Learning what you need to know to buy a house can feel like an insurmountable chore, especially when the rules change all the time. Even if you have been through the process before, 2018 brings a host of new tax codes, a surge in demand without an increase in supply, and more risk of fraud and scams to look out for.
First and foremost, the new tax reforms mean new things to think about when deciding how much you can afford. For many homeowners, a big perk of ownership is the ability to deduct mortgage interest. However, the new tax reform has almost doubled the standard deduction, which reduces the incentive to itemize taxes. The Tax Policy Center estimates that the percent of tax filers claiming mortgage interest deduction will fall from around 21% to just 4% of taxpayers due to this doubling of the standard deduction. This means far fewer homeowners will receive this break from Uncle Sam.
Additionally, while wealthy homeowners with big mortgages currently get the biggest real estate tax breaks, things are changing. Under the new rules ushered in by tax reform, the mortgage interest deduction is capped at $750,000 for newly issued mortgages. Previously, homeowners could deduct interest on mortgages up to $1 million. This change is expected to make it more difficult for higher-priced homes to sell, reducing their value. It will definitely make buying a high-end home cost more. Since homebuyers typically make a down payment, those with homes valued at up to $937,500 who put down 20% or more will still get to deduct the full amount of interest on their mortgages. Still, many homeowners stuck in places with high housing prices are likely to have at least some nondeductible interest that previously would have provided a tax break.
It’s also important to consider that real estate taxes can be expensive! Where homeowners were previously permitted to deduct the full value of taxes paid to local governments from their federal returns, this is no longer the case.
On another note, if you plan to buy a home in 2018, you should be prepared for tough competition. While housing stock continues to be at a low ebb across the USA, multiple offers and all-cash buyers are becoming more common, particularly in larger markets. One way to compete against an all-cash buyer is to learn the seller’s goals for the sale. If they are looking for a flexible closing date or certain contingencies, you could get the edge by being willing to meet their needs.
Finding a fixer-upper has its upside in this tight housing market. You will pay less to renovate one of these homes than a new home, and you may be able to pick up a deal on a house others have not wanted to put the work into. Remember, a good renovation project has mainly cosmetic issues, like a dated kitchen or wood floors that need refinishing, rather than structural issues or problem plumbing.
Be smart when buying a home, use your head as well as your heart. Online house shopping is convenient, but pictures never tell the whole story. Don’t get your heart set on a property without seeing it in person. Consider the practical aspects of features in the home. That fancy pedestal sink looks beautiful, but how much counter space will you have? How hard is the white grout in that Italian tile countertop to keep clean? Also be sure to have a thorough inspection done to uncover any underlying issues, and if anything major is found, ask the seller for repair credit or a discount.
Lastly, as more and more real estate transactions take place online, caution and security are key. Anything that looks too good to be true probably is. Offers that come with a sense of urgency and a short time limit such as “You must act today!”, any requests for personal information transmitted via email or web forms, brokers representing sellers that are out of the country or otherwise unreachable, all are red flags that should put you on high alert.
When you find the right home at the right price, you will need an experienced title team to seal the deal. Setco Services can provide just that! We will create a custom closing plan and be there for you every step of the way to the closing table and beyond. We offer a convenient “Paperless Closer” service that allows you to see your closing progress as it happens and securely stores your documents for the future.
Please click below to learn what services we can offer 2018’s homebuyers!