How long do I have to keep this stuff?

How Long Do I Have To Keep This Stuff

“Going digital with important documents is a great goal and it save space while forcing you to be organized.”

“How long do I have to keep this stuff?” is the usual question you ask yourself when feeling that you are running out of room for all this “paper” that may never be needed. 
The paper receipt you get from your fast-food lunch may go directly into the trash.  The prudent consumer may keep it to reconcile it with their monthly statement and then, trash it.  The natural hierarchy with receipts and documents associated with purchases is that as the price or value goes up, the more important it is to keep them.  The question becomes “but for how long?”
The following table will give you an indication on how long certain documents related to your home need to be kept according to best practices of tax professionals.  IRS recommends that records are kept for three years from the date the taxpayer files their original return or two years from the date the tax was paid, whichever is later.  There is no time limit in the case of fraud or failure to file a tax return.
 
DocumentLength of time to keep
Home Purchase/Sale Documents
Home purchase documentsDuration of ownership + 3 years
Closing documents & statementsDuration of ownership + 3 years
Deed to propertyDuration of ownership
Home warranty or service contractUntil expiration
Community/Condo Association
Covenants
Duration of ownership
Receipts for capital improvementsDuration of ownership + 3 years
Mortgage Payoff statements or
Release of Lien
Forever, in case proof is needed
Annual Tax Deductions
Property tax statement and
canceled check
3 years after IRS due date
for return
Year-end mortgage statements3 years after IRS due date
for return
Federal tax returns3 years after filing return or
2 years after paying tax,
whichever is later
Insurance and Warranties
Home InventoryKeep current
Homeowners insurance policyUntil the replacement is
received
Service contracts and warrantiesUntil warranty/service contract
expiration
Home repair receiptsUntil warranty/service
contract expiration

Going digital with your records can make them easy to keep as well as to find when you need them.  Create a folder on your computer that automatically backs up to the cloud-like Dropbox, Google Docs, or OneDrive so that if something happens to your computer, you have them safely tucked away. 
The main folder could be the address of your home with subfolders for purchase documents, capital improvements, warranties, etc.
When you receive statements that are already in digital format, simply move them to the correct folder and subfolder.  If it is a paper format, scan it and save it in the proper folder so you will have it when you need it.

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!

Writing a Successful Offer in a Low Inventory Market

Writing A Successful Offer

“Make a list of the things you want and must have in a home; then, prioritize the critical from the convenient.”

With at least 40% fewer homes on the market currently than there were a year ago, serious buyers have probably experienced the disappointment of losing a home they wanted to buy from increased competition.  Today’s buyers are looking for ways to improve their odds of being the best contract without having to use the purchase price as their only tool.

Buyers should reconsider, rethink, and re-evaluate their “must have” features and amenities.  It is probably unrealistic in a normal market to think you can have the perfect home at the price you want but in today’s market, it is less possible.  List the things you must have and the things you would like to have and prioritize them.  Try to identify the critical from the convenient.

The next step is to put together your “home” team.  You are the captain of this process, but it is essential to have a strong first officer and that is your real estate agent.  This professional will oversee the process, advise you on current market conditions and normal procedures.  Your agent will even help you assemble the rest of the team like mortgage officer, title, insurance, warranty, inspectors, and can recommend service providers.

Your agent can advocate your cause personally to the listing agent by personally delivering the offer and expounding on your strong points to lobby your position.  Obviously, your agent will not share anything that you do not expressly give them permission to.

Even before you write the offer, your agent can inquire with the listing agent about any preferences of the seller not mentioned in the listing agreement as well as to use the proper contract forms and addendums.

The following list of suggestions are provided for your consideration realizing that some may not be appropriate for your individual financial situation or comfort level.

  • Get pre-approved from a local lender and include documentation with offer to purchase.
  • Have lender phone and email listing agent to expound on pre-approval.
  • Increase the amount of earnest money.
  • Acknowledge flexibility on closing and occupancy dates.
  • Eliminate unnecessary contingencies.
  • Waive the appraisal and have proof of funds to meet the difference in the purchase price.
  • Avoid concessions like asking the seller to pay the buyer’s closing costs or points.
  • Avoid including personal property to go with the sale unless specified in listing agreement.
  • Purchase “as is” with right of quick inspection to cancel contract if condition is unacceptable.
  • Shorten time frames on necessary contingencies.
  • Attach proof of funds for down payment or full purchase price if cash.
  • Arrange bridge financing to be able to pay cash.
  • Buyer should pay their own normal closing costs.
  • Write a personal note to the seller explaining why you like and want their home.  Some listing agents are advising sellers to not accept them due to potential discrimination liability.
  • If you physically sign the offer, use a contrasting color ink to add a personal touch.  If using a digital contract, change the font and color to distinguish the signature.
  • Make your best offer first because they may not make a counteroffer.

When a new listing hits the market, it is commonplace for there to be a rush of interested buyers that result in multiple offers.  It is prudent for you to research and consider which of these ideas you can implement before you find the home; it is much better to have more time to make these decisions, especially, if it involves a mortgage officer or an attorney.

Your real estate professional will be able to tell you if these suggestions are viable and may be able to offer additional recommendations.  If you do not have an agent, contact me at or to discuss a plan to craft your offer in the most favorable way possible.

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!

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!

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!

Doing Nothing Costs Something!

Doing nothing

“Buyers are borrowing a large portion of the purchase price at around 3% interest but the entire value of the home is appreciating at a higher rate and the profit builds equity for the homeowner.”

It has been said that more money has been lost due to indecisions than ever was due to making the wrong decisions.  Many times, the larger the decision, the more likely procrastination comes into play, and doing nothing will cost something. 

Buying a home is certainly one of the biggest decisions people make.  Careful consideration and planning are necessary steps leading to a prudent decision.  Considering today’s market that includes a global pandemic, financial volatility, and rapidly rising home prices, it is understandable that many people thinking about a home purchase is in a wait-and-see posture.

However, there is a cost connected to waiting and it may be a lot more than you think.  The recent Home Price Expectation Survey 2021 Quarter two estimated appreciation rates will average just under 5% annual for the next five years.  It expects prices to increase by 8% in the next year. 

Being a renter or even putting off moving to a larger home, could keep you from enjoying the benefit of that appreciation.  If your down payment is in the bank, your expected earnings will be less than 2%.  In a home, the owner has the benefit of leverage when a mortgage is used to finance the home.

Buyers are borrowing a large portion of the purchase price at around 3% interest but the entire value of the home is appreciating at a higher rate and the profit builds equity for the homeowner.

Another major component for the owner is that the amortizing mortgage is being reduced with each payment that is made.  As the home goes up in value due to appreciation, the unpaid balance goes down with principal reduction creating equity from two directions.

If you waited one year to buy a $350,000 home today, the price could easily be $378,000.  A 5% down payment on this home at today’s price is $17,500.  If you could earn 2% on a certificate of deposit, it would be worth $17,850 in one year.  If it is used as a down payment on a $350,000 home that appreciates at 8%, the equity in one year would be $52,442. Use the Your Best Investment calculator to make your own projection.

Mortgage experts anticipate rates to rise by 0.75% in the next year which means that you’ll pay more interest on a larger mortgage by waiting.  The monthly payment could easily be $200 more by waiting a year.  Based on how long you intend to be in the home, it could make the overall housing cost much more.

To run some examples of projections based on your own expectations and at the price you are considering, go to Cost of Waiting to Buy and Rent vs. Own.

If you have some specific concerns that are keeping you from deciding today, let’s get together on the phone, an online meeting, or somewhere face-to-face so that you can get the facts about what it takes to buy a home now.

McKee Smith, REALTOR®, has been helping people just like you buy homes in the DFW area for many years. He can help you find and buy your perfect Dallas or Fort Worth home! Remember – McKee has the keys to selling your home!

The Dynamics of Home Equity

Home Equity

“The equity in a home is the difference between what it is worth and what is owed.”

For many people, their home is their largest asset and their best-performing investment.  The equity in a home is the difference between what it is worth and what is owed.  Two dynamics, appreciation and unpaid balance, work in concert to make homeowner’s equity grow.

It can be said that you appreciate the fact that your home is your best financial investment.  It is also ironic that the appreciation, the increase in value, is what causes it to be your best financial investment.

In a one-year period, the increase in value divided by the beginning value will determine the rate of appreciation for the year.  News stories and articles, frequently, report statistics on appreciation for the month, the year, or longer. In many cases, a national appreciation is mentioned but the local appreciation is more reflective of an individual property.

The National Association of REALTORS® reports “The median existing-home price for all housing types in June was $363,300, up 23.4% from June 2020 ($294,400), as every region recorded price jumps. This marks 112 straight months of year-over-year gains.”

The low inventory being experienced nationwide has caused some significant appreciation that has increased homeowners’ equity.  According to Black Knight, a mortgage technology and research firm, at the end of 2020, roughly 46 million homeowners held a total of $7.3 trillion in equity.

If a homeowner has a mortgage on their home, while the home is appreciating, the unpaid balance is declining.  An increasing portion of each payment is applied, when the payment is made, to the principal balance to retire the debt based on the term of the loan.

Each month the equity in the home becomes larger because the home is worth more due to appreciation and the unpaid balance is less due to amortization.

Once a homeowner has sufficient equity in their home, they can borrow against it and take cash out of their home.  Most lenders require that the homeowner maintain at least 20% equity position.  This means that owners can borrow up to 80% of the appraised value less the amount that is currently owed on the property.

The options include a cash-out refinance mortgage or a home equity line of credit, HELOC.  While some institutions have stopped offering HELOCs, they are still available.

 The HELOC is a line of credit that is established for usually ten years.  The owner is approved, and the money is available to draw out as needed.  The interest is calculated daily.  Like a credit card, when the balance is paid down, the unused portion of the available credit is available again.

McKee Smith, REALTOR®, can put you in touch with several lenders with whom he’s worked. He knows these lenders will try to get your loan approved with the fewest problems possible!

McKee Smith, REALTOR®, has been helping people buy homes in the DFW area for years. He can help you find your perfect new Dallas or Fort Worth home! Remember – McKee has the keys to selling your home!

Homeownership Cycle and Inventory

Homeownership Cycle

“Regardless of where you are in the homeownership cycle, having the facts essential to making a smooth move reduces the risk of bad outcomes.”

An interesting homeownership cycle begins with a starter home and progresses to larger and smaller homes throughout a person’s lifetime.  Within a few years after purchasing their initial home, they might move up to a little larger house.  The reasons could be that they simply want a larger home and can afford it, or their increased family size may be motivating the move.

While the children are small, they can probably get by with less space but as they grow and behave more like adults, even though they may not be, the need for more room becomes more pressing.  Depending on the size of the family, this will last some time and then, as they go off to college, enter the workforce and find their own living space, the parents may find that they no longer need the larger home. 

In the interest of saving money or possibly convenience, they migrate from a larger home to a smaller home until they consider an assisted living facility or possibly, a nursing home.  Another alternative, many homeowners are electing is to move in with their children or other family members.  Some homeowners are even retrofitting their homes with equipment and safety devices that will allow them to continue to live in their homes in old age.

According to the American Community Survey, a person in the United States can expect to move 11.7 times in their lifetime.  When that person is 18 years old, they can expect to move another 9.1 times and by age 45, they can expect another 2.7 moves in their lifetime.

One of the suspected reasons affecting the low housing inventory in America at this time is the group of homeowners who would move but are reluctant because the home will sell and with the shortage of homes, they may not be able to replace it with what they want.

The fact that builders have not kept up with the demand in the past twenty years has been a major contributor to the low inventory that housing is currently experiencing.  It is estimated that it will take two million new homes a year for the next decade to get caught up, assuming demand doesn’t increase.

There are also other factors involved like the fact that since 2007, the owner’s tenure in their home has more than doubled from five years to 10.6 years.  People are staying in their homes longer which means the homes are not coming on the market for sale.

Another consideration is that sellers with extremely low mortgage rates are reluctant to buy another house which would have to be financed at a higher rate than they are currently paying.

Regardless of where you are in the homeownership cycle, McKee Smith, REALTOR®, can provide important information and experience that is essential to making a smooth move.  Having the facts reduces the risk of bad outcomes.