The so-called “gig” economy means more people than ever are self-employed, receiving 1099 tax forms as independent contractors. A study by Intuit predicted that by 2020, 40 percent of American workers would be independent contractors. In the world of the self-employed, the idea of securing a mortgage can seem like a fantasy. Unlike the traditionally employed, the self-employed entrepreneur is seen as a greater risk. Despite making a good living, some self-employed workers never even apply for a mortgage, believing the dream of home ownership is cut off by slim chances for approval.
This isn’t necessarily true! Don’t give up on home ownership just because you’re self-employed. Instead, take the steps to boost your status in the eyes of lenders. Here are some tips to put you on the path towards pre-approval:
- Lower your debt. Debt is what haunts almost all new buyers seeking a loan. If you’re self-employed and debt-free, or have a low income-to-debt ratio, you look much more appealing to lenders.
- Keep your personal and business accounts separate. Professionals draw a line between business income and expenses and personal income and expenses. Demonstrating this level of maturity is a plus.
- Deduct less on your taxes. The self-employed are almost always guilty of taking tax deductions which cast a little shade on their mortgage application. Take honest, documented deductions, and don’t make it look like you’re desperate to cook the books!
- Register and pay yourself like a pro. Make sure your business is licensed and registered and, if possible, setup your business structure to pay you on a W-2 form rather than declaring your income as 100% 1099.
- Document everything. Make no claim without paper (or verifiable digital records) to back it up. Check stubs from clients, proof of income, expenses… everything. The more thorough and organized your documentation, the better you look to the lender reviewing your file.
It can also be useful to make a larger down payment than most, but lenders understand this can be difficult. You may be eligible to use your IRA or even an old 401(k) to boost your down payment, but talk to your tax professional before you make any moves.
Don’t let self-employment cloud your view of securing that mortgage. It is possible! I’d be happy to put you in touch with lenders when the time comes!
Report: DFW Still Short of Homes Despite Record Construction
Dallas-Fort Worth was still short over 40,000 home listings by the end of 2015, even as the number of single-family homes under construction set a regional record, according to one housing research firm. By the end of 2015, there were 14,180 single-family homes under construction, which represents a 7.2-month supply, but it wasn’t enough to counteract the North Texas’ home shortage, said Ted Wilson, principal at Dallas-based Residential Strategies, which tracks and analyzes Dallas-Fort Worth’s housing market. “Shortages of construction labor continue to provide challenges for homebuilders,” Wilson said. “Unfortunately, there appears to be no near-term alleviation for this challenge.” The record rains in spring 2015 also set back the number of completed homes. For 2015, builders started 27,672 new homes, which was an increase 6.6 percent year-over-year, according to Residential Strategies’ data. By year=end 2015, builders closed $23,565 single-family homes, which increased 7.9 percent year-over-year.
Builders’ estimated the number of closings were 15 percent to 20 percent below their business plan because of construction delays tied to weather and a tight labor supply, Wilson said. And, so far, there’s no end in sight, he said. “Shortages of construction labor continue to provide challenges for homebuilders,” Wilson said. Wilson said North Texas’ homebuilding industry outlook appears “quite bright” for the next few years as companies continue to relocate employees to the region. “This steady influx of workers should help sustain housing demand,” he said.
– Dallas Business Journal, January 8, 2016
North Texas Home Sales Surged in December to Set Record for 2015
North Texas home sales jumped 21 percent in December as homebuyers scrambled to get purchases closed before the end of the year. December’s surge in sales was enough to push 2015 home purchases to a record 96,156 preowned homes, according to data from the Real Estate Center at Texas A&M University. Almost $25 billion in houses were sold last year. “We knew the market was very strong,” Russell Berry, president of the MetroTex Association of Realtors, said in a statement. “We astounded to see sales volume at nearly $25 billion for the year.” Home sales in the area in 2015 were almost 15 percent greater than in 2006, the peak local housing year before the recession. Real estate agents sold 8,543 preowned in December – the highest sales volume in three months. December usually sees declines in home purchases because of the holidays. Median home sales prices in the final month of 2015 were $210,000 – 9 percent ahead of December 2014, according to data supply by the North Texas Real Estate Information System.
– Dallas Morning News, January 8, 2016
January Pendings Are Up 28 Percent
Early indications show another strong month for home sales in January. The number of pending home purchases – under contract but not yet completes – was 28 percent higher than a year ago. The early start for 2016 no doubt ease fears of a housing sector cool down caused by the huge declines in oil prices and cutbacks in Texas’ energy industry. Worries about rising interest rates may have helped fuel the dramatic rise in December home sales. “The uptick in Federal Reserve rates pulled people off the sidelines,” said Ted Wilson, a housing analyst with Dallas’ Residential Strategies Inc. “They think it’s time to buy.”
– Dallas Morning News, January 8, 2016
The first effects of the new Know Before You Owe or TILA RESPA Integrated Documentation (TRID) rules are now measurable. The changes created some confusion among lenders and closing agents and the average time-to-close has risen as a result. The industry is at the short end of the learning curve, so this impact will likely ease with time.
The new TRID rules have been in effect since October 3rd. Historically, a typical close took roughly 30 days so few closings in October would reflect the new TRID process. However, with November complete we can begin to measure the impact.
A special data sample was utilized to create a time series for time-to-close; the time in days from when a listing goes under contract until it is complete. A primary driver of time-to-close is the volume of mortgage applications, both refinances and purchases. Both series are charted below in 4-week moving averages to mute the weekly volatility.
Here are some of the principal takeaways:
- Applications volume typically falls in November
- In 2013 and 2014, time-to-close fell with applications volume
- Applications volume fell in November of this year, while time-to-close spiked
- There was a bulge of applications in August through October, but these should have been worked out by November and they did not impact earlier timelines
- Time-to-close rose to an average of 40.5 days in November of 2015 from 35.9 in November of 2014, a 12.8% increase.
- Time-to-close peaked at 41.2 days in the 4th week of November
While early indications are that TRID has delayed some closings, anecdotal evidence suggests that sales are still likely to close. Consequently, the impact to home sales volume and statistics should be transitory. The change will cause a one-period shift in sales to the next month and each subsequent month will have a full month’s tally of sales. As time-to-close declines, there may be a modest increase to monthly sales as the market catches up. This shift may modestly impact the seasonal factors used to adjust economic time series of home sales.
In the long-term, lenders and closing agents may adjust to the new environment reducing the time-to-close. In the near term, consumers are likely to require a 45-day lock period rather than the standard 30-day. This could add $100 to $300 onto the cost of closing.
–Source: Ken Fears in Economist Commentaries 22 Dec 2015–
While luxury homes are often criticized for being excessive and wasteful, the last few years have seen high-end construction make a concerted turn toward improved sustainability and efficiency. In 2015, more than ever, smart home technology is being applied to the problem of energy consumption and environmental impact, resulting in luxury homes that are simultaneously high-end and eco-friendly.
Jennifer Egbert, a REALTOR based in Boulder, Colorado who specializes in luxury homes, has noticed a steady uptick in the combination of smart home technology and eco-friendly design practices in new luxury home constructions. “Smart home design is evolving quickly to meet the demands of current homeowners and future buyers,” Egbert wrote in a recent online article for At Home Colorado. “Especially here in Boulder, high-tech and energy efficient houses continue to rise in popularity.”
According to Egbert, an ILHM-certified real estate professional, four of today’s most popular luxury home design features focus on solar power, water conservation, efficient energy storage, and smart home technology.
Passive Solar Homes
In addition to harnessing the sun’s power with high-efficiency solar panels, today’s most ecologically oriented luxury residences are built using passive solar home design. With careful window positioning and insulation, passive solar homes are heated and cooled naturally by the environment, reducing reliance on A/C and furnace units that are famously inefficient—particularly in spacious, open-plan homes like those on the luxury market. Egbert is currently featuring a Boulder-area high-tech passive house on her website, and she sees the passive house trend as both unique and important. “It’s paving the way for a new type of lifestyle—one that emphasizes an appreciation for nature while providing high-end building components.”
Newer eco-friendly luxury homes are doing away with expansive green lawns and non-native plants that require mind-boggling volumes of water. “Homeowners are becoming increasingly concerned with conserving water,” noted Egbert, “which is why many residences are employing water-saving landscaping design techniques like hardscaping or xeriscaping.” In addition, wealthy eco-minded homeowners are installing simple design features to reduce water consumption, such as high-efficiency toilets, showerheads, and faucets, as well as water capture systems that harvest rainwater for in-home use.
Tesla Home Energy Battery
One of the most groundbreaking recent innovations in eco-technology is the Tesla home energy battery, which is out of stock until 2016—proof of its popularity. The Tesla Powerwalllinks with a home’s solar panels, stores energy for later consumption, and provides energy to run a residence regardless of weather conditions. If the residence is connected to the grid, the Powerwall further helps to cut utility bills by charging during times of day when energy costs are at their lowest. “Energy efficiency is on most people’s minds these days,” said Egbert, “so some homeowners are going to great lengths to cut down on their utility bills.”
Smart Home Technology
Along with incorporating eco-friendly design features into their residences, luxury homeowners are implementing cutting-edge “smart home” technology, which integrates seamlessly with mobile devices and offers easy manipulation of home functions like temperature, humidity, lighting, irrigation, and entertainment. Ambient intelligent systems (AmI) go one step further by predicting and responding to residents’ needs. A network of sensors tracks movements and behavioral patterns and, as a result, the system can turn up the lights as you enter a dark hallway or adjust the heating when you’re expected to get home late from work. Remarking on the growing popularity of high-tech luxury homes, Egbert said, “To many homeowners, the phrase ‘smart home’ still conjures up images of futuristic gadgets, but that technology is definitely available and many builders and home owners are choosing to implement it.”
— Luxury Insights 07 December 2015 —
Every year at this time, many homeowners decide to wait until after the holidays to put their home on the market for the first time. Others who already have their home on the market decide to take it off the market until after the holidays. Here are six great reasons not to wait:
1. Relocation buyers are out there. Companies are not concerned with holiday time and if the buyers have kids, they want them to get into school after the holidays.
2. Purchasers that are looking for a home during the holidays are serious buyers and are ready to buy.
3. You can restrict the showings on your home to the times you want it shown. You will remain in control.
4. Homes show better when decorated for the holidays.
5. There is less competition for you as a seller right now. Let’s take a look at listing inventory as compared to the same time last year:
6. The supply of listings increases substantially after the holidays. Also, in many parts of the country, new construction will make a comeback in 2016. This will lessen the demand for your house.
Waiting until after the holidays to sell your home probably doesn’t make sense.
-Keeping Current Matters, 5 Nov 2015-
There has been a lot of talk about how difficult it is to get a home mortgage in today’s lending environment. However, three recent reports have revealed that lending standards are beginning to ease. This is great news for both first time buyers and current homeowners looking to move or buy a second vacation/retirement home. Let’s look at the three reports:
The MBA’s Mortgage Credit Availability Index
This index, issued by the Mortgage Bankers’ Association, measures the availability of credit available in the home mortgage market. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of a loosening of credit. We can see that the index has been increasing nicely this year:
Fannie Mae’s latest Mortgage Lender Sentiment Survey
This survey revealed that more lenders report that mortgage lending standards across all loan types are easing. The survey asked senior mortgage executives whether their company’s credit standards have eased, tightened, or remained essentially unchanged during the prior three months. The gap between lenders reporting easing as opposed to tightening over the prior three months jumped to approximately 20%. This represented a new survey high of “net easing.” In addition, the share of lenders who expect their organizations to ease credit standards over the next three months also ticked up this quarter.
Doug Duncan, senior vice president and chief economist at Fannie Mae, addressed this easing of standards:
“For the first time in seven quarters, we see a pronounced increase in the share of lenders, particularly medium- and larger-sized lenders, reporting on net an easing of credit standards … This is a significant result in light of public discourse on credit availability and standards … Overall, we expect that lenders’ tendency toward easing credit standards, together with relatively low mortgage rates and a strengthening labor market, will continue to support the housing market expansion.”
Ellie Mae’s latest Origination Insights Report
The easing of credit standards is also confirmed in this report which showed that the average FICO score on a closed loan fell to its lowest point in well over a year. Here is a chart of average FICO scores on closed loans so far in 2015:
Just keep an eye on interest rates…
Although this is all great news, there was one challenge in the recently released data.Ellie Mae reported that the average interest rate on closed loans is beginning to inch upward:
What this means to you…
If you are a first time buyer or a current homeowner thinking of moving up to a bigger home or buying a vacation home, now may be the time to act. Mortgage lending standards are beginning to ease and interest rates are beginning to inch up.
–Keeping Current Matters; 23 September 2015–