a time when supply remains far too low.
Sure, there’s an incentive to both buy and sell a home with these tax credits, but it’s unclear how many existing owners would sell just to get the $10,000 tax credit.
After all, if they’re sitting on a 2-3% 30-year fixed mortgage rate, it wouldn’t take long for the $10,000 to be absorbed via their new, much higher housing costs.
Just pretend a family holds a $300,000 mortgage set at 2.75%. Their monthly principal and interest payment is $1,224.72.
If they sold and then bought another property for say $400,000 with a rate of 6.5%, their new monthly P&I would be $2,528.27.
That’s a difference of over $1,300 per month, which would eat up the $10,000 credit in less than eight months!
These sellers would also have to incur moving costs, closing costs on a new mortgage, and compete with other home buyers to find a replacement property.
The credit for first-time home buyers could also arguably result in hotter demand, even if more homes were coming online.
Lastly, it seems they’re banking on lower mortgage rates in the near future, at which point these first-time buyers would be able to get more permanent savings beyond year two via a rate and term refinance.
In the end, it appears we’re stuck between a rock and a hard place. Ultimately, the accommodative interest rate policy of the past decade created a serious divide of haves and have nots.
And without a lot more inventory, or perhaps slightly lower mortgage rates that allow transactions to occur naturally again, it might be a while before things normalize again.
Source: thetruthaboutmortgage.com
President Joe Biden’s new plan to lower housing costs includes a pilot program that waives the requirement for lender’s title insurance on certain refinance transactions, according to the White House. The plan will be announced during his 2024 State of the Union address on Thursday night.
However, that’s a controversial topic for the mortgage industry and it’s already facing resistance from trade groups. Regulators believe reducing title requirements would cut closing costs, but title and mortgage companies challenge the argument and point to elevated risks.
On Thursday afternoon, the White House announced that the Federal Housing Finance Agency (FHFA) has approved policies and pilots to reduce closing costs, including the pilot to waive lender title requirements.
The program “would save thousands of homeowners up to $1500, and an average of $750,” unlocking “substantial savings for homeowners as mortgage rates continue to fall and more homeowners are able to refinance,” the White House estimates.
Regarding the risks of waiving title requirements, it also mentioned an independent analysis showing that title insurance typically pays out only 3% to 5% of premiums in claims to consumers, compared to more than 70% in other types of insurance.
Following the announcement, FHFA director Sandra Thompson clarified that the pilot only impacts lender’s title policy or legal opinions, focuses on low-risk refinance transactions and will be subject to “robust oversight.”
Government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac’s attempts to launch title waiver programs, which aim to improve affordability by reducing closing costs, have faced resistance from trade groups since 2023 due to allegedly increased risks.
However, according to Thompson, the pilot “does not impact a borrower’s title risk since it only applies to certain refinance loans where the borrower has title to the property already.” The FHFA director added that these are “low-risk refinance transactions where there is confidence that the property is free and clear of any prior lien or encumbrance.”
In addition, Thompson said that lenders will “retain the option to provide evidence of clear title through other options, such as title insurance or an attorney opinion letter (AOL). Meanwhile, homeowners can always purchase their title insurance policy or AOL if they choose.
In March 2023, a report from PoliticoPro showed that Fannie Mae was considering piloting a program to bypass traditional title insurance and AOLs, which drew resistance from trade groups. The introduction of AOLs had already frustrated groups representing the title industry the previous year. In August 2023, Fannie Mae said it was no longer considering the pilot program.
Following the White House announcement, Mortgage Bankers Association (MBA) President and CEO Bob Broeksmit said the trade group has “significant concerns that some of the proposals on closing costs and title insurance could undermine consumer protections, increase risk, and reduce competition.”
In an emailed statement, the American Land Title Association (ALTA) called the program a “purely political gesture offering a false promise of savings for homeowners while exposing consumers, lenders, and taxpayers to greater financial risk.”
“The approval of this waiver is a hollow attempt by the White House to placate Americans’ current economic frustrations,” the statement continued. “By announcing this only hours before the State of The Union address, without outreach to, or engagement with, the title insurance industry, the Administration has reduced the crucial role of the industry to nothing more than a politicized talking point.”
The trade group also noted that federal lawmakers introduced a bill in October 2023 that would require title insurance on all mortgages purchased by the GSEs.
“Since the waiver program was first reported, the FHFA has faced strong bipartisan opposition,” the statement read. “The Administration should not be playing politics with the American Dream.”
In her statement, Thompson said, “As with any pilot undertaken by an Enterprise, this effort will be subject to robust oversight by FHFA to monitor the effectiveness of the pilot in meeting its desired outcomes.”
Source: housingwire.com
In today’s rapidly changing technology landscape, businesses in the title insurance, mortgage and real estate industries must prioritize cybersecurity response planning and business continuity. The second in our “Reducing Risk” series, this month’s article provides practical strategies for safeguarding your enterprise to ensure its resilience against cyber threats.
By breaking down complex concepts into bite-sized pieces, we’ll equip you with the information you need to protect your digital assets. Read on to learn how to create a strong shield against risk through the development of an effective cyber response plan and solid business continuity measures.
Cybersecurity response planning involves creating a plan that outlines how your business will respond to cyber incidents. It’s like having a superhero team ready to jump into action whenever trouble strikes.
On the other hand, business continuity planning focuses on preparing for potential disruptions to your business operations. It’s like having a backup generator to ensure the lights stay on even during a power outage.
Now that we know what response plans and business continuity are and how they differ, let’s talk about why they matter for your business:
Now that we understand the benefits of having a response plan, let’s talk about how to create one that’s tailored to your unique business:
Creating a response plan is just the first step. Let’s also discuss business continuity measures to ensure your operations stay up and running:
Final Thoughts on Creating Cyber Resilience
Congratulations on reaching the end of our cyber resilience journey! By creating response plans for cyber incidents and implementing business continuity measures, you can reduce risk and protect your title insurance, mortgage or real estate business. Remember to identify potential risks, establish clear roles and responsibilities, and document incident response procedures. And don’t forget to develop backup strategies, test them regularly, and keep everything up to date. With these steps in place, you’re ready to face any cyber challenges that come your way. Stay cyber-resilient, my friends, and protect your digital kingdom!
Bruce Phillips is Senior Vice President and Chief Information Security Officer for MyHome, a Williston Financial Group Company.
Source: housingwire.com
Selling your house is often one of the largest financial transactions you’ll make in your life. It can be complex and emotionally challenging, especially if it’s your first time dealing with a home sale or if the house is full of family memories.
Despite these challenges, millions of people successfully sell their homes each year. The process is well-trodden, but each sale has its unique circumstances and can come with many curveballs.
Whether you’re downsizing, upgrading, relocating, or just ready for a change, selling your house is a big step. The task might seem daunting, but remember, you’re not alone. Many resources can guide you through this process, providing advice and support along the way.
This guide aims to simplify the process and provide you with step-by-step instructions to help sell your house.
From setting your objectives to finally handing over the keys, we’ll walk you through each stage. We will address common challenges and offer expert insights to ensure you’re well-prepared for the journey ahead. Our goal is to help you sell your house at the best possible price within your desired timeline, while minimizing stress and maximizing satisfaction.
The first step in any successful real estate transaction is understanding your motivations and objectives for selling. Be clear about your goals and timeline to create a selling strategy that will get you the price you want for your home within the timeframe desired.
Your motivations for selling might be tied to lifestyle changes, financial circumstances, or relocation for work. Perhaps you’ve outgrown your current house, or maybe it’s become too big after the kids have moved out. You might need to relocate for a new job or prefer a change in scenery as you approach retirement. By identifying your reasons for selling, you’ll have a clearer idea of what you want to achieve with the sale.
Your timeline can significantly influence your selling strategy. If you’re in a rush due to reasons like a job relocation or closing on another home, you may have to price your property more competitively to attract a faster sale. However, if you have the luxury of time, you can afford to be patient and wait for an offer that matches your ideal price.
Understanding your financial situation is essential in the home-selling process. A realistic view of your finances will help you make informed decisions, particularly in setting a reasonable asking price.
Equity refers to the portion of your property that you truly “own” – it’s the difference between the current market value of your home and the remaining balance on your mortgage. Knowing your equity can give you an idea of your potential profits from the sale.
The amount left on your mortgage is another critical factor. If your outstanding balance is more than your home’s sale price, you may need to consider a short sale, which requires your lender’s approval and can affect your credit score.
Closing costs are the fees and expenses you pay to finalize your home’s sale, excluding the commission for the real estate agent. They may include title insurance, appraisal fees, and attorney fees, among other costs. These are usually about 2-5% of the purchase price. Understanding these costs is crucial as they directly impact your net proceeds from the sale.
Taking the time to clarify your selling objectives and understanding your financial position will pave the way for a more streamlined and successful home-selling experience. These factors are not just critical for setting a realistic asking price but also for aligning your home sale with your larger financial or life goals.
Once you’ve identified your selling objectives, the next step is to prepare your house for the market. A well-prepared home can catch the attention of more prospective buyers and even command a higher sale price.
Before you list your home, assess its overall condition. Some minor upgrades and necessary repairs can significantly enhance your home’s appeal, often leading to a faster sale or higher selling price.
Begin with a deep clean to ensure your home looks its best. Pay attention to often-overlooked areas, such as baseboards, window sills, and ceiling fans. If you have carpets, consider hiring a professional carpet cleaning service to remove any stains or odors. Cleanliness can significantly influence a buyer’s first impression.
Next, tackle minor upgrades and repairs that could deter potential buyers. This could include painting walls with a fresh, neutral color, fixing any plumbing or electrical issues, and ensuring all appliances are in working order. Although these tasks may seem small, they can make a big difference to potential buyers.
Staging your house involves preparing it for viewing by potential buyers. It can significantly impact how quickly your home sells and the price.
A professional stager, although an extra cost, can be a worthwhile investment. For a few hundred dollars, they can transform your space and make it appealing to as many potential buyers as possible. They use strategies like optimal furniture placement, accentuating natural light, and choosing neutral decor to make your home attractive and inviting.
Part of effective staging involves depersonalizing your home. This means removing personal items like family photos, collections, and mementos. The aim is to create a neutral space where potential buyers can easily envision themselves and their own belongings. It’s all about helping buyers picture your house as their future home.
In the competitive real estate market, first impressions count. By investing time, money and effort in staging your house for sale, you can stand out from the competition and make a great impression on prospective buyers. These preparations could translate into a quicker sale and potentially a higher price.
One of the most critical decisions in the home-selling process is determining the right asking price. Setting a competitive price can help attract more prospective buyers, shorten the time your home spends on the market, and potentially yield a higher sale price.
Choosing the right price is not just about the amount you’d like to receive. It’s also about understanding buyer psychology and local market trends. Pricing your home correctly can result in more interest, more showings, and ultimately, more offers.
A key tool for setting the right price is a Comparative Market Analysis (CMA). A CMA provides information about recent home sales in your area, adjusted for differences in features and conditions, giving you a good idea of what buyers might be willing to pay for your home.
A great real estate agent can provide an accurate and comprehensive CMA. They have the experience and local market knowledge to understand which homes are truly comparable to yours and how various features and upgrades impact pricing.
Comparable sales, or “comps,” are recent home sales in your area that are similar to your property in size, condition, and features. Your real estate agent will look at these comps, adjust for differences, and use the information to guide you towards a fair and attractive list price.
Every home is unique, and its features and condition will impact its value. Your real estate agent will consider these factors when setting your home’s list price. For example, if your home has a new roof or a remodeled kitchen, it might command a higher price compared to a similar home without these upgrades.
Setting the right price is both an art and a science. It requires an understanding of the local real estate market, an evaluation of comparable sales, and an assessment of your home’s unique features. By enlisting the help of a great real estate agent and leveraging their expertise, you can set a competitive price that will attract serious buyers and maximize your profits.
Once your house is ready for sale and priced right, the next step is to get the word out to prospective buyers. Effective marketing can attract more interest and lead to quicker, more competitive offers.
Professional photography plays a crucial role in marketing your house. High-quality photos can showcase your home’s best features and give potential buyers a good first impression. Homes listed with professional photos tend to receive more views online, which can lead to faster sales and often at higher prices.
A well-written listing description can spark interest and invite potential buyers to learn more. Highlight your home’s unique features, recent upgrades, and what makes it special. Remember, you’re not just selling a property, you’re selling a lifestyle. Allow your real estate agent to offer feedback and help you create an enticing, optimized listing that will also show up in search results when people are looking for a home like yours.
Open houses and private showings are opportunities for potential buyers to experience your home in person. Be flexible with your schedule and make your house available for viewing as often as you can. The more people who walk through your door, the better your chances of receiving an offer.
Marketing a house involves a significant time commitment and a specific set of skills. This is where a good real estate agent comes into play.
A good real estate agent can list your property on the Multiple Listing Service (MLS), a database of homes for sale that’s used by real estate professionals. An MLS listing can increase your home’s visibility, attracting other real estate agents and their clients.
Choose a real estate agent with a proven track record of sales in your area. Their experience and local market knowledge can be invaluable in promoting your home effectively and attracting serious buyers.
In a crowded real estate market, standing out is key. By leveraging professional photography, crafting a compelling listing description, and utilizing the expertise of a good real estate agent, you can market your home effectively, attracting more potential buyers and increasing your chances of a successful sale.
Once your marketing efforts start paying off and offers begin to come in, it’s time to shift focus to negotiation. The goal here is to achieve the best possible terms that align with your selling objectives.
When you receive an offer, it’s essential to look beyond the offered price. While the highest offer might seem the most appealing, it’s not always the best choice.
Understanding where the buyer’s financing comes from is important. Offers from buyers who are pre-approved by a well-known lender may carry less risk than those from buyers who are not pre-approved or who are using a less established lender.
The size of the buyer’s down payment can indicate their financial stability. A larger down payment may suggest that the buyer has solid finances and is serious about purchasing your home.
A buyer’s timeline can be just as important as their offered price. A qualified buyer who can close quickly might be more attractive than a higher offer that’s contingent on selling a current house.
Receiving multiple offers can be exciting, but it can also be overwhelming. Your real estate agent can help you with this process.
Your real estate agent’s experience can be invaluable in this situation. They can guide you through your options, help you compare offers side by side, and give advice based on their understanding of the current real estate market and the specifics of each offer.
When reviewing multiple offers, it’s important to consider your own needs and priorities. For example, if you need to sell quickly, you might prioritize a buyer who can close sooner, even if their offer is not the highest.
Negotiating and accepting offers can be a complex part of the selling process. It’s not just about accepting the highest offer, but understanding the nuances of each proposal and making the best decision for your circumstances. With the right real estate agent by your side, you can handle this process confidently and successfully.
After you’ve accepted an offer, the next step is to finalize the transaction. The closing process involves several stages, including a home inspection, title search, potential repair negotiations, and final paperwork signing. Here’s what to expect:
The due diligence period allows the buyer to further investigate the property after their offer has been accepted. During this time, the buyer’s agent will arrange for a home inspection.
A professional home inspector will thoroughly examine your property and generate an inspection report. This document details the condition of the house and outlines any potential issues, from minor maintenance concerns to significant structural problems.
If the inspection report reveals necessary repairs, there may be further negotiations. Buyers might ask you to handle the repairs, reduce the sale price, or offer a credit at closing to cover the repair costs.
As part of the home buying process, the buyer’s lender will work with a title company to conduct a title search. This ensures the house is free from liens or claims and that you have a clear title to transfer to the new owners.
Buyers might also negotiate for you to pay for title insurance as part of the closing costs. Title insurance protects the buyer and their lender from future property ownership claims, unexpected liens, or undisclosed property heirs.
The last step in the home sale process is the closing meeting. Here, you’ll sign the final paperwork, which includes key documents such as:
This document transfers the ownership of personal property (like appliances or furniture) included in the home sale.
This legal document transfers ownership of the property from you, the seller, to the buyer.
The closing process involves many legal documents. These might be prepared by a real estate attorney or real estate brokerage to ensure everything is in order.
Closing the sale of your house can be a complex process. However, understanding each step can help you proceed with confidence and reach a successful conclusion to your home sale journey.
Even after the final paperwork has been signed, and the new owners have the keys, there are a few additional factors to consider. The sale of your house doesn’t just end at the closing table. Let’s delve into these post-sale considerations.
Selling your house can have significant tax implications. The application of taxes largely depends on the profit you make from the sale and how long you’ve lived in the house.
If the house was your primary residence for at least two of the last five years before selling, you might qualify for a capital gains tax exemption. This can significantly reduce your tax liability.
However, tax laws can be complex, and every situation is unique. Consult with a tax professional or a certified public accountant to fully understand the potential tax impacts. They can provide guidance tailored to your specific circumstances.
Moving to your new home involves logistical and financial considerations. Plan ahead for moving costs, including professional movers, moving supplies, and potential temporary housing.
It’s wise to keep a comprehensive record of all home sale-related expenses. This includes real estate agent commissions, home improvements made before the sale, and any fees or costs associated with closing. These records can be crucial for your future tax returns or financial planning.
Some of your moving costs may be tax-deductible if you or a member of your household is in the military, and you are moving due to a military order. Previously, moving costs were tax-deductible for many people who were relocating due to a job. After 2025, these deductions may return.
Selling your house is a significant event, and educating consumers about the process can reduce stress and result in a better outcome. By preparing your home, pricing it right, and working with a competent real estate agent, you can complete the transaction smoothly and efficiently.
The selling process might seem overwhelming, but with thorough preparation and the right team on your side, it can be an exciting time. Remember, every house can sell, it just requires the right strategy, a competitive price, and a bit of patience.
If your house isn’t attracting buyers, various factors could be at play. The asking price may be too high, marketing efforts might be insufficient, or the house’s condition could be deterring potential buyers. Consult with your real estate agent to pinpoint potential problems and devise solutions. You may need to reduce the price, enhance your marketing strategy, or invest in necessary home improvements.
Yes, selling your house yourself is an option. This is known as “For Sale By Owner” (FSBO). However, selling a house involves complex tasks like pricing, marketing, negotiating, and handling legal paperwork. Real estate agents possess the expertise and experience to deal with these challenges. If you opt for FSBO, be prepared for a significant time commitment and be ready to handle these tasks yourself.
The timeline for selling a house can vary greatly and depends on numerous factors, such as local market conditions, the home’s condition and price, and even the time of year. On average, it can take anywhere from a few days to a few months. Your real estate agent can give you a better estimate based on local trends and your specific situation.
A seller’s market occurs when the demand for homes exceeds the current supply. This often results in homes selling more quickly and at higher prices. If you’re selling your house in a seller’s market, it can be an advantage as you may get multiple offers and a higher sale price.
Whether to make repairs before selling your house often depends on the type and extent of the repairs and the overall condition of your house. Small repairs and improvements, like painting or fixing leaky faucets, can make a good impression on buyers. If your home has more more substantial issues, discuss the repairs with your real estate agent to weigh the cost against the potential return on investment.
Source: crediful.com
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After a long year, tax season is finally upon us. You’re probably getting all your ducks in a row—collecting all the information you need, choosing your tax software, and so on. If you’re a homeowner, you might be able to catch a few tax breaks—but can you get a tax break for buying a house?
If you itemize your deductions via Schedule A rather than claiming the standard deduction, you could be eligible for one or more home-related tax breaks. And if you work from home, you might be able to claim a home office deduction (more on that later). The information below is general information regarding these deductions. It is always best to consult a tax professional if you have any questions related to your specific situation.
Many people mistake deductions for credits—but they’re not the same thing. Let’s take a closer look at both types of tax breaks.
Deductions reduce your taxable income according to the highest federal income tax bracket you fall into. So, if you qualify for a $2,000 deduction, the amount of money you can be taxed on will be reduced by $2,000.
There are two types of deductions: standard and itemized. Standard deductions are specific amounts based on your filing status and are updated annually. Itemized deductions are specific amounts you paid during the taxable year and you should use itemized deductions when your total of allowable itemized deductions is higher than the standard deduction.
Credits lower your income tax liability by a fixed dollar amount. If you qualify for a $500 tax credit, you pay $500 less in taxes.
Good to know: Some tax credits are nonrefundable, so if you don’t owe a lot of tax to begin with, you don’t qualify for the entire credit. Other tax credits, like the Earned Income Tax Credit, are refundable, so you get the entire amount under any tax circumstances. The remaining amount of credit available that wasn’t needed to pay down your tax bill comes to you in your tax refund.
Unfortunately, some homeownership expenses just aren’t deductible. These include:
If you itemize your deductions, there are several homeownership deductions available.
Arguably the most well-known tax break for homeowners, the home mortgage interest deduction (HMID) lets you deduct interest paid on your mortgage up to $750,000 (or $375,000 if married filing separately).
If you take out a home equity loan or a home equity line of credit (HELOC) to make home improvements or buy or build a primary or secondary residence, you can deduct the interest through 2025.
You can claim this deduction on Form 1040, Schedule A.
Do you pay property taxes monthly or yearly? In either case, both state and federal property taxes are tax deductible on your federal return. For tax year 2023, the deduction amount is capped at $10,000 for married couples filing jointly and $5,000 for other tax statuses.
You can also claim taxes paid at closing when you buy or sell your home and certain payments made to town or county tax assessors. However, you can’t claim taxes paid on commercial or rental property.
To claim this deduction, report your total state and local income taxes in box 5a on Schedule A of Form 1040.
A homebuyer can purchase mortgage points, also called discount points, at the time of closing to lower their interest rate. For example, buying one point may lower your interest rate by 0.25%.
You can either deduct these points in the year in which you opened the mortgage or over the mortgage term. There are limitations, which you can view on the IRS website.
You can file for this deduction using Form 1040, Schedule A.
If you’re self-employed and work from home, you can claim a home office deduction. To do so, you have to prove that you’ve used a portion of your home exclusively for business purposes. In other words, your office or another “separately identifiable space” counts, but your bedroom doesn’t—even if you work on your laptop in bed. Voluntary, occasional, or incidental freelance work won’t entitle you to a home office deduction.
There are occasions where you don’t need to meet the exclusive-use test. These include:
Deductible expenses include:
You can’t deduct landscaping or lawn care costs unless you’re a gardener or you’re in the lawn care business.
You can also consider using the simplified method for claiming your home office. That allows you to deduct $5 per square foot of your home used for business purposes. Often, this is a much more convenient way to deduct your home office versus taking the time to itemize each of your expenses.
Important: Before 2017, traditional employees could claim unreimbursed employee business expenses that exceeded 2% of their adjusted gross income on their tax return, including home office expenses. The Tax Cuts and Jobs Act eliminated that option until at least 2026. So, if you have an employer, you can’t currently write off any unreimbursed expenses related to your home office.
To claim this deduction, you’ll need to complete Form 8829, Expenses for Business Use of Your Home as part of your tax return.
If you rent your home, you can deduct some landlord expenses on your taxes, including operating expenses, depreciation, and repairs.
You can only deduct costs associated with keeping the rental in good operating condition. For example, you could deduct the cost of repairing a full bathroom that flooded, but you couldn’t deduct the cost of renovating a half bath into a full bath.
To claim this deduction, complete Form 4562, Depreciation and Amortization (Including Information on Listed Property).
If you have a medical condition that requires you to make improvements to your home or install special equipment, you may be eligible to deduct some or all of their cost.
Common capital expense deductions include:
To file this deduction, use Worksheet A Capital Expense Worksheet to determine your medical capital expenses and enter the total on your Schedule A (Form 1040).
As a homeowner, you may also qualify for specific homeownership tax credits.
Some lower-income first-time homeowners may receive a Mortgage Credit Certificate (MCC) from their state or local government, subsidizing the purchase of their home up to $2,000 on mortgage interest.
This credit comes with a few stipulations. For example, you’ll have to deduct the total amount of the credit from the mortgage interest you deduct. See the instructions page of Form 8396 for a complete list of stipulations. You’ll need to submit this as part of your tax return to claim the credit.
Formally the Residential Energy Efficient Property Credit, the Residential Clean Energy Credit has a credit rate of 30% through 2032 and can cover costs related to renovating or building a home that runs on clean energy.
Specific limitations vary based on the type of improvements made, but they can apply to:
See the IRS website for more details.
To claim the credit, complete Form 5695, Residential Energy Credits Part I as part of your tax return.
If you improve your home’s energy efficiency, you may qualify for the Energy Efficient Home Improvement Credit.
Qualifying improvements include:
Each improvement has specific limits and guidelines. Learn more at the IRS website.
To claim the credit, complete Form 5695, Residential Energy Credits Part II as part of your tax return.
Owners of electric vehicles may opt to add a charging station to their home. If you did so in 2023, you may qualify for the Alternative Fuel Vehicle Refueling Property Credit when you file your taxes. However, currently, this credit applies only to homes in low-income or urban areas.
To claim the credit, complete Form 8911.
Many people worry about the amount of capital gains tax they’ll pay on a home sale. If you plan to sell your primary home and believe you’ll make a profit, you can exclude up to $250,000 of the gain from your income, or $500,000 if you file a joint return with your spouse. But there’s a catch: You have to have lived at the home for a minimum period of two years before the sale.
Do you get a tax break for buying a house? It depends! Based on your tax situation, you could take advantage of various tax breaks available to homeowners.
Most homeowner credits and deductions only apply if you itemize your return—and you’ll only know whether itemization is worth it after you complete your tax forms. If you’re looking for a simple solution for filing your taxes, use TaxAct. As you enter information into your return, TaxAct will recommend whether itemizing your deductions or claiming the standard deduction is better for you.
You don’t have to wait for tax season to save money! Get your free credit report card from Credit.com. See where you need to work to start improving your credit to prepare for home ownership.
Disclosure: All TaxAct offers, products and services are subject to applicable terms and conditions. Price paid is determined at the time of filing and is subject to change.
The TaxAct® name and logo are registered trademarks of TaxAct, Inc. and are used here with TaxAct’s permission.
Source: credit.com
MoMo Productions/ Getty Images; Illustration by Austin Courregé/Bankrate
Portions of this article were drafted using an in-house natural language generation platform. The article was reviewed, fact-checked and edited by our editorial staff.
A VA loan is a great option for you if you’re a qualifying active-duty military personnel or veteran. They often have more relaxed financial requirements than conventional loans, requiring no down payment or private mortgage insurance. They also typically have lower interest rates than FHA and conventional loans.
Here’s a breakdown of what VA loans are, how they work and how you can get one.
A VA loan is a loan guaranteed by the U.S. Department of Veterans Affairs (VA). That’s not to say the VA provides these loans. Instead, mortgage lenders offer VA loans, knowing that the government guarantees them. This makes lenders more confident in lending, often offering a VA loan with a lower interest rate than a conventional mortgage.
The VA doesn’t officially set a credit score requirement for these loans. Instead, it leaves this up to the lender, with lenders requiring anywhere from a 580 to 640 minimum score. VA loans don’t require a down payment, which can make homeownership more attainable for those who qualify because you’ll need less money upfront.
Getting a VA loan is similar to securing a conventional loan.
Basically, you fill out paperwork from the VA that verifies your eligibility for the program. You also receive what’s known as your entitlement, which is the dollar amount guaranteed on each VA loan. While VA loans technically have no loan limit, lenders might be willing to loan up to four times the amount of your entitlement.
You can get a VA loan with no money down and, unlike other loans, you won’t have to pay for mortgage insurance. That’s because the government guarantees your loan. However, you’ll need to pay a funding fee, which costs a certain percentage of the loan total. This fee keeps the program functioning so future veterans and service members can use it.
VA loan type | Description |
---|---|
VA mortgage | Allows qualified service members to purchase a home with no minimum down payment. |
VA construction loan | Eligible service members can use this loan to build the home of their dreams. |
VA rate-term refinance | Allows service members without an existing VA loan to change their loan term or secure a lower interest rate. |
VA cash-out refinance | Allows service members to swap their conventional mortgage with a VA loan, with an option to turn home equity into cash if needed. |
IRRRL loan | Allows service members to replace a VA mortgage with a VA Interest Rate Reduction Refinance Loan (IRRRL), which can offer lower interest rates. It can also be used to change from an adjustable-rate loan to a fixed-rate loan. |
VA rehab and refinance | Can be used by service members to finance the cost of improvements made to the home. |
VA jumbo loan | Allows service members to finance a home with a sales price exceeding the conforming loan limits. |
Native American loan | Available to Native American veterans to help them purchase, build, improve or refinance a home located on federal trust land. |
The VA sets service requirements for active-duty military personnel and veterans to qualify for a VA loan. You can check the full eligibility requirements on the VA’s website, but the basics are:
The first step in applying for a VA loan is getting a VA Certificate of Eligibility (COE). This certificate shows the lender that you meet the VA loan requirements for eligibility.
You can get a VA loan Certificate of Eligibility by applying through your eBenefits portal online or applying through your lender.
To apply, you need to provide some data based on your current status. Veterans need to provide a DD Form 214, and active-duty service members need a signed statement of service. A statement of service should include:
Different requirements may apply for National Guard or Reserve members, as well as surviving spouses. You can find more information through the VA’s benefits website, or by speaking to a qualified lender.
You should also keep these VA loan requirements and rules in mind:
It’s also possible to use home loan benefits after bankruptcy, as long as sufficient time has passed, typically two years after filing for Chapter 7 bankruptcy or 12 months after Chapter 13 bankruptcy.
For those who are eligible, VA loans have many benefits, but they also have drawbacks to consider.
Some of the key advantages of VA loans include:
Despite the many benefits, VA loans also have a few downsides to consider:
After you’ve obtained your COE and are ready to apply, there are a few steps you need to take:
If you’re struggling with your VA loan, there’s extra help available. The VA can help you negotiate with your lender if you can’t make payments. With the help of the VA, it’s possible to avoid foreclosure through loan modification or other repayment plans. Call 877-827-3702 if you need help.
If you’re purchasing a loan that costs more than $144,000, the bonus entitlement can be used.
Down payment | First-time use | Subsequent use |
---|---|---|
0%-5% | 2.15% | 3.30% |
5%-9.99% | 1.50% | 1.50% |
10% or more | 1.25% | 1.25% |
So, while a VA loan down payment isn’t required, it can save you money to make a down payment.
Quick note: Disabled veterans who receive disability benefits are exempt from the VA funding fee.
Also, it’s possible to wrap your VA closing costs into the loan amount. However, that increases how much you need to borrow and can cost you more.
Source: bankrate.com
The rash of recent mortgage and title industry data breaches serves as a sobering reminder of the paramount importance of cybersecurity. In this first installment of our reducing cyber risk series, let’s explore a crucial facet of cybersecurity: bolstering resilience in your critical systems and services. Just like a well-built castle can withstand attacks, having defined resiliency requirements for your digital infrastructure can help reduce risks and protect your business from a potential breach. Here are some tips on how to reinforce your digital castle.
Before we delve into the benefits of defining resiliency requirements, let’s get on the same page about what resiliency means in the context of cybersecurity. Resiliency is your ability to bounce back from cyberattacks or system failures and quickly restore normal operations. It’s like having a sturdy drawbridge that can be raised to keep out intruders or having backup knights ready to defend your castle when needed.
Having clearly defined resiliency requirements for your critical systems or services brings a multitude of benefits. Here are a few reasons why it’s important:
Now that we understand the importance, let’s talk about how you can define resiliency requirements for your critical systems or services:
While defining resiliency requirements is crucial, there are additional proactive measures you can take to enhance your system’s resilience:
Building cyber resilience is crucial for small to medium-sized businesses in the mortgage, title insurance and real estate segments. By defining resiliency requirements, you can set the foundation for a strong and secure digital castle. Resilient systems help you recover quickly, minimize downtime and build trust with your customers. So, take the time to identify critical assets, set recovery objectives and develop robust backup and disaster recovery plans. Don’t forget to implement proactive measures like regular updates and redundancy. With a resilient digital castle, you can confidently protect your business from cyber threats and ensure the safety of your digital treasures. Stay resilient, stay vigilant and safeguard your realm!
Bruce Phillips is senior vice president and chief information security officer for MyHome, a Williston Financial Group Company.
Source: housingwire.com
Buying a home is an exciting milestone, but it comes with its fair share of financial responsibilities, including the often-misunderstood closing costs. These costs are a vital part of your home purchase budget and can significantly impact your financial planning as a new homeowner.
Far from being just a trivial detail, closing costs encompass a range of fees and charges that, when understood correctly, can help you make more informed decisions and potentially save money in your home-buying journey.
Here’s everything you need to know about mortgage closing costs to avoid any last-minute surprises.
When it comes to closing costs in a home purchase, the question of who pays what is often a topic of negotiation and varies by transaction. Generally, both buyers and sellers have their own set of fees to handle, but the exact distribution can differ.
Your mortgage lender is required to provide you with an estimated breakdown at multiple points in the loan process. The loan estimate outlines the estimated closing costs and lists out all the different fees, as well as who is responsible for paying them.
Typically, the buyer shoulders a significant portion of the closing costs, which can include:
Sellers commonly pay for:
It’s important to note that these are not hard and fast rules. In many cases, closing costs are a point of negotiation in the sale agreement. For example, in a buyer’s market, a seller might agree to cover a larger portion of the closing costs to attract buyers. Conversely, in a seller’s market, the buyer might take on a larger share to make their offer more appealing.
Imagine you’re buying a home priced at $300,000. The closing costs, amounting to approximately 3% of the purchase price, would be around $9,000. As a buyer, you might agree to pay $6,000 of this, covering most of the loan-related fees and escrow deposits. The seller, in turn, might handle the remaining $3,000, covering their portion of fees like the agent’s commission and transfer taxes.
Mortgage closing costs can be broken down into a few different categories: lender fees, real estate fees, and mortgage insurance fees.
These fees may vary depending on the lender you choose. Here’s a basic rundown of each closing cost to give you an idea of what you can expect.
Real estate fees are related to costs surrounding the property itself. Some are one-time fees, while others are recurring.
When you pay less than 20% of your home purchase price as part of your down payment, you’re usually required to pay mortgage insurance. Your private mortgage insurance (PMI) premium is typically assessed as a monthly fee within your mortgage payment. However, you may also have some costs at closing.
Upfront mortgage insurance fee: Depending on your loan type and lender, you may have to pay an additional application fee for a loan with mortgage insurance. Additionally, some loans require that you pay a one-time fee at the time of closing on top of your annual fee throughout the mortgage.
Government-backed loan fees: If your loan is from the FHA, USDA, or VA, then you may have extra mortgage insurance fees if your down payment is under 20%. FHA loans require an upfront mortgage insurance premium (MIP) of 1.75% and a monthly fee. The VA and USDA don’t charge mortgage insurance, but instead have guarantee fees. VA fees fall between 1.25% and 3.3% while USDA fees are a flat 2%.
That list may seem huge and overwhelming. However, before making an offer on a house, you can estimate your closing costs using some shortcuts. Average closing costs are usually about 2% – 6% of the loan amount.
Let’s look at that in real numbers.
Say you buy a home for $200,000. You can realistically expect your closing costs (not including your down payment) to extend anywhere between $4,000 and $10,000. That’s a pretty big range, so use that as a starting point when you begin to compare loan offers.
But don’t wait until you’ve fallen in love with a house to financially plan for closing costs.
Instead, use an online closing costs calculator early in the process to get a more specific estimate. You will want to use real information like average property taxes in your area and the costs associated with your type of loan.
A good mortgage lender can walk you through the variables, including how different loan types affect your closing costs.
Negotiating closing costs can be an effective way to reduce the financial burden of buying a home. While some fees are fixed, others offer room for negotiation. Here are strategies and insights to help you lower these costs:
Identify which fees are negotiable. These often include certain lender fees like the origination fee, broker fees, and some third-party charges. Knowing what can be adjusted is the first step in negotiation.
Before settling with one lender, shop around. Get Good Faith Estimates from multiple lenders and compare their closing costs. This can give you leverage in negotiations, as lenders are often willing to offer competitive pricing to win your business.
In some real estate markets, it’s common for buyers to ask sellers to cover a portion of the closing costs. This is particularly feasible in buyer’s markets, where sellers are motivated to make the sale.
Some lenders offer credits in exchange for a slightly higher interest rate on your loan. These credits can be used to offset closing costs. While this increases your long-term interest cost, it can significantly reduce upfront expenses.
For services like home inspections and title searches, you have the option to choose your provider. Shop around and negotiate with these providers for better rates.
Before closing, you’ll receive a Closing Disclosure form listing all the fees. Review it carefully and question any fees that seem off or weren’t previously disclosed. Sometimes, errors can be corrected, leading to lower costs.
By scheduling your closing towards the end of the month, you can reduce the amount of prepaid interest you’ll need to pay.
Consider consulting with a real estate attorney or a financial advisor. They can provide valuable advice on which costs can be cut and how to negotiate effectively.
In some cases, you can roll your closing costs into the mortgage, but you have to meet some basic requirements. First, it depends on your type of loan, since not all loans allow you to do this. Most government-backed loans, like FHA and USDA loans, do offer the possibility to add them into your home loan.
What’s the downside to this idea?
A higher loan amount means a higher monthly mortgage payment and a larger amount of interest paid over the life of your mortgage. Furthermore, your new home needs to appraise for the higher amount you want to finance. Plus, your debt-to-income ratio needs to be able to support that larger payment to qualify for such a loan.
If you’re getting a loan that doesn’t allow for closing costs to be rolled into the mortgage, you can still get around it. However, you must meet those criteria we just talked about.
Simply ask the seller (through your real estate agent) to pay for closing costs in exchange for paying the extra amount as part of the purchase price. Here’s an example.
If your $200,000 offer is accepted, but closing costs are $5,000, ask the seller to contribute $5,000 and change your offer to $205,000. At the end of the day, the seller still walks away with the same amount of money.
Again, this strategy is contingent upon the numbers working for you, your financial situation, and your mortgage application.
When you finally get to closing day, it’s almost time to relax and move into your new home. But first, don’t forget to set up a way to pay closing costs.
You can ask your lender or settlement company for the preferred payment method. However, in most cases, you can either get a cashier’s check from your bank or set up a wire transfer. There’s usually a minor fee associated with each one. It’s a quick and easy process, but it shouldn’t be forgotten before you get to closing.
Closing costs are a crucial aspect of buying a home. Being well-informed and prepared for these expenses can make a significant difference in your financial planning. Remember, while some fees are fixed, others offer room for negotiation, and shopping around can lead to potential savings.
By factoring in these costs from the start, you can ensure a smoother, more predictable home-buying experience. Buying a house is a major step – financially and personally. Approach it with the right knowledge, and you’ll be set to make this important decision with confidence and peace of mind.
An escrow account is a third-party account where funds are held during the process of a transaction, like buying a home. Regarding closing costs, part of these costs often includes initial deposits into an escrow account for future property taxes and homeowners’ insurance. This ensures that there is enough money set aside to cover these recurring expenses.
In some cases, closing costs can be rolled into the mortgage loan. This is more common with certain types of loans, like FHA loans. However, including closing costs in the loan increases the total loan amount and, consequently, your monthly mortgage payments and the total interest paid over the life of the loan.
Yes, certain closing costs can have tax benefits. For example, points paid to lower your interest rate may be deductible in the year you buy your home. Always consult a tax professional to understand how your closing costs might affect your taxes.
First-time homebuyers should start saving early for closing costs, which typically range from 2% to 6% of the home purchase price. It’s also helpful to research and understand the different types of fees involved in closing costs, and consider attending homebuyer education courses for more detailed information.
If you find that you can’t afford closing costs, there are a few options. You can negotiate with the seller to pay some or all of the costs, look for lender credits, or explore programs available for first-time buyers or low-income buyers that offer assistance with closing costs.
Source: crediful.com