Will 2019 Be The Year of the Millennial Homebuyer?

Only 32 percent of millennial owned a home in 2015, according to a 2018 Millennial Home-ownership Report from the Urban Institute. However, that might change in 2019.

While interest rates are rising, housing prices are expected to stabilize, offering additional affordable options to first-time homebuyers. Plus, mortgage lenders are experimenting with new ways to check creditworthiness and streamline the application process.

When it comes to whether the climate is favorable to millennials entering the housing market, Leo Loomie, senior vice president of client development for mortgage solutions provider Digital Risk, suggests “there are more tailwinds than headwinds going into 2019.”

However, millennials still like the flexibility of renting, so the reality of a wave of millennial homebuyers in the coming year is no sure thing. While millennials may be able to get mortgages in the coming year, the appeal of being able to move at will may win out over the prospect of homeownership.

Why millennials wait to buy homes. The entrance of millennials into the housing market has been delayed by a number of factors, including student loans, limited savings and mobile lifestyles.

“They often are paying off other loans, making it tougher to save the cash required for a down payment,” says Steven Gottlieb of Warburg Realty in New York City. However, he adds that money isn’t what seems to hold back many of the young adults he encounters in New York. Instead, they are hesitant to commit to a long-term living arrangement. “Millennials change jobs more often than previous generations, and thus are less likely to want to be tied down to a neighborhood or even a particular city.”

What’s more, delayed homeownership may be a natural consequence of millennials holding off on other rites of passage.Homebuying is often linked to life events like getting married or having a baby, both of which are happening later in life, and many people are choosing not to take these steps at all,” says TendayiKapfidze, chief economist at online loan marketplace LendingTree.

In fact, the percentage of married millennials tracks closely to the number of young adults buying homes. The Urban Institute found 37 percent of 25- to 34-year-olds were homeowners in 2015, and the Pew Research Center found an identical percentage of millennials were married in 2017.

Making millennial homeownership possible. Kathy Cummings, senior vice president of homeownership solutions and affordable housing programs at Bank of America, says millennials have misconceptions about homebuying that can keep them out of the market. For instance, nearly half of 2,000 adults surveyed by Bank of America in 2018 believed a 20 percent down payment is necessary to buy a house. Instead, many properties can be purchased with only 3 percent down, Cummings says.

Credit scores are another factor that can discourage millennials from buying a home. Of the 685 millennials responding to the 2018 TD Bank Buy or Rent Survey, 17 percent said they didn’t think they would be approved because of their credit.

The average credit score for millennial homebuyers in the nation’s 50 largest metro areas is 656, according to a 2018 analysis by LendingTree. Cummings says most institutions use 680 as the cutoff for what they consider good credit, although applicants with credit scores as low as 580 may be eligible for mortgages.

However, the launch of the UltraFICO Score later this year could be a game-changer for millennials with low scores because of a limited credit history, Loomie says. The credit scoring model will allow mortgage applicants who don’t initially qualify for a loan to opt into having bank account data used to further gauge their creditworthiness. UltraFICO offers a revised score based on factors such as average account balance and automatic deposits from payroll or other sources. According to FICO, 70 percent of those with at least $400 in the bank and no negative balances in the past three months should see their score improve.

“It’s a very interesting way to assess someone’s financial responsibility,” Loomie says. Since the program is only in the pilot phase, it remains to be seen how much of an impact it will have on millennial homebuyers. However, Loomie says UltraFICO could potentially bump up credit scores by 20 points.

6 Tax Breaks for Homeowners

Whether you’re gearing up to file your taxes this year, researching what’s ahead for next year or simply contemplating the benefits to buying a house in the future, there’s a lot to consider.

Under the Tax Cuts and Jobs Act, which takes effect for tax filings for the 2018 calendar year, standard deduction increases will likely mean far fewer Americans will need to itemize their returns to receive the maximum amount of money back. As many as 27 million fewer taxpayers may need to itemize their taxes, according to an estimate from the Tax Policy Center.

Of course, that still leaves 19 million taxpayers who will benefit from itemized deductions. If you currently own a home, are considering purchasing one or have made changes to your mortgage, it’s important to know how your tax return may be affected.

Here’s a breakdown of tax breaks available to homeowners who itemize.

Mortgage Interest

A major benefit of homeownership is that you can deduct your mortgage interest on your taxes.

There are monetary limits to the total amount of debt, of course: Interest paid throughout the year is deductible on your taxes for mortgages up to $1 million for a loan issued prior to Dec. 14, 2017, and up to $750,000 for any loans issued after that date. The limits count as your total housing-related debt, including the mortgage on your home, a mortgage for a second home or home equity loan or line of credit (which come with additional limitations outlined below).

By the end of January, you should receive a 1098 form from your mortgage servicer. With the total interest you paid throughout the year printed on the form, you can use the 1098 as your guide for the mortgage interest deduction process.

In the same way it contributes to your total mortgage debt, the interest on a refinanced mortgage can also be deductible, following the debt limitations depending on when it was issued.

However, if homeowners are looking to refinance an existing mortgage soon, they may want to consider the choice carefully. The Federal Reserve has steadily increased interest rates throughout 2018 and is expected to do so at least a couple more times in 2019, according to John Pataky, executive vice president and chief consumer and commercial banking executive at TIAA Bank based in Jacksonville, Florida.

As a result, the share of refinances that banks close on may shrink going forward. Pataky says he typically sees 75 percent of mortgage lending at TIAA Bank taken up by new purchases, and the remaining 25 percent is refinances. Rising interest rates, combined with the loss of the grandfathered deduction amount, make refinancing now or in the near future less attractive for many. Pataky predicts 2019 is “going to be about the purchase.”

Home Equity Line of Credit Interest

In line with your mortgage interest, the interest on a home equity loan or home equity line of credit can also be deducted when you file your taxes.

Following the reform for 2018 taxes, if you borrow against the equity in your home, the interest deduction is subject to the same $750,000 limit for total mortgage debt and only applies when the money borrowed goes toward the home itself. You won’t be able to deduct the interest for a HELOC that bought you a boat, for example, but the interest on a HELOC that went toward finishing your basement or renovating the bathrooms is deductible.

State and Local Property Taxes

Deducting state and local property taxes on your federal tax return has long been another primary financial benefit to owning a home. But the new rules may lessen the appeal of that perk for some homeowners, says John Karaffa, a certified public accountant based in Richmond, Virginia, founder and president of ProSport CPA and author of “Touchdown Finance: Personal Finance Tips From the Pros.”

From 2018 onward, the total deduction for your combined state and local income, sales and property taxes are capped at $10,000. While the majority of homeowners won’t be affected because their property taxes are below the limit, Karaffa notes a much larger impact will be felt in states with high property taxes, such as California, New York and New Jersey.

“My gut tells me there’s going to be migration,” Karaffa says. “It (already) got harder to sell a home in New Jersey all of a sudden.”

Rental Income

It’s becoming increasingly common for homeowners to harness the earning potential of their property by renting out space to tenants or tourists. Rentership in the U.S. is near a 50-year high, according to the U.S. Census Bureau, with 35.6 percent of the population renting rather than owning a home as of the third quarter of 2018. A large share of potential renters can make becoming a landlord attractive. Whether you have an English basement you rent to a tenant or a guest house to market on Airbnb, you’re required to report the additional income you receive on your taxes, explains Thomas Bayles, senior vice president of Mortgage Capital Partners in Los Angeles.

The benefit, however, comes from being able to deduct the cost of repairs and improvements made to that rental space.

“Let’s say you only made $5,000 on rental income but you spent $30,000 repairing (the rental space) that year,” Bayles says. “You can take that $30,000 deduction on your tax return, so that will reduce your taxable income dollar for dollar, which is huge. For someone making $100,000 on paper, it’ll look like you made $70,000, so your taxes are reduced.”

If you own commercial or residential property as an investment rather than living there yourself, repairs to these properties are also deductible, but tax laws are separate from those for homeowners.

Home Office Expenses

Working from home is another increasingly popular way homeowners are maximizing their space. If you work exclusively from home, you may be able to deduct costs for the space on your itemized tax return.

However, the requirements for the home office deduction change for 2018 filings. For 2018 taxes, deductions are limited to self-employed workers. Regardless of the year you’re filing, your home office can’t be in a guest bedroom or other space used for a dual purpose, and it must be used regularly.

But strict requirements shouldn’t deter you from filing for a home office deduction if you do, in fact, use your home office within the guidelines.

Capital Gains from a Home Sale

There are certainly tax benefits to owning a home, but selling your house, in most cases, gives the kind of tax break few people expect or realize. The capital gains exclusion rule allows home sellers to keep the profit from a home sale without paying taxes on it.

Bayles notes the requirements for the rule: “If you’ve lived in the property as your primary residence two years in the last five years … you can make $250,000 profit as a single person, tax-free, or $500,000 as a married couple.”

The majority of home sales fall under these stipulations, which means most home sellers are able to profit from the sale of their home without having to report those earnings to the IRS.

Of course, most people who sell their house take the profits to purchase their next home. Bayles says roughly three-quarters of his clients buy their next house with profits from the last one. The rest often use the extra funds to pay off debt or add to their retirement savings.

Avoid These Top Three Sales Mistakes in Real Estate

“I don’t know why, but my house just won’t sell!” When our team receives messages like this, we almost always find that the seller (and, often, an inexperienced real estate agent from another office) have made some big mistakes. Your house is lovely—it’s just not putting its best face forward. Read on to find out the top three sales mistakes that we see when people are selling their homes in NJ, as well as the ways that Sheldon Neal works to eliminate those mistakes.
Your Home is Priced Wrong.
This is the most common mistake we see in sales in NJ. Your home can be priced too high or too low, but either will result in poor sales. When a home is priced too high, it is easy to see why it doesn’t sell—why not just buy the lower-priced home across the street? On the other hand, low pricing can actually scare potential buyers away—do you really want the “discount” home? By working with an experienced real estate team, you can trust that market research gets done to sell your home at a competitive, but realistic price. This shortens time on market while giving you the best rates!
Your Marketing is Terrible.
The internet is full of “real estate fails,” including everything from photos of dirty houses to stories of real estate agents not following up on sales. Selling a home is not as simple as collecting money—just like your favorite clothing store markets its products, you must market your most important product: your property. Fortunately, working with a skilled team ensures that your property is staged properly for good photos, inquiries are addressed immediately, and your property is listed where people can find it.
Your Real Estate Agent is Inexperienced.
This is one of the first and worst mistakes you can make in real estate. Hiring an inexperienced, unqualified, or poorly rated real estate agent can drop your sales price like a rock. Worst of all, you may not even be expecting it! To ensure you get the best assistance and representation throughout the process of selling your home in NJ, work with a certified, licensed Realtor.
Category: Selling

Five Questions to Start Your Home-Buying Process

If you’re thinking of buying a home in New Jersey, congratulations! The tri-state area is a beautiful, historic place that is perfect for all sorts of lifestyles. As a Realtor in Bergen County, I have helped many individuals and families find their perfect home. How do my real estate clients find the best properties? We start out by discussing a few questions. Check out the questions below to see how the process starts!
1. Are you planning on having kids? This question is so important, because you want the best for your children—even if they won’t come along for a few more years! Planning your future around your home ensures that your child will go to a great school, have exciting parks to play in, and probably meet some friends in the neighborhood.
2. How long do you plan to live here? Many people like a “starter home” when they first marry or move out on their own, and your needs will be different as a new homeowner than they will be in a few decades. Share this information with your Realtor and plan for the future today!
3. Do you want to do some fixing, or move in right away? There are amazing deals on “fixer-uppers” in many neighborhoods—if you want to put in the work. On the other hand, if the only tool you want to pick up is the pen to sign the agreement, let your Realtor know! The best home purchases are informed by a variety of pieces of information.
4. How long do you have to look for a home? Families can spend (often waste!) thousands of dollars and experience plenty of stress if one home sells before the other is ready to buy. On the other hand, sometimes great deals show up if you can wait a few months. Let your Realtor know your time concerns so your buying process is hassle-free.
5. Are there any “deal-breakers”? Late in the game, many home buyers realize that they can’t deal with a bedroom on the bottom floor, would give anything to have a swimming pool in the back yard, need a garage more than a spare bedroom, or any other individual concern. Even if it seems like something small, mention these “deal-breakers” to your Realtor to match with the perfect home.
These are just a few of the most common questions that we ask of those who are buying a home in New Jersey. As we work together, we learn more about your needs and the real estate process so your home is the perfect one!
Category: Buying