How Big a Home Do You Truly Need? 5 Questions to Ask to Figure That Out

When it comes to homes, the popular credo is that bigger is better. More square feet = a larger slice of the American dream, right? Not necessarily. For one, bigger homes obviously cost more, and oversized McMansions can be harder to sell. As such, you’ll want a home that’s neither too big nor too small. But how do you strike that balance? Here are five questions to ask yourself that will help you determine how much space you really need.

1. Is this my ‘forever’ home, or is ‘right now’ good enough?

While you can’t predict the future (darn those unreliable crystal balls), it is possible to evaluate the likelihood you might be moving in coming years. If so, then maybe you don’t need to buy that perfect ‘forever home’ where you’ll grow old; maybe a ‘right now’ home is good enough.

“There’s a common perception that you should be searching for your ‘forever home,’ and that pressure to find a place that has all the space you might ever need often leads buyers to purchase a home that might be too big,” warns Jackie Hinton, a real estate agent with Center Coast Realty in Chicago. “It’s OK to know that you’ll only live in a home for the next five or six years, and to buy a home that will serve your needs during that period. You can always re-evaluate and upgrade to a bigger space later.”

2. What will my income look like later?

If you’re early in your career, odds are decent that your income will increase over the years. Or, if you’re reaching the end of your career, you may be looking at flattened or declining income. In either case, it’s never a good idea to get a mortgage at the max of what you can afford, it’s better to go small and have some wiggle room.

“Nothing causes more stress than financial strain,” says Bill Rice, president of MyPerfectMortgage.com. “A mortgage on a home that is a size too large is most likely to be your biggest burden, and a hard one to overcome. Happiness is often one size smaller than your dream home. That way, you can enjoy your home without dreading your monthly mortgage payment.”

Also, remember more space means more time and money spent on upkeep and maintenance, more rooms to fill with furniture, and higher utility bills to heat and cool the home.

“Any future improvement projects, like installing new floors or replacing windows, will cost more when the space is bigger,” says Hinton.

3. What are my priorities?

Another question to consider is what you’ll use all that space for-and be honest: While you might dream of hosting epic dinner parties in that big formal dining room, will you really? Can you say with honest certainty that your in-laws will descend on you during the holidays and need a guest bedroom to crash in, or might they be just as comfortable in a nearby Airbnb?

Aside from justifying what you’ll use each space for, ask yourself what you’re giving up. If you dream having a secret “travel fund” so you can see the world, that maybe be possible only with a smaller mortgage (and house). Or, perhaps you value things other than space, like school district or a walkable location. So make sure to factor those variables, too-and make sure you aren’t sacrificing them for space you don’t need.

This is why real estate investor Kathy Kettke decided to buy a smaller home so she could live in her “dream location” near the beach. “Being open to a smaller home allowed us to be in a higher-priced market we wouldn’t have been easily able to afford otherwise,” she says. And best of all, her home doesn’t feel cramped-particularly since she can pop out and stroll along the ocean anytime.

4. How much space do I want from my own family members?

If you absolutely must have privacy-to, say, get work done in a home office or chill out in your man cave-then that extra square footage may be well worth the money. But if you’re more the type who loves having their family members nearby, a large home gives people plenty of alone time…sometimes too much.

Fettke, for one, is glad her home is small because it keeps her in close contact with her kids. “I’ve found that my daughter’s friends who live in large homes rarely even run into their parents,” she says. But since her own home is smaller, her kids are constantly underfoot-just the way she likes it.

“Plus it seems that most of our daughter’s friends hang out at our place, even though it’s tiny,” she says. Sure, the beach nearby may be one draw, but so may be the cozy, close-knit family environment a smaller home forces you to have. “Maybe they like the homey environment and being able to smell the cookies being baked around the corner,” she says.

5. Does this home feel spacious even if it doesn’t have much space?

Keep in mind that even small homes can feel spacious purely based on an open floor plan and lots of light. Meanwhile, large homes can still feel cramped if they’re dark or poorly laid out. So, when shopping real estate listings, know that the little number next to square footage may not tell the whole story.

“The total square footage of a house can be deceiving,” says Patrick Ryan, senior vice president and managing broker of Chicago-based Related Realty. “Features like a long hallway may increase the total, but they are spaces you pass through, not a true destination within the home.”

So instead of homing in on total square footage, “buyers should focus on the size of individual rooms where they see themselves spending the majority of their time,” says Ryan. In other words: Who cares if your bedroom isn’t massive, since all you plan to do there is sleep?

Source: Julie Ryan Evans | www.realtor.com

Game-Changing Real Estate Trends in 2018

From housing inventory to price appreciation to generational shifts, look for real estate markets to “reshape” in 2018, according to the National Association of REALTORS®.

Game-changer #1: Supply finally catching up with demand

After three years of a shrinking supply of homes for sale, the realtor.com economists predict that the shortfall will finally ease up win the second half of 2018.

“The majority of the year should be challenging for most buyers. But we do expect growth in inventory in the fall,” says Danielle Hale, chief economist for realtor.com.

If housing inventory increases as predicted by fall, that will be the first net inventory gain since 2015.

Bullish construction is the engine that’s turning this ship around, bringing new home inventory to the market and creating opportunity for people to trade up into new homes.

But first time buyers may have to be patient for a while longer.

“Overall, prices are expected to increase, and we’re expecting to see more of that in lower-priced homes,” Hale says.

Along the Front Range, appreciation for homes priced above $750,000 will slow down while homes priced less than $500,000 will continue to see appreciation but not at the rate seen in recent years. This is due to the lack of supply (many builders are focusing on higher price point properties) and a large demand for real estate as a result of continued net migration.

Game-changer #2: Millennials starting to come into their own

The housing market in 2018 will continue to present challenges for millennials but there are some bright spots on the horizon.

Because of the strengthening economy and their developing careers, millennials are taking on larger mortgages and bypassing entry level homes.

As millennials reach their 20s to 30s when they’re settling down and starting families, they’re particularly motivated to buy. Millennials could make up 43% of home buyers taking out a mortgage by the end of 2018, up from an estimated 40% in 2017.

With mortgage rates expected to increase during 2018 due to stronger economic growth, millennials would be wise to buy sooner than later.

Game-changer #3: Tax reform

The new tax plan will change things up, in a nutshell causing short-term rates to rise more rapidly than anticipated as the Federal Reserve seeks to “get ahead” of possible inflation. The tax plan will also flood the market with a little more liquidity, keeping the economy moving at least another year.

Sources: Glen Weinberg, www.cobizmag.com, Cicely Wedgeworth, www.realtor.com

Give our office a call to discuss your real estate plans for 2018!

The Tax Cuts and Jobs Act: What it Means for Homeowners

The National Association of REALTORS® (NAR) worked throughout the tax reform process to preserve the existing tax benefits of homeownership and real estate investment. While some benefits of homeownership are diminished, NAR maintains that the final legislation will benefit many homeowners, homebuyers, and real estate investors.

Most changes will take effect on January 1, 2018.

Tax returns filed during the spring of 2018 (for the 2017 tax year) are not generally affected. But knowing about these changes now will help taxpayers plan and understand how the TCJA could impact their take-home pay and their 2018 tax refund.

Tax Rate Reductions

The tax rate schedule retains seven brackets with slightly lower marginal rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The prior tax rate brackets were 10%, 15%, 25%, 28%, 33%, 35%, 39.6%.
The final bill retains the current-law maximum rates on net capital gains (generally, 15% maximum rate but 20% for those in the highest tax bracket; 25% rate on “recapture” of depreciation from real property).

Exclusion of Gain on Sale of a Principal Residence

The final bill retains current law. A homeowner is required to live in their home 2 out of the last 5 years, instead of the proposed 5 out of the last 8 years, to qualify.

Mortgage Interest Deduction

Interest on a new home mortgage is limited to interest paid on a maximum of $750,000 of a new mortgage taken out after December 14, 2017. Current loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap.
Taxpayers with a mortgage taken out before December 15, 2017 can continue to claim home mortgage interest on up to $1 million. The $1 million limit continues to apply to a refinanced mortgage incurred before December 15, 2017, and requires that the new loan does not exceed the amount of the mortgage being refinanced.
Interest on a home equity loan is no longer deductible unless the proceeds are used to substantially improve the residence.
Interest remains deductible on second homes, subject to the $1 million/$750,000 limits.

Standard Deduction

Many taxpayers who previously itemized deductions will now claim the standard deduction instead.

The final bill provides a standard deduction of $12,000 for single individuals and $24,000 for joint returns. The new standard deduction is indexed for inflation.

Individuals should consult a tax professional about their own personal situation.

Source: National Association of REALTORS and www.hrblock.com

Pricing Myths About Selling Your Home

Myths

Pricing your home for sale can be challenging and many home sellers fall prey to myths about home pricing. Let’s take a look.

1. You always make money when you sell a home.

Appreciation is one reason you invest in real estate. However, the market value of your home depends on many factors, including condition, location, and competition. A competitive market analysis will help you determine market value and estimated net proceeds.

2. Price high to make big bucks.

An overpriced home is simply not likely to sell. As the northern Colorado market slows down, buyer competition has diminished in some price ranges. Additionally, a Buyer’s loan is contingent on an appraisal report using comparable sales that are unlikely to support a price higher than market value.

3. If your home’s overpriced, it’s no big deal to reduce it.

Homes that linger on the market for months can lead buyers to think that something may be wrong with the home. An acceptable offer is more likely to occur in the days immediately following the listing if the price reflects the market value.

4. Price too low and lose money.

Sellers are often leery of pricing their home on the low end. But low-priced homes can drum up tons of interest and a possible bidding war that could drive the final price above your expectations.

5. You can recover any renovation costs.

On average, you can expect to get back 64% of every dollar you spend on home improvements, and that profit can vary greatly based on which renovation you do.

6. A past appraisal is a good indicator of current value.

An appraisal assigns your home a value based on market conditions at a specific date, which becomes outdated very quickly. Lenders require an appraisal value based on current sales data.

7. The agent might overprice the house to make a bigger commission.

The agent does not want your home to linger on the market any more than you do! As the seller, you will set the listing price for the home, and negotiation with the buyers will determine the final sale price!

Call our office with questions about pricing your home!

Millennials Want Homes, but Lack the Down Payment

Most millennials dream of becoming homeowners one day. But a recent report shows that a majority of them haven’t saved anywhere near the amount necessary for a down payment, putting their homeownership dreams far into the future–and possibly out of reach.

About 80% of the younger generation hope to buy a home, according to the study from rental website Apartment List. But 36% of these wannabe homeowners plan to wait more than five years to take the plunge into homeownership.

That’s because home prices keep rising and most millennials simply don’t have the money for an onerous down payment. More than two-thirds of respondents don’t even have $1,000 in down payment savings.

The Survey

Apartment List surveyed 24,000 millennial renters, born between 1982 and 2004, for the report. It was conducted from October 2016 through April 2017.

The percentage of millennials planning to wait at least a half-decade spiked this year. In 2016, only 27% said they planned to wait more than five years. In 2015, the figure was 23%.

And in the latest survey, 67% believe it will take them at least three years to become homeowners while only 16% believe they’ll close on a home within two years.

“Millennials’ plans to purchase a home are being pushed further and further into the future,” says Apartment List data analyst Chris Salviati, one of the authors of the report. “That could have serious impacts on their long-term financial stability.”

Decades to Save Up for a Down Payment

In the priciest parts of the country, it might take aspiring homeowners two decades–or more– to come up with a 20% down payment.

Take San Jose, CA. Young buyers are expected to need at least 24 years to come up with 20% for a condo in the metro area. Twenty-four years!

The grim reality of sizable down payments isn’t much better in the metros of Austin, TX, and Los Angeles, where millennials will need nearly 21 years to save. The calculations include home price, income, and savings growth projections.

“A lot of college-educated millennials are still carrying a lot of student debt,” Salviati says. “To move to some of the best-paying jobs, millennials have to live in some of the most expensive cities. And throughout the country, increases in home prices are outpacing wage growth.”

When the hurdle of an initial down payment was reduced to 10%, just 1 in 3 millennials said they could come up with the needed down payment in five years or less.

However, it’s worth noting that many younger and first-time buyers put down considerably less than 20% or even 10%. Certain Federal Housing Administration–insured loans require only a 3.5% down payment.

Why are Millennials Waiting to Buy?

About 72% of aspiring millennial buyers said they’re waiting because they can’t afford to buy. 45% said they weren’t ready to settle down yet. And 36% said they’re waiting to be married first.

Coming up with the down payment was the biggest obstacle, at 53% followed by monthly payments (at 36%) and low credit scores (at 29%).

“They’ll continue renting longer into adulthood than we’ve seen in previous generations,” Salvaiti says. They might buy smaller homes or “migrate to areas where prices are more affordable.”

Source: Clare Trapasso | www.realtor.com