If you currently own your home, it is important to understand the two primary ways in which you can play the housing market. What do we mean by this? We are talking about how you can take advantage of your position to better meet your goal of getting into the house of your dreams. If you are looking to make a move, then there are two ways in which you can maximize your position. Let’s review.
- Refinance Your Home
Two weeks ago, the Federal Reserve lowed its benchmark on interest rates for the first time since 2008. Interest rates are now set to hoover between 2% and 2.25%. In some cases, this has had a major impact on homeowners looking to refinance.
The federal funds rate is the rate at which banks and other financial institutions lend money to one another overnight to meet mandated reserve levels. When the fed funds rate declines, it becomes cheaper for banks to borrow from other banks, providing them an opportunity to reduce mortgage rates for their clients. This is because they maintain the same spread (return between what they borrow money at versus what they lend money at). However, not all banks reduce their lending rates according to the fed fluctuation. In some cases, they leave their rates the same, making a higher return on their lending.
For homeowners to take advantage of the recent decline in federal funding rates, homeowners should seek out banks that have concurrently reduced their mortgage lending rates. Homeowners can refinance their home and ultimately reduce the amount the must pay back to the bank. They can refinance to 1) Reposition their debt, or 2) Refi and buy another property, say an investment asset of a vacation home!
- Sell and Buy Using Tax Code 121
The other avenue homeowners can take is to sell their home and buy a new home (that one they have been dreaming of for years) using Tax Code §121. Section 121 Principal Residence Property allows homeowners to exchange their home and avoid paying taxes. If they qualify, homeowners can exchange and be excluded of $250,000 of gain for single filers and $500,000 of gain for married taxpayers filing jointly. In order to qualify, homeowners must use the property as a principal residence for two out of the last five years prior to the sale; the use of the principal residence however does not need to be in concurrent months. Additionally, the exclusion is only available every two years and second homes and vacation homes do not qualify.
Which Option is Right for You?
Taking advantage of the housing market can be financially advantageous. At the same time, it can be risky. For anyone interested in making a move, by either refinancing with these low interest rates or by selling and exchanging according to tax code §121, it is recommended that they speak to a qualified professional.
How Can We Help You?
We here at Gulf State Homebuyers are all cash investors. We purchase homes in the Baytown/Houston area for all cash. For those who are in your position and are interested in moving into the home of their dreams, we make the process a bit simpler. Instead of taking the property out to market and engaging in the hassle of working with a real estate broker, marketing, and negotiating on a closing price and terms, we provide clients the option to simply sell to us. We purchase homes as-is and cover all costs associated with the sale. Our process is simple as well – once a client calls us, we set up a time to view the property and make an offer on the home that same day. No inspections required. Our goal is to help our clients move forward to the next stage of their life – And, with the way the current housing market is, now is an optimal time to take that leap. To learn more about how we can assist you, or learn more about your options (which are outlined above), contact us today and speak with one of our qualified professionals.