Hello everyone!
I hate to say this, but we are returning to the days of high rates for a sustained period. The average person will say this is the worst time to buy a home due to high rates. They are wrong!
Baby boomers dealt with high-interest rates on home loans from 1967 to 1984, producing almost 20 years of pain for buyers. If you ask anyone from that generation, they will tell you how they bought their first home at 12% or even 18% interest in the late 70's and early 80's.
During that time, residential house prices still grew 7.72% annually.
Here are several Financial Planning tips to deal with the new normal.
Mortgage interest is deductible on your primary home up to a 750,000 dollar loan for a married couple and 375,000 for single filers. Deductions allow you to reduce your overall adjusted gross income. Standard deductions for married couples are capped at
$27,700 For more on this, please visit the IRS website: https://www.irs.gov/publications/p936
You need an excellent accountant for tax filers who own a business and have passive income (i.e., rental income). They can show you where you can take advantage of HELOC interest and mortgage interest in the tax code.
Buy points when you apply for the mortgage. Ask the lender to create a hypothetical and visualize the difference of the money spent buying points vs. not. The lender can also clearly show how much a point costs in the mortgage origination. This may be advantageous if you already DO NOT have a lot of standard deductions. Again, an excellent accountant can help with this.
Points can also be deductible at the time of mortgage origination for the calendar year you buy your mortgage. This is different if you decide to refinance down the road.
The IRS also allows a first-time home buyer to remove 10,000 penalty-free (10%) from an IRA. If you do so, remember the removal adds income to your AGI for that year.
If you have a 401k at work, and it allows for borrowing funds for non-hardship withdrawals, the financial planner in me cringes at this advice. But with homes still very unaffordable, this is worth considering, assuming the loan rate is under the mortgage rate. (Some companies allow for a zero percent borrow policy.)
Negotiate with the sellers and see if they will put money towards the interest rate. The formal term is seller-paid rate buydown when the seller offers concessions to help alleviate the first several years of interest.
Develop a relationship with a real estate broker and accountant long before you need one. Having experienced professionals assist you over time is one of the best advice I can give anyone.
If you are in need, I have a phenomenal accountant in Mount Pleasant and a very experienced Realtor in Myrtle Beach who knows practically everything. Both genuinely love their respective professions and can help answer any questions you may have.
My last helpful hint is to have a roommate. Yes, a roommate! Many people do it to help those who are at the limit of what they can afford, and it allows you to move forward, especially those who are young and buying a first home. The extra income can help pay down the principal on the mortgage, or you can save it for renovations.
Fun quiz: Ask your family the price paid for the home you grew up in, then look online for what it would sell today. This country runs on opportunity and optimism, even amid uncertainty.
Go forward, friends.
Cheers Chris
Christopher R. Lakian