It’s Not Too Late To Refinance

It's not to late to refinance

“There are costs associated with refinancing regardless of whether you pay for them in cash, or they are rolled into the cost of the mortgage.”

With mortgage rates below 4% since May 2019, you would think that most people would have already refinanced but according to a recent Lending Tree survey, 49% of homeowners say they are considering a mortgage refinance in the next year.  The report estimated that over a third of homeowners are have mortgages above 4% and 11% didn’t know what their rate was.

Slightly more than a third of the people surveyed regretted missing the opportunity to refinance in 2020 when rates did hit their historical low.  Homeowners should not beat themselves up on this issue because the only way to know to tell that it hit bottom is after it has started going up again. 

The current rates are very favorable to borrowers and some economists believe that when inflation is factored in, the rates are close to zero effectively.

While there are nine specific reasons people choose to refinance their homes, two are among the most prevalent: to lower the payment or take cash out of the equity.  Most reasons include:

  1. Lower the payment
  2. Lower the rate to pay less interest
  3. Shorten the term to pay off the loan sooner
  4. Take cash out of equity to pay off higher cost debt
  5. Take cash out of equity to improve their liquidity
  6. To remove a person from the loan as in a divorce
  7. To combine a first and second mortgage
  8. To replace an adjustable-rate mortgage
  9. To consolidate debt

There are some commonly held myths about refinancing among homeowners such as:

  • You can only refinance your home once.
  • You must refinance through your current lender.
  • There should be two-percent difference in the rate to justify it
  • You need 20% equity to refinance
  • Applications require a lot of documents
  • You need cash to cover closing costs
  • You won’t save that much by refinancing
  • It’s free to refinance

If your current mortgage is an FHA, there is limited borrower credit documentation and underwriting program.  The mortgage must be current and not delinquent, and the refinance must result in a net tangible benefit to the borrower such as a lower rate, lower payment or better terms.  For more information, see Streamline or contact an FHA-approved lender.

VA has a similar program if your existing mortgage is a VA-backed home loan. The purpose is for a borrower to reduce their payments or make their payment more stable.  They must certify they are currently living in or did live in the home covered by the loan. The Interest Rate Reduction Refinance Loan, IRRRL, may be available.

USDA also has a program for current USDA direct and guaranteed rural homebuyers who have been current on their payments for 12 months prior to requesting the loan refinance.  No appraisal or credit review is required.  There must be a minimum of 40% net reduction to the PITI payment.  More information is available.

Before refinancing your home, determine how long you plan to keep the home.  If the reason for refinancing is to save interest by getting a lower rate, you may accomplish that immediately.  However, if you plan on selling soon, you may not be able to recapture the cost of refinancing.

There are costs associated with refinancing regardless of whether you pay for them in cash, or they are rolled into the cost of the mortgage.  These costs can range from two to five percent of the mortgage.

Check out the Refinance Analysis to determine your breakeven point and savings. A mortgage professional I often recommend is Tom Pfister with Loan Simple. He is local and personally cares about all of his clients.

McKee Smith, REALTOR®, has been selling and buying homes in Dallas and Fort Worth for many years. He knows and understands the intricacies of the DFW housing market. Remember – McKee has the keys to selling your home!

Deciding on Whether to Move

Deciding on whether to Move

“Good information specific to your needs is essential to making good decisions. Explore the possibilities with your real estate agent.”

Some homeowners feel like they may as well throw a dart against the wall to decide whether to move or not.  Other people might invoke a process attributed to Benjamin Franklin.  Supposedly, to evaluate the options and bring clarity to the choice, this American founding father would list all the reasons for and against the decision on a sheet of paper.  After reducing it to writing, the choice would appear either by obvious majority or practicality.

Buying a home is an emotional decision but selling a home can be also.  Separating the rationale from the emotion can make decisions seem obvious but they may still not be crystal clear.

There is an inventory shortage that caused prices to rise and market time to shorten.  In many active markets, there is less than a 30-days supply of homes for sale which is half of what was available a year ago.  This will make it easier to sell and maximize the proceeds from your current home.

69% of economists who participated in the first quarter 2021 Zillow Home Price Expectations survey believe home inventory will begin to grow in the second half of this year or the first half of 2022.

Mortgage rates are near record lows which will keep payments at a minimum.  With the inflation rate in the United States expected to be between 2-3%, many borrowers consider that it balances with the mortgage rate to be an effective zero percent.

“Consumers are facing much higher home prices, rising mortgage rates, and falling affordability, however, buyers are still active in the market,” said Lawrence Yun, NAR’s chief economist.  “At least half of the adult population has received a COVID-19 vaccination, according to reports, and recent housing starts and job creation data show encouraging dynamics of more supply and strong demand in the housing sector.”

The pandemic has allowed many buyers have the flexibility to work from home for now and in some situations, permanently.  That opens new location possibilities options that would not have existed if they had to commute to work daily.  Economists believe that the increased preference to work remotely will be a permanent shift even if it is only a part of the workweek.

This provides opportunities for homeowners to relocate to an area that doesn’t have the high demand that their current area does and could benefit from more affordable housing for the replacement while possibly, maximizing the sales price of their current home.

Good information specific to your needs is essential to making good decisions.  Explore the possibilities with your real estate agent.  They can provide facts about the sale and purchase of another home.  Once you have the facts, you may use the Ben Franklin Balance Sheet to help you with your decision.

McKee Smith, REALTOR®, is an experienced real estate agent that specializes in the Dallas and Fort Worth market. He understands the intricacies of the DFW housing market. Remember – McKee has the keys to selling your home!

Is a Home Inventory Necessary?

Is a Home Inventory Necessary?

“No one realizes how important a home inventory is until they have a loss.”

Most homeowners have insurance on their home that additionally, gives them coverage on their personal property.  That is the first level of peace of mind to know that it is available to you if there is an unfortunate need for it from burglary, fire, or some other insured circumstance.

Personal property is handled slightly differently than real property.  The claims adjustor could start by asking you for a list of the things lost.  You are allowed to reconstruct it but there is a distinct possibility that you’ll forget things, sometimes for months or years after the claim was settled.

An interesting exercise would be for you to visualize two rooms, possibly, the kitchen and main living area.  Without being in the room, create a list of all the personal items in plain sight and those in the closets and cabinets.  When you’re through with the list, go into each room to check to see what kind of things were not on your list and what the value of those items amounted to.  It could be substantial.

Remember, you are entitled to claim them regardless of how long it has been since you used them or if you do not intend on replacing them again.

When filing a claim, the more “proof” you have to substantiate it, the better off you are.  Receipts are great but chances are, you may only have them for the big-ticket items.  Photographs or videos of the different rooms are great records that the items were in your home.

An itemized list of each room with a description of the content, cost, and date of purchase, supported by pictures would be ideal.  This type of documentation will make filing and settling a claim much easier.   The more documentation you have, the more likely you are to have a favorable settlement.

The more expensive the item, the better it would be for you to have receipts, serial numbers, and photographs.  A simple count of some items like clothing will suffice like four pairs of jeans, 24 dress shirts, etc.  More valuable items of clothing like a cashmere jacket or a silk dress should be listed individually. 

Depending on the frequency that you purchase new items for the home or possessions, you’ll need to consider updating the list and photographs.  Moving creates opportunities to get rid of things that haven’t been used for years and to acquire things for the new home.  It is always a good idea to complete a home inventory after you’ve moved and settled into your new space.

If you would like to have more tips and a form to itemize your possessions, download the Home Inventory.  This will even allow you to include pictures and store them in digital format for safekeeping.

McKee Smith, REALTOR®, has years of experience in the DFW area housing market. He knows the many unique features of Dallas and Fort Worth area home sales. Remember – McKee has the keys to selling your home!

Thoughts on Credit and Getting a Mortgage

Thoughts on credit

“Even if you are not buying a home or getting a mortgage currently, it is a good routine to check your credit report periodically to discover signs of identity theft early.”

Credit plays a huge role in getting a mortgage because it is a variable that helps the lender determine the likelihood that the loan will be repaid on a timely basis.  Credit bureaus evaluate people’s credit worthiness using a FICO score.  The higher the score the better the borrower’s credit.

The mortgage rate charged to a borrower depends on their credit score.   There is an inverse relationship between credit score and interest rate changed.  The higher the score the lower the rate and the lower the score, the higher the rate. 

Two separate buyers with the same income, purchasing the same price home may both be approved by the lender, but they may be charged different interest rates based on their credit scores.

You could save thousands of dollars over the life of a loan by improving your credit score by just a few points.  A $350,000 mortgage at 3.5% has a principal and interest payment of $1,571.66.  Improving your credit score to qualify for a 3% rate would save $96.04 a month. 

Over the life of the mortgage, that would save $34,575 in interest.  Improving your credit score to shave 0.25% off the rate would make it worthwhile.

Credit utilization is the percentage of total credit used compared to the total credit available.  If you have a $2,500 balance on a credit card with $10,000 available credit, your utilization rate is 25%.  Ideally, it should be 10% or below.  This ratio accounts for 30% of a person’s FICO score. 

Credit utilization is calculated using the balance on the monthly statement so paying it off in full every month could still result in a high CU score.  Some credit counselors suggest paying down the balance before the end-of-month statement comes out.  A trusted mortgage professional can make specific recommendations like how to improve your credit utilization. 

Your credit score can be adversely affected if your credit limits are lowered.  You may have the same monthly outstanding balance you have had for years but it now becomes a larger percentage of your available credit and your score goes down.  In the example used earlier, if the available credit was lowered to $5,000 and your balance is $2,500, the credit utilization is now 50%.

Payment history is the largest contributor and counts for 35% of an individual’s FICO score.  It is an indication of your likelihood of paying on time and as agreed for your debt, especially mortgages, credit cards, student and car loans, among others.

A big shock to some borrowers is to find out that while they may have never actually incurred a late fee because of a grace period, their score could be dinged because it was not paid on time of the actual due date.

Foreclosures, deeds in lieu of foreclosure and bankruptcies will affect a borrower’s payment history as long as they appear on the credit report.

Americans are entitled to a free annual credit report by law from the major credit companies: Experian, TransUnion and Equifax.  AnnualCreditReport.com is the source for these federally authorized reports.   During the Covid-19 pandemic, they are offering free weekly reports.

Even if you are not buying a home or getting a mortgage currently, it is a good routine to check your credit report periodically to discover signs of identity theft early.

McKee Smith, REALTOR®, has been helping people like you sell and buy homes in the DFW area for many years. He is very knowledgeable about the housing market in Dallas and Fort Worth. Remember – McKee has the keys to selling your home!

Equity, Price, and the Agent You Select

Equity, price, and the Agent you select

“Selling a home, as in business, the goal is to maximize revenue, or sales price, and minimize expenses to recognize your potential equity.”

A Seller’s equity in their home is the difference between what the home is worth and what they owe.  At any point in time, it is an estimation because value is a very subjective term.  If the seller thinks the home is worth more than an actual buyer will pay for it, the estimated equity is too high.  If a buyer is willing to pay more than the seller believes the home is worth, the estimated equity is too low.

A true determination of equity becomes more objective when the home is sold, and the value is solidified by the sales price.  This value is determined by negotiations between a seller and buyer and eliminate speculation and conjecture because money and title are being exchanged.

The equity being defined above is more accurately referred to as Gross Equity.  After the ordinary and necessary expenses connected with the sale of a property are deducted from the sales price, along with any mortgage balance and/or liens, the proceeds are referred to as Net Equity.

Like in business, the goal is to maximize revenue and minimize expenses, the same is true in selling a home.  The goal is to achieve the highest possible sales price while keeping the expenses as low as possible.

Setting the price of a home is ultimately, the seller’s decision.  It is critical because not only will it impact the amount of proceeds the seller realizes, but it can also affect the length of time it takes to sell, how much activity it will generate from buyers, and eventually, whether it sells at all.

The cost of a home is what the seller paid for it and the improvements made.  Cost has no relationship to value.  Market value is the most probable price willing and informed buyers and sellers can agree upon in a competitive market in a reasonable period.

Price the home too low and the seller has unrealized proceeds.  Price it too high and it eliminates interested buyers.

Preparing the home to go on the market has expenses involved.  Things like painting the front door or adding landscaping to increase the initial appeal is an investment to attract the buyer’s attention. While it may not add value to the home, it is an important element.

Decluttering the home takes time and may even involve temporarily renting a storage facility for things that may make your home feel smaller or detract from making your home as visually appealing as possible.

There are obviously selling expenses involved in the sale of a home which can vary based on the price of the home, what is customary in your area and negotiations in the sales contract.  Your agent can advise you on these so that you don’t pay anything out of the ordinary and can provide you an estimate of what is to be expected.

Your real estate professional can provide you the information necessary to decide on price.  However, do not confuse your decision on whom to market your home by the price indicated by the market and reported by the agent. 

The market determines the value, and the seller sets the price.  Your decision in selecting an agent should be based on trust, reputation, integrity, and the ability to execute a successful marketing plan.

In today’s market, on average, homes, are selling in 17 days and sellers are seeing an average of five offers.  It is not uncommon for homes to sell for more than the list price, assuming they are not priced dramatically over the market initially.

It’s important to discuss with your agent, McKee Smith, REALTOR®, the details ofpricing your home slightly below market value and using a “coming soon” promotion to encourage increased buyer interest and possibly, encourage multiple offers.

McKee Smith, REALTOR®, has been selling homes in the DFW area for years. He’s very familiar with the Dallas and Fort Worth housing markets. Remember – McKee has the keys to selling your home!

Mortgage Forbearance

“People with equity in their homes have more options and the good news is that historically, more people do have equity in their homes currently.”

Some homeowners who could not afford to make their mortgage payments this past year have been relieved to find out that their mortgage servicer or lender allowed them to pause or possibly, reduce their payments for a limited period.  While it does relieve the financial pressure, it is a temporary remedy.

About 2/3 of the people who entered forbearance during the pandemic have exited the program.  There are only a little over two million homeowners remaining in forbearance.

It is important for owners who find that they cannot make the payments on their mortgage to contact their lender and request a forbearance.  If you stop making mortgage payments without a forbearance agreement, the servicer will report this information to the credit reporting companies, and it can have a lasting negative impact on your credit history. Without going through that process, the lender assumes you are delinquent, and protections afforded under forbearance may not apply.

Forbearance does not forgive the money that is owed.  The borrower must repay any missed or reduced payments in the future.  If forbearance was issued under the CARES Act, the lender cannot require payment in full at the end of the forbearance.  Additionally, Fannie Mae has declared “following forbearance, you are not required to repay missed payments all at once, but you have that option.”

The forbearance agreement issued by the lender allows a borrower to avoid foreclosure for a period until, hopefully, the borrower’s financial situation improves.  If at the end of the stated period, the borrower’s hardship still exists, the lender may be able to extend the time frame.

The provisions of the forbearance vary based on the type of mortgage.  The lender can tell you the specific provisions and options.

Loans made by Fannie Mae and Freddie Mac require lenders to suspend reports to credit bureaus of past due payments for borrowers in a forbearance plan and no penalties or late fees will be assessed.  Furthermore, the lender is mandated to “work with the borrower on a permanent plan to help maintain or reduce monthly payment amounts as necessary, including a loan modification.”

At the end of the forbearance, there can be several options available to repay the suspended or paused amounts.  You can resume your normal payment and a repayment plan can be established.  If you can start making the payment but can’t afford additional payments, the missed payments could be added to the end of the loan or possibly, a secondary lien that is due and payable when you refinance, sell or terminate your mortgage.

In cases where the borrower can’t afford to make the regular payments, a loan modification may be available with lower payments, but the term would be extended.  While the CARES Act does not require borrowers at the end of the forbearance period to repay skipped payments in a lump sum, if a borrower is able, they may do so. 

The purpose of this is to re-establish a payment plan that the borrower can repay the money owed.  To be eligible for a loan modification, borrowers must show they cannot make the current mortgage payments because of financial hardship while demonstrating they can meet their obligations with the proposed restructured terms.

Under the CARES Act, borrowers with a GSE-backed mortgage are entitled to an additional 180-day extension which would be a total of 360 days.  It is necessary to contact the servicer/lender for the extension.

There can be both legal and tax issues concerning in forbearance and professional advice is recommended.  A list of U.S. Department of Housing and Urban Development approved Counseling agencies are available.

McKee Smith, REALTOR®, has been actively selling homes in Dallas and Fort Worth for over four years. He is very familiar with the DFW area. Remember – McKee has the keys to selling your home!

Things to check around your home

Things to check

“Checklists are helpful because it requires little effort to know what must be done.  They are usually concise and provide enough information to complete the task.”

Checklists are helpful because it requires little effort to know what must be done.  They are usually concise and provide enough information to complete the task.  These items apply to most homeowners but in no way offer a comprehensive list.

  1. Vacuum dryer exhaust … not only does it affect the efficiency of your dryer itself, the accumulation of lint along with the hot air can ignite and create a fire hazard.
  2. Replace HVAC filters 4 to 6 times a year … This is one DIY project that almost everyone should feel confident in handling.  Locate the filter, make a note of the size, and keep replacements available.  Turn off the unit, open the door or housing, remove the dirty filter, and replace it with the new one.  Pay attention to the direction of the air flow; filters are marked to indicate the correct direction.
  3. Test all GFCI breakers. – GFCI breakers, as well as outlets, have a test button on them.  Pressing the test button should cause the breaker to trip which shuts off all power to the entire circuit.  To reset the breaker, push it completely to off and then, back to on.
  4. Vacuum refrigerator coils … Coils on refrigerators can be in different places depending on the model and manufacturer.  Locate the coils and clean the dirt and dust from them using a soft bristle brush or a vacuum cleaner with a brush.
  5. Replace batteries in smoke detectors … smoke detectors should be tested monthly by pushing the test button.  Annually, the batteries should be replaced, even if they appear to still have life in them.  After replacing the batteries, test the smoke detector to see if it is functioning properly.
  6. Check windows and doors for leaks … There are several ways to check for leaks.  One method used on a cold day would be to hold your hand a few inches from the window or door frame to feel for drafts.  Another method would be to light a candle and trace the outline of the window or door to see if the flame or smoke pull in one direction, indicating an air leak.
  7. Inspect all sprinkler system stations to see if heads are leaking or need adjusting. … Manually, turn on each of the stations and look at each sprinkler that is running to see if it is leaking or if it is properly covering the area intended. 
  8. Check garage door opener to see that safety features engage properly … Place a cardboard box in line of one of the sensors before trying to close the door.  The door should reverse itself after sensing the obstruction.
  9. Check and clean fireplace(s) annually, if used … this may be a job that you want to have someone else do but you may be able to recognize indicators that the chimney needs cleaning.  These things include evidence of birds or animals; fireplace smells like a campfire; smoke fills the room; difficulty starting or keeping a fire going; the fireplace walls have oily marks; the damper is black with soot and creosote. The frequency of use on wood burning fireplaces will impact the need for cleaning.

If you need a recommendation of a service provider for repairs, contact me, realtor@mckeesmith.com with what you are looking for.  I’ve been a REALTOR® selling homes in Dallas and Fort Worth for years. I know the DFW area very well.  I’ll get back to you quickly. Remember – McKee has the keys to selling your home!

Are the Holidays a good time to sell or buy?

Are the Holidays a good time to sell

Sales of homes in the middle of DFW in December have averaged 73% of June for the past ten years! This is still a good time to sell!

Are the Holidays a good time to sell or buy? Yes, they are! This video explains why!

Ready to have a conversation? Click here!

McKee Smith, REALTOR®, has been helping people like you sell and buy homes in the DFW area for many years. He is very knowledgeable about the housing market in Dallas and Fort Worth. Remember – McKee has the keys to selling your home!

First Love, Second Wife or Third REALTOR®

First Love, Second Wife or Third REALTOR

“Today’s environment requires a strong, sensitive agent who understands your goals as well as the intricacies of the market to be able to devise a plan to make it happen.”

There is a story of a real estate agent’s prayer: “Dear Lord, if I can’t be someone’s first love, or second wife, at least, please let me be their third REALTOR®.”  In a normal market with a balanced supply of sellers and buyers, this describes the preference that it might be better to be the third listing agent to help the seller after they became more realistic about their list price.

In today’s market, it might have more to do with buyers because of the increased competition, their chance of having an accepted offer is greatly reduced and it is only after they have lost several that they become more aggressive in the negotiations.

Competition for homes being sold has greatly increased over the previous two years, according to a recent REALTORS® Confidence Index Survey from NAR.   In April of 2021, there were nearly five offers for every home sold which increased from two offers in 2019 and 2020.

Utah reported the highest number of offers per home sold with seven while Arizona, Georgia, New Hampshire, and Washington had six.  California, Colorado, Tennessee, and Texas each had five offers per home sold.

To make their offers appear more attractive, more buyers are making cash offers to eliminate financing contingencies and reduce the chance of rejection.  Cash offers represented 25% of offers in April and 21% in the first quarter of 2021 compared to 18% in 2020.

Buyers who are not able to make cash offers are increasing their down payment.  Nearly half of homebuyers are putting 20% or more down during the first quarter of 2021.  Even first-time buyers are using an 80% mortgage to make their offers more attractive to sellers.

The median days on the market for listings was 17, down from 21 days a year ago.  31% of residential sales were made to first-time homebuyers which is down from 32% in March 2021 and down from 36% one year ago.

While nearly ¾ of homes closed on time, 5% were terminated and 22% were delayed but eventually went into settlement.  Appraisal and financing issues were the major contributors to the delayed transactions.  The two major factors for the terminated transactions were also appraisals and inspections issues. Today’s environment requires a strong, sensitive agent who understands your goals as well as the intricacies of the market to be able to devise a plan to make it happen.  Your agent and their recommendations for the other professionals involved are the boots on the ground necessary whether you are a buyer or a seller.

McKee Smith, REALTOR®, has been selling and buying homes in Dallas and Fort Worth for many years. He knows and understands the intricacies of the DFW housing market. Remember – McKee has the keys to selling your home!

Property Inheritance

Inherited property

“Stepped-up basis avoids recognizing the gain between the decedent’s cost and what it is worth when it is inherited.”

Stepped-up basis is an incredible benefit to people who inherit property.  Not only do they receive the property itself, but the basis or cost value of the property also becomes the fair market value at the time of the decedent’s death.  This avoids recognizing the gain between the decedent’s cost and what it is worth when it is inherited.

If a person had purchased a home for $100,000 and 20-years later when they died, it was worth $500,000, there would be a potential gain in the property of $400,000.  However, because of a tax provision called step-up tax basis, the person inheriting the property will have a basis of the fair market value at the time of death.

The recipient could sell the property for $500,000 and have no taxable gain on the sale.

A formal appraisal is the most reliable and defensible estimate of fair market value at the time of the decedent’s death.  There will be a fee of several hundred dollars for the appraisal.  Another alternative is to get a broker’s opinion of value in writing.  It may be reasonable to get three opinions to see if they are similar.  They should rely on comparable sales to justify their position.  Either method is acceptable to IRS.

There is a discussion from the current President about the possibility of eliminating the step-up in basis that allows families to leave assets to their heirs without having to pay capital gains tax.  Some people consider it to be a tax loophole for the ultra-rich but it can impact ordinary people who inherit property and do not want to have to sell it. 

An example would be a family farm that when inherited by the heirs may not be able to afford to pay the capital gains tax due at the time of transfer and they could be forced to sell the property or borrow the money to pay the tax, assuming that was possible.

The federal estate tax is paid from the deceased’s remaining estate, not by the heir.  If the decedent’s estate is approaching the limit before estate taxes are due, currently $11.7 million, professional tax advice should be considered because there could be additional provisions in play.  More information on this can be found on IRS.gov.

McKee Smith, REALTOR®, has been helping people buy and sell homes in the DFW area for many years. He’s helped many people buy, sell, and become better homeowners in Dallas and Fort Worth. Remember – McKee has the keys to selling your home!