Interest rates are high and housing supply is low, making this a tough housing market but one that's not impossible to navigate, experts say.
There are still many ways to maximize a budget if you’re a buyer or ensure you earn top dollar and trim your costs if you’re a seller. Strategies include knowing what fees might be negotiable, what home features to invest in, what kind of lender to look for, what types of mortgages are available and what tax benefits there are to selling and buying another home, experts say.
Yes, if a seller has a so-called assumable mortgage at a lower rate, you can take it over.
Assumable mortgages are generally those insured by the Federal Housing Administration (FHA) or backed by the Department of Veterans Affairs (VA) or United States Department of Agriculture (USDA).
Learn more: Best mortgage lenders
About 12 million, or 23% of, active mortgages are assumable, according to data and technology firm Intercontinental Exchange. Of those, 7.2 million, or 14%, are assumable at interest rates below 4%, which can save buyers thousands of dollars and generate more bids for sellers. Current loan rates hover around 6-7%.
On a $400,000 loan with a 7% interest rate, the monthly principal and interest payment comes out to about $2,660. With a 3% rate, that payment drops to $1,686. That's nearly a thousand-dollar difference in monthly housing costs.
These deals also don’t require an appraisal, which can save buyers hundreds of dollars.
If you’re looking in Arizona, Georgia, Colorado, Florida, Illinois and Texas, you can check assumable listings site Roam, which launched last September.
You might have to come up with a hefty down payment. For example, someone has $350,000 remaining on their loan, and they're selling their home for $450,000. The person assuming the loan would need to pay the homeowner $100,000 at closing for an assumption to make sense. That’s significant for most people, experts note.
Roam also can help buyers secure secondary financing to cover the down payment, typically the difference between the sale price and the mortgage in these deals.
Fees that may be negotiable with a lender, include:
To get the best rates, comparison shop lenders, experts say.
“Get estimates and see the variance,” said Darren Tooley, senior loan officer at Cornerstone Financial Services. “That gives you some knowledge and basis to say, ‘I’ve got quotes from other lenders and will you work with me?’”
Find a lender who “has a variety of loan products and can coach you to maximize financing with credit improvement, cheaper PMI (private mortgage insurance) options depending on your down payment, paying points or temporary buy downs,” Tooley said.
PMI can be required to buy if your down payment’s less than 20% of the purchase price, and points are a form of prepaid interest you can choose to pay up front in exchange for a lower interest rate and monthly payments.
Temporary buy downs are prepaid interest that gets you a lower interest rate for a short period. “It’s been a way to help bridge the period (before rates fall),” he said. “People can afford a loan at 5-6% even if it’s a year or two and (then, they) refinance.”
FInd a lender:Best mortgage lenders of June 2024
State tax rules vary, so you need to check local laws, said Mike Zovistoski, partner at professional services firm UHY.
Since home prices have appreciated so much over the last five years, many people selling could probably use this exclusion, he said. If you’re thinking about downsizing, you could sell your house, buy a smaller less expensive home in cash and pocket any difference without paying tax on it.
Also, if you itemize, you can deduct mortgage interest you paid during the tax year on the first $750,000 of your mortgage debt. If you’re married filing separately, the limit drops to $375,000, the IRS said.
Anything that adds appeal, Tooley said.
“Landscaping is one of the greatest returns, dollar for dollar,” he said. “Inside, decluttering, fresh paint or a touchup.”
Solar and energy efficiency steps, for which you can receive tax credits, can also add value, Zovistoski said.
Upgraded kitchens and bathrooms are also highly valued, realtors say.
The main types of mortgages are:
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
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