Troy Stavros, Author at 865 Real Estate

Knoxville Real Estate: What are mortgage “points”?

January 16, 2013 By Troy Stavros

Troy Stavros, Broker and Partner with the 865 Real Estate team stated, “With the latest announcement regarding the new Qualified Mortgage rules, we felt it was a good time to re-address one of the questions asked of us most often by our Knoxville real estate clients. That being, “what are points” in a mortgage?”

There are two types of “mortgage points”. Discount Points and Origination Points. In both of these, each point is equal to 1% of the total amount mortgaged. For example, on a $200,000 home, one point is equal to $2,000. The least helpful from a buyer’s point of view are the “origination points’, as they are simply used to compensate loan officers. Not all lenders require the payment of origination points, and if asked, many are often willing to negotiate the fee. Origination points are NOT tax deductible. Discount points, which can be helpful, are basically prepaid interest. The purchase of each point typically lowers the mortgage interest rate by 0.25%. For example, if your original rate is 3.5%, purchasing a point could lower it to 3.25%. Most lenders give you the opportunity to buy anywhere from 0 to 3 discount points. If you itemize your taxes, discount points are tax-deductible.

Stavros says that next question clients have is, should I buy the points. Stavros offered, “The two deciding factors when looking at buying points on your mortgage are one, how long do you intend on living in the home, and two, do you have the extra money to pay for them.” The longer you plan on staying, the larger your savings will be if you purchase discount points. A number of calculators are available on the internet to help you figure the appropriate amount of discount points to buy, based on how long you plan on owning the home.

Consider the following example from Investopedia:

On a $100,000 mortgage with an interest rate of 6%, your monthly payment for principal and interest is $599.55 per month.

With the purchase of three discount points, your interest rate would be 5.25%, and your monthly payment would be $552.20 per month.

Purchasing the three discount points would cost you $3,000 in exchange for a savings of $47.35 per month. You will need to keep the house for 63 months to break even on the point purchase. Since a 30-year loan lasts 360 months, purchasing points is a wise move if you plan to live in your new home for a long time. If, on the other hand, you plan to stay only for a few years, you may wish to purchase fewer points, or none at all.

The second and most important question with the purchase of discount points involves whether or not you have enough money to pay for them. Stavros says, “Buying a home in Knoxville can be expensive. With down payments and closing costs. Many buyers simply don’t have enough money left over to purchase points.”

Purchasing discount points can be a good way to lower your monthly mortgage payments if you plan on staying in your home for an extended period of time. However with today’s incredibly low rates, you really need to crunch the numbers to see if it’s worth it.

336 Gwinhurst Road, Knoxville, TN 37934 New Listing in Wentworth!

January 10, 2013 By Troy Stavros

UPDATE: SOLD! New listing in one of Farragut’s most sought after neighborhoods… Wentworth. It is not often that you can find Knoxville homes for sale in Wentworth at this price point. This home located at 336 Gwinhurst Road, Knoxville, TN 37934 is the perfect Farragut home to get yourself into the neighborhood at an affordable price. The home features 4BR, 3.5BA featuring an enormous main level master bedroom suite. The large eat-in kitchen looks into the vaulted family room with fireplace. Off the eat-in kitchen is a doorway to the backyard featuring at 28 foot deck. Upstairs the theme of large bedrooms continues, with 3 additional bedrooms. One featuring it’s own private bath. Along with the 3 bedrooms is a spacious bonus room. 3rd floor walk-up attic storage and a 3 car garage. The Wentworth neighborhood features sidewalks, street lamps, neighborhood pool, tennis courts, basketball court, and walking trails. Call us today at 865-999-0925 before this home slips away. It will go fast!

Knoxville Real Estate: Tips To Increase The Resale Value Of Your Home

January 3, 2013 By Troy Stavros

Are you looking for ways to update your home prior to selling that might grab a buyer’s attention? The following tips can guide you with some ideas that can add the right bang for the buck.

When deciding what will increase resale value, we need first to look at what buyers want. Why wait and start these projects a month before putting your home on the Knoxville real estate market? We suggest you start small and start early, so you can enjoy the fruit of your labors now.

If you are thinking about throwing your home into the Knoxville real estate market sooner than later, a good first step would be to consider calling a few professionals. Three in particular would be a home inspector, who can tell you what items will need to be addressed and may cause red flags to buyers. Second and third, a real estate agent and local interior designer or stager, all of which typically have the pulse of buyers and know what they are looking when visiting homes for sale in Knoxville.

Landscaping can add plenty of curb appeal to a home as well as make a backyard feel comfortable. Buying big trees and shrubs can get expensive, so we recommend you invest in your landscaping early, giving it time to mature so it is ready when the time comes to sell. That being said, nothing can take away from nice landscaping like a sad lawn. So, maintaining a healthy, green lawn can really set the tone before the buyer even gets out of the car.

Along with your landscaping nothing makes a first impression like a crisp clean exterior, so a good pressure washing of the home’s exterior and walkways can make an impact.

The last step to curb appeal, deals with the last steps before walking into the home, and that is at the front door. Upgrading exterior doors that are visible from the street can change the look of your home completely. A nice, classy, front door, can get a buyer excited about seeing the interior of the home. Think about it, where are buyers standing, and what are they looking at, as they wait for their Knoxville real estate agent to let them in the home!

The 70’s called and they want their lighting back! Unless you are planning on selling your home to Austin Powers it’s time to get rid of some of the historical artifacts. That includes outdated lighting fixtures, wallpaper, old carpeting, gold hardware, and possibly even the popcorn ceiling. Just updating to something simple, but current, can turn a big negative into an non-issue.

Kitchen remodels can come with a big price tag, so if yours is fairly current, small updates like new knobs on the cabinets or a new paint color may be all you need.

Speaking of paint color, this is the least expensive way to make a huge impact on your home. Painting outdated or extravagant colors to a fresh coat of a modern neutral color, can not only make your home look newer, but cleaner as well.

Last on the list, is another addition that is worth completing sooner rather than later so you can utilize it. That being built-in storage. Adding shelving or cabinets in a hall, bedroom, closet, garage, family room, or just about anywhere for that matter can add quite a bit of appeal. Who doesn’t like extra storage? We know buyers do!

Fiscal Cliff Avoided, But What Does It Mean For Knoxville Real Estate

January 1, 2013 By Troy Stavros

What the latest steps to avert the fiscal cliff mean to the Knoxville real estate market.

In order to avoid the fiscal cliff, a budget package was passed by the U.S. Congress on New Years Day. Implications for homeowners and the Knoxville real estate market include: tax rates remaining the same for most households and the extension of mortgage cancellation relief.

The “American Taxpayer Relief Act of 2012’’ that was passed by Congress extends current tax rates for all households earning less than $450,000, and $400,000 for individual filers. Households earning above these limits will see tax rates revert to where they were in 2003, meaning taxpayers in the highest bracket would pay taxes on ordinary income at a rate of 39.6%, up from 35%. The tax rate on capital gains would also remain the same, at 15%, for most households, but for those earning above the $400,000-$450,000 threshold, the rate would rise to 20%.

Troy Stavros, Broker and Partner with the 865 Real Estate team stated, “From a real estate standpoint, this could have gone in a bad direction and gladly did not. With the Congress keeping the provisions for the exclusion from taxes on the sale of a principal residence and important tax exemptions for homeowners, I feel housing can continue on it’s course of positive momentum.”

Good news from a homeowner’s perspective, the exclusion from taxes for gains on the sale of a principal residence of up to $500,000 ($250,000 for individuals) remains intact, so only home sellers whose income is $450,000 or above, AND the gain on the sale of their house is above $500,000 would pay taxes on the excess capital gains at the higher rate. Therefore there is no change for the majority of home sellers.

Extenders, which keep in place expiring tax provisions, are also included. Of most interest to the Knoxville real estate market, the “American Taxpayer Relief Act of 2012’’ would extend mortgage cancellation relief for home owners or sellers who have a portion of their mortgage debt forgiven by their lender. This is typically seen in a short sale or foreclosure sale for sellers or a modification for owners. Without this extension, the debt forgiven would be taxable, adding additional financial burden to already underwater homeowners. Also extended are deductions for state and local property taxes and mortgage insurance premiums, which, along with the mortgage interest deduction, are important tax considerations for home owners and buyers.

Knoxville Real Estate: How will the Fiscal Cliff effect Housing?

December 27, 2012 By Troy Stavros

Many experts have voiced that implications of the fiscal cliff will lead to changes in homeownership tax provisions and a recession. Troy Stavros, Broker and Partner with the 865 Real Estate team stated, “Although the recovering housing market has made strides towards normalcy this year, these implications will likely undo gains made in one of the economy’s most important sectors.”

Let’s take a closer look at the tax provisions and changes that could lead us to a recession, and look at how they may effect Knoxville real estate.

#1: Mortgage Interest Deduction: This is the largest and oldest housing related subsidy in the U.S. tax code, that “allows homeowners to reduce their taxable income by the amount of interest that has been paid towards their mortgage.” This deduction costs the government about $100 billion each year and has been a focal point of tax code negotiations. Some changes being discussed are: capping the deduction, limiting the number of eligible taxpayers, or eliminating the tax benefit altogether. Changes would not only have an immediate effect on a homeowner’s cash flow, but an immediate negative effect psychologically. Moody’s Chief Economist Mark Zandi state, “The deduction nevertheless has become ingrained in the psyche of home buyers over generations, and reducing it would have real effects. People account for it when they think about how much house they can afford to buy.” Changing the mortgage interest deduction will result in weakening the housing sector.

#2: Mortgage Debt Relief Act of 2007: Passed by Congress at the beginning of the housing crisis, the Mortgage Debt Relief Act shields forgiven mortgage debt from taxable income and is set to expire at the end of 2012. This protection can appear in three scenarios: “when a bank modifies a mortgage to reduce the principal; when a borrower sells her home in a short sale and the purchase price is less than the outstanding balance on the mortgage; and when a bank waives the portion of the mortgage balance it couldn’t recoup in a foreclosure.” Advocates state that allowing the tax break to expire will endanger progress made this year with troubled mortgages.

What will a recession caused by the fiscal cliff do to Knoxville real estate?

#1: Reduce Home Sales: Higher taxes will leave potential homebuyers with less available money to spend on real estate, increasing fears that the housing recovery will be reversed. But if the fiscal cliff brings the U.S. economy back into a recession, higher unemployment and lower wages will have the most profound impact on new home sales. According to the Chief Economist at National Association of Realtors (NAR), Lawrence Yun notes, “Home sales and construction activity depend on steady job growth, which we are seeing, but thus far we’ve only regained half of the jobs lost during the recession.”

#2: More Foreclosures: Another major impact of higher unemployment onset by a recession could be an influx in foreclosures. Forbes noted, “fewer jobs could translate into less demand for new homes, possibly even a wave of foreclosure filings as newly unemployed workers struggle to make mortgage payments.” The CBO reported that an inability to avoid the fiscal cliff could cost Americans 2 million jobs in 2013 and keep unemployment around 8.0% through 2014. Allowing the Mortgage Debt Relief Act to expire may compound the issue. Homeowners who are selling homes through short sales – purchasing a home for less than is owed on the existing mortgage – may choose to foreclosure on homes rather than be taxed on the unpaid portion of their mortgage. Ultimately, more foreclosures will have a negative effect on the housing market by bringing down home values.

#3: Rental Prices Move Higher: Low interest rates and low home prices have resulted in making Knoxville homes more affordable, but strict mortgage credit requirements have slowed the growth in homeownership. Ben Bernanke, Federal Reserve Chairman, stated “overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery.” Because of this, more potential Knoxville home buyers will continue to stay in the rental market, especially if the country goes into a recession. But rental supply cannot keep pace with the demand. Rents climbed more than 4.0% in 2012 and NAR estimates that number will continue to increase by at least 4.0% through 2015. A report from the Center for American Progress states, “there could be as many as 2.3 million new renters between 2015 and 2020. The result will be an increasingly tighter rental markets and higher rents for many Americans.”

There are big decisions ahead that may ultimately result in big implications for Knoxville real estate. Stay tuned!

Knoxville Real Estate: Visions from the Real Estate Crystal Ball for 2013

December 20, 2012 By Troy Stavros

Troy Stavros, Broker and Partner with the 865 Real Estate team stated, “As we look into our crystal ball at what we project 2013 to look like, it has positives and negatives for both buyers and sellers of Knoxville real estate. The good news for everyone is that, unless we fall of the fiscal cliff or the Mortgage Interest Deduction gets monkeyed with, the vision is one of a good year for housing.”

Vision #1: Home prices and rents on the rise.

We’ve already seen the lack of new construction raising the national and Knoxville real estate prices in 2012, and we can expect that trend to continue into 2013. Since the housing downturn, national new construction has been at 500,000 units or less for the last 6 years. Experts say construction of new homes and apartments need to be between 1.25 and 1.5 million a year to keep pace with population growth. This shortfall leads to a lack of supply which translates to demand, equaling higher home prices and rents.

Vision #2: Less foreclosure deals and more short sales.

Sales of foreclosed homes fell to approximately 11% of all sales in June 2012, down from about 28% in March 2011. The decrease is partly because the large government entities, along with banks, have been liquidating hundreds of distressed home loans in bulk to purchasers who agree to work out new terms with borrowers rather than foreclosing. Another factor for the drop looks back to our 1st Vision. Rising home prices have improved the equity position of thousands of buyers who were once upside-down.

Also reducing foreclosures is their alternative, the “short sale”. Short sales are deals in which a home sells for less than what the borrower owes on the mortgage, with the bank agreeing to accept the sale in lieu of going through an expensive and time-consuming foreclosure. Within the past few months, FHFA issued new rules on short sales for Fannie Mae and Freddie Mac reducing the documentation that borrowers have to show to demonstrate hardship. Also borrowers now aren’t necessarily required to pay the difference between what they owe on the mortgage and the final sales price. These changes will have national and Knoxville real estate seeing more short sales in 2013.

Vision #3: Higher home construction costs.

Even though levels of home construction are at record lows, costs of building materials like sheet rock, lumber, and copper are on the rise. The last few lean years in construction caused many construction workers to either migrate out of the country or into other occupations, leaving less qualified construction workers. Once again a low supply of workers means they can demand more for their services. Couple the higher material costs with the increased cost of construction labor and that equals higher home construction costs.

Vision #4: Higher mortgage interest rates but loosened lending standards.

The National Association of REALTORS predicts rates will gradually rise to 4% by the end of 2013. While this is still extremely low, economists believe that while we are currently witnessing historically low rates, there is only one way for them to go. Currently, the average credit score of a borrower looking to obtain a mortgage is 760. This is significantly higher than averages in the past, because of an overcorrection by banks coming out of the recession. Look for lending standards to loosen a bit as lenders try to compete for the business.