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Taxes and homeowners Perspectives

How The Tax Bill Affects Homebuyers

For years, the US tax code has encouraged Americans, especially first-time homebuyers, to get “a piece of the American dream” by becoming homeowners. Since the 1940s, America has seen the positive effects of building credit and building equity through homeownership.

America is one of the few countries in the world to offer potential homeowners a fixed-rate 30-year mortgage product. Homeowners have benefited for decades from tax incentives that allow us to deduct mortgage interest from our tax bill, and from home equity lines of credit that can help pay for a child’s college tuition.

Get ready for some changes in 2018.

This week, both the US House of Representatives & US Senate passed the most sweeping changes to the US tax code since 1986. The new tax bill cuts the corporate tax rate, revises the existing tax bracket structure at every income level, and includes several significant changes to deductions that historically offered incentives to first-time homeowners.

The bill is ready to be sent to President Donald Trump, and could be signed into law before Christmas, so we at STEM Lending wanted to tell you about several specific changes that are likely to affect your search in 2018:

tax code us tax bill

How The New 2018 Tax Bill Could Affect You:

Mortgage Interest Deductions

Mortgage interest deductions were once thought to be untouchable as a strong incentive for first-time home buyers. The history of this incentive was originally a part of a 1913 tax provision which allowed business owners (ex. farmers) to deduct any interest they paid on business expenses. The mortgage-interest deduction now lets people who buy homes deduct part of the cost of their mortgage on their taxes. According to the Joint Committee on Taxation, MID saved Americans $77 billion last year!

What was finalized in the new tax bill, however, caps the limit on deductible mortgage debt at $750,000 for loans taken out after Dec. 14, 2017.  If you took out a mortgage loan before Dec. 14, you will still be able to deduct interest on mortgage debt up to $1 million. Mortgage interest on second homes can be deducted but is subject to the $750,000 limit.

Current Tax Law Through December 31, 2017

New Tax Law in 2018

Mortgage interest

You may deduct the interest you pay on mortgage debt up to $1 million ($500,000 if married filing separately) on your primary home and a second home.

For homes bought before Dec. 15, 2017, no change. But for homes bought Dec. 15, 2017, or later, you may deduct the interest you pay on mortgage debt up to $750,000($375,000 if married filing separately).

Property Taxes

Currently, taxpayer can fully deduct what they pay in state and local property, income, and sales taxes from their federal tax returns. The new tax law in 2018 caps these total deductions at $10,000. This new law may have a very real affect on your bottom line if you reside in a state with above-average local and state taxes like New Jersey, New York, Oregon, or California. *One caveat* the $10,000 cap can be any combination of property, income, and sales taxes. This compromise between House & Senate Republicans was very closely watched, and will surely be a rallying point in the coming months, when midterm elections are held.

Current Tax Law Through December 31, 2017

New Tax Law in 2018

Property taxes

You may deduct the property taxes you pay on real estate you own.

You may deduct up to $10,000 ($5,000 if married filing separately) for a combination of property taxes and either state and local income taxes or sales taxes.

Capital Gains Exclusion

If you’re planning on selling your house in 2018, you know that capital gains taxes = the difference between the price you paid for the house and the price you ultimately sell it for. If you have not lived in the home you are selling for at least two years, your capital gain is treated as taxable income under the ‘ordinary income’ tax brackets (which also just changed). Home sellers can benefit by excluding up to $500,000 for joint filers or $250,000 for single filers for capital gains when selling a primary home as long as the homeowner has lived in the residence for 2of the last 5 years.

Current Tax Law Through December 31, 2017

New Tax Law in 2018

Capital gains

In order to qualify for this provision, it is mandatory that you have lived in the home as your primary residence for at least 2 of the last 5 years, before selling.

With all the 2018 tax changes set to take effect January 1, 2018, how will this affect your decision to buy a home? If you are looking at getting pre-approved, or already searching with a real estate agent, give us a call at 646-798-1800, or email us at support@stemlending.com so we can help find you the best mortgage loan. Visit STEM Lending to apply online, or learn more about the mortgage process.

We look forward to helping you find your dream home in 2018.

Immigrants Family Perspectives

Solving the mortgage needs of STEM immigrants in US

Recent immigrants to the United States face unique hardships and challenges when seeking all forms of loans: credit cards, auto loans and most significantly mortgages.

Research done by United States Department of Commerce’s Economics & Statistics Administration has established that Science, Technology, Engineering and Math (STEM) graduates workers drive innovation and competitiveness in the United States by generating new ideas, new companies and new industries.

The US National Foundation For American Policy (NFAP) presented an article on The Importance of International Students to American Science and Engineering in their October 2017 Policy Brief. The article presented statistics based on the US National Science Foundation’s survey of graduate students and postdoctoral scholars and showed an impressive observation: foreign nationals in the US account for 81 percent of the full-time graduate students in electrical engineering and petroleum engineering, 79 percent in computer science, 75 percent in industrial engineering, 69 percent in statistics, 63 percent in mechanical engineering and economics, statistics, 59 percent in civil engineering and 57 percent in chemical engineering.

Unique needs of immigrants concerning mortgages

With nearly 80 percent of Science, Technology, Engineering and Math (STEM) graduates being international, we at STEM Lending set out to explore what were the major challenges faced by immigrants when attempting to fulfill their American Dream – having a home of their own.

Coincidentally, The Wall Street Journal recently published an article titled Foreigners Seeking Mortgages Face Close Scrutiny. The article underscored that while the mortgage-application process can be daunting for even the most creditworthy borrower, the process is even more challenging for foreigners working in the US, who may not have adequate credit history or a permanent residency. Mortgage lenders typically seek two years of credit history of applicants, however recent immigrants often don’t have two years of residence or credit history in the U.S.

Inadequate credit history translates into unique challenges immigrants face despite having strong job prospects, stable earning potential and consequently, a strong ability to repay a mortgage. One argument that is often cited is that in the event of a job loss, an immigrant visa holder may decide to “dump everything and move back to home country”. The counter argument though, is that a job loss can in fact render a resident declaring a Chapter 7 bankruptcy, potentially eliminating their personal liabilities for mortgage loan.

How is STEM Lending addressing the needs of immigrants looking for a mortgage?

STEM Lending’s co-founder, Shantanu, is himself a first-generation immigrant entrepreneur. After earning a PhD degree in STEM field from the University of North Carolina at Chapel Hill, Shantanu embarked on his professional journey – industrial experience in science and technology jobs in US, while on a visa. Despite stable earnings from graduate school fellowship, it was challenge to obtain loan for even buying a car, let alone a mortgage.

Having first-hand experience of hardships encountered when seeking loans as immigrants, we at STEM Lending are committed to providing fair and accessible mortgages to creditworthy immigrants.

We firmly believe in evaluating mortgage application based on good faith determination of applicants’ ability to repay the mortgage: basing credit assessment on applicants’ income, assets, employment, credit behavior and their monthly expenses. We have partnered with multiple lenders to provide a diverse set of mortgage opportunities under one platform, thereby increasing the number of mortgage avenues immigrants get to explore.

Busy working professionals no longer need to visit multiple banks in person, fill out the same mortgage application form time after time, shopping and hoping to qualify for a mortgage. By streamlining the mortgage experience, we hope to help all creditworthy Millennials, inclusive of immigrants, will be able to gain access to fair credit, without hassle.

Please feel free to reach out to help@stemlending.com or contact us via stemlending.com/contact-us if you have any questions.

Wishing you a happy home buying experience!

– STEM Lending Team

millennials first house Perspectives

How Millennials Have Changed Mortgage Shopping

Tech Savvy Mortgage Millennials

You’ve probably seen us mention (multiple times) that Millennials are the single largest segment of home-buyers in America.

It’s still true. For the 4th consecutive year, Millennials were the largest group of home buyers (34%) according to NAR’s 2017 Home Buyer and Seller Generational Trends study. By comparison, baby boomers were only 30% of buyers. Additionally, Millennials represented 45% of the purchase loan volume in the first three months of 2017.

However, the differences between Millennials & Baby Boomers on how they search and shop for a mortgage lender are drastic.

What Differences Separate Millennial Borrowers from Baby Boomers?

When studies or data on “Millennials” is cited in reference to real estate, many of these “Millennials” do not feel like the term is the best fit or description, as they are 29-36 years old. A large percentage of this population only had a flip-phone in their teenage years, and didn’t get a “smartphone” until their adult years (remember, the 1st iPhone came out in 2007).

However, this Millennial or “Xennial” group has integrated technology into their daily habits. When it comes to mortgage shopping, their first action is not to call a real estate agent or ask their parents –> they go to Google.

Millennials are more likely than older adults to shop around for a mortgage and compare apples-to-apples rates: 86% of 18-34 year-olds shopped around for a loan vs. 75% of 35-54 year olds and 55% of those 55 years and older, According to a Survey of adults in 2016 by Ipsos on behalf of Zillow,

This is why 90% of new prospective homebuyers will use online resources to research homes and the mortgage process before they speak to a real estate agent, mortgage broker or lender.

Millennials Are Actually Comparison Shoppers

Millennials are far more willing to obtain multiple quotes from lenders vs. Baby Boomers or Generation X – on average, Millennials obtained 6 quotes, vs an average of 4 quotes by Gen X shoppers and 3 quotes by Boomers. Websites like Kayak, Yelp!, and even Amazon have honed our Millennial demographic into savvy comparison shoppers, which is why we started STEM Lending as a way to closely align ourselves with this trend.

Lastly, even though 90% of Millennial purchasers still engage with a real estate agent, Redfin data shows that 73% of millennial sellers try to negotiate with the listing agent for a lower commission, compared to 44% of Gen-Xers and 24% of boomers. Nearly 63% of the millennials who tried to get a lower commission rate percent reported being successful.

Millennials (18-36) have changed the way individuals shop for a mortgage; they demand transparency, simplicity, and multiple lender options.

Are Millennials Engaging With Traditional Lenders Differently? How?

Since the financial crisis began in 2008, we’ve seen the percentage market share of the mortgage market shift dramatically. To put it in perspective, By the end of 2016, 6 of the nation’s top 10 lenders were non-banks, while banks contribution to new mortgage loans fell to 21%, according to The Washington Post. Keep in mind that as recently as 2011, 50% of all new mortgage money was loaned by JPMorgan Chase, Bank of America and Wells Fargo.

Banks No Longer Make the Bulk of U.S. Mortgages

As lenders have changed, so have consumers, and their behaviors. Millennials have reported a higher willingness to switch banks (A recent Accenture study showed 18% of millennials switched their consumer bank partner within the last 12 months).

Millennial Expect a Digital First Mortgage Process

Whether a preference for technological automation, or the desire to educate themselves online first to narrow the knowledge gap, Millennials’ expectations when engaging with mortgage brokers or lenders demands the following:

  • Seamless user experience enabled by technology 
  • Trust through transparency on pricing and fees
  • Honest, transparent communication from mortgage experts 
  • Educational tools for customers with a longer lead time until they buy

Millennials want a parallel track –> they want a seamless process that can be 100% online, and a mortgage product expert ready and able to step in to provide concierge level help should they have a question.

Trust through transparency means having a bulletproof platform where a customers’ personal information will reside, should they need to work on their application in chunks over a period of days or weeks.

With apps like Acorns, Clarity Money, and now Rocket Mortgage, today’s mortgage shoppers expect to be able to access all their information digitally, even if the application itself still happens at home on a desktop. Companies like STEM Lending who can integrate with third party vendors such as Plaid, Finicity, and TurboTax to verify income and assets seamlessly, are in the best position.

How Have Lenders and Brokers Responded?

A number of mortgage lenders have created incentives to attract and retain Millennial homebuyers. Chase Bank recently announced it will give 100,000 reward points, to existing credit-card customers who take out a home loan with the bank for a limited time. Capital One offered cardholders earned air travel miles if they purchased property or refinanced their home with the bank. Wells Fargo gave out rebates to cardholders to use for its mortgages and home equity loans. Several other lenders have announced similar programs to launch in 2018. Eagle Home Mortgage, a mortgage lender and a subsidiary of Lennar, also recently announced a new mortgage program that will help homebuyers pay off their student debt, by directing up to 3% of the purchase price to pay their student loans, with the caveat that they buy a new home from Lennar.

At STEM Lending, as a leading online mortgage broker, we will work with you to understand your specific financial situations, your priorities in the homebuying process, and find you the best mortgage rate, regardless of lender. Explore your options on our website, here: https://www.stemlending.com/apply/

 

Mortgage Pre-approval Application Perspectives

How to prequalify for mortgage?

Home buyers can simplify the steps of buying their dream home by prequalifying for a mortgage. So, what exactly does a prequalify mean?

Mortgage pre-qualification enables you to estimate how much you can borrow from a lender. This helps you plan for the maximum price of the home you can afford using a mortgage financed by that lender.

Clearly, for maximum value, you would want to explore multiple lenders, comparing their mortgage products and the interest rates they quote. This is where working with an online mortgage broker such as STEM Lending helps you save. You can compare multiple options with much lesser time spent as compared to shopping offline. Explore options here: https://www.stemlending.com/apply.

What are the factors influencing the prequalification amount?

Factors that influence the dollar value of pre-qualification by a lender include:

  • Credit score
  • Monthly disposable income
  • Financial assets; and
  • Overall debt at the time of application.

It is essential to build up a strong credit score and monitor your credit before applying for pre-qualification. To learn more, check out STEM Lending’s article on credit report monitoring: Proactively monitor credit report before seeking mortgage.

A key metric to understand regarding mortgage pre-qualification is your monthly Debt-to-Income ratio, often abbreviated as DTI. The debt-to-income ratio is: (Sum of all the Monthly Debt Payments) divided by (Gross Monthly Income).

This number is measure by which lenders assess your ability to repay the mortgage, since a high debt-to-income ratio can render the borrower miss a scheduled mortgage payment in the event of a large unforeseen expense, increasing the potential likelihood of default.

Common metrics that are included in monthly debt payments, thereby impacting the DTI, include:

  • Monthly payment on new mortgage
  • Student loan payments
  • Credit card payments
  • Auto loan payments
  • Home appliance loan payments; and
  • Other recurring debt payments present in credit report.

Lenders may set DTI thresholds for mortgage applicants and many lenders may not pre-qualify applicants with Debt-to-Income ratio greater than those thresholds. To learn more about DTI, and how it impacts your mortgage application, check out STEM Lending’s article: Explaining Debt-to-Income “DTI” and Its Importance.

Notably, other factors also indirectly impact the DTI by means of monthly mortgage (Debt) payment. These include:

  • Approved mortgage interest rate
  • Loan-to-value ratio (LTV)
  • Credit score
  • Property usage
  • Late payment history and
  • Any foreclosures or bankruptcies on record

Pre-qualification is not the same as Pre-approval

First-time home buyers should note that mortgage pre-qualification is not the same as pre-approval. Pre-qualification is a conditional approval of the mortgage — an estimate of how large a mortgage one can afford. However, it doesn’t create a binding commitment between the home-buyer and the lender. Pre-approval, on the other hand, involves a detailed review of applicant’s debt, income, assets and credit history and the borrower can receive a Pre-Approval Letter documenting the amount that the borrower has been approved to borrow. To learn more about differences between Pre-approval and Pre-qualification, read STEM Lending’s article: Mortgage 101: Pre-approval vs. Pre-qualification Letter.

To take the first step in getting prequalified for a mortgage and save on your mortgage, contact STEM Lending for a free initial consultation:

  1. Message: stemlending.com/contact-us
  2. E-mail: hello@stemlending.com
  3. Call: +1 (833) 600-0490 (toll free)

STEM Lending also offers simple and free mortgage calculators for you.

Wishing you a happy home buying experience!

– STEM Lending Team