Cut Mortgage Insurance

Making additional payments toward the principal of your mortgage will do three things for the homeowner: save interest, build equity and shorten the term on fixed rate mortgages.

These things should be beneficial enough to justify the extra payments but another huge advantage is available to those who have private mortgage insurance on their loan. Mortgage insurance rates vary but can range from seventy-five to two hundred dollars a month on a $200,000 mortgage.

Lenders are required to automatically terminate mortgage insurance when the principal balance reaches 78% of the original value of the property. It is important for homeowners to monitor their balance because sometimes lenders may inadvertently fail to terminate the coverage.

Mortgage insurance is a necessary but expensive requirement for many people who are limited to a down payment of less than 20%. Eliminating the need for it can save thousands of dollars over time.

The Consumer Financial Protection Bureau, CFPB, issued a compliance bulletin on August 4, 2015.

Lower the Rate & Deduct the Interest

A home can easily be a person’s largest personal asset and it can be a powerful tool to increase financial stability also.

Since most mortgages are amortizing, the loan becomes a forced savings account that reduces the unpaid balance with each payment. The equity could be used to improve a homeowner's financial position involving other loans.

While every homeowner recognizes that they can deduct the interest paid on their mortgage, it is surprising how many don’t know that they can write-off the interest on up to $100,000 of home equity debt assuming there is sufficient equity in the home.

The real advantage to a homeowner is that the money borrowed can be used for any purpose and the interest is still deductible. Homeowners could payoff high-interest rate credit card debt or student loans with a considerably lower rate on a mortgage and deduct the interest on the home-equity debt.

Replacing debt with lower rate loans that have deductible interest can be a strategic decision to financial stability and a debt-free environment. A trusted mortgage professional can help you analyze your individual situation to determine if it would be better to refinance with a cash-out first-mortgage or a dedicated home equity loan.

Things That Kill Your Credit

Some people take their credit for granted and don’t start paying attention to it until they need it. The problem with this is that it could delay if not altogether cause the loan to be denied.

The most common issue is not correcting items on your credit report. A large majority of credit reports have errors but not all of them are critical. Since it takes time to remove them, it is a good practice to review your free credit reports from each Experian, TransUnion and Equifax once a year at www.AnnualCreditReport.com.

Another problem is making late payments. One 30-day late payment could be enough to cause a borrower to pay a higher interest rate or even be denied a loan. Payments have a due date and even when they allow a few days before a late fee kicks in, if it isn’t on-time, it is late.

Maxing out credit cards is another big problem. Ideally, a person wants to have an outstanding balance of no more than 30% of their available credit. As the percentage of available credit decreases, the credit score will go down.

Bad credit can not only keep you from getting the loan you want, it can raise your rates on the insurance you buy. In a study released by the Consumer Federation of America, people with good credit paid less than people with average and poor credit. Their results indicate that some customers with poor credit scores were charged about twice as much as those with excellent scores.

A prudent idea if you are going to be moving to a larger home is to get pre-approved with a trusted mortgage professional before you sell your current home. Occasionally, sellers find out after they’ve sold their home that they can’t qualify for another mortgage.

Checking for Water Leaks

An unexpected, larger-than-normal water bill could lead a person to think that they might have a leak. Before incurring the cost of a plumber, it is fairly easy to run your own test.

Locate your water meter. They’re usually in the front of the house, near the street. In some cases, you might need a meter key to open it; they can be purchased at Lowe’s, Home Depot or other hardware stores.

Step One - Write down the numbers on the meters to get a current reading. Don’t use any water for thirty minutes. If the meter shows water usage during the test period, proceed to step two.

Step Two - Shut off the valves to all of the toilets. If you have a pool with an automatic filler, it has a similar device. Repeat the test again for the same thirty minute period. If the numbers haven’t changed this time, it indicates that the toilets probably need servicing.

If the numbers have changed during step two, it is an indication there may be a leak and it will need to be tracked down. This could be the time to call a plumber or plumbing leak specialist. Your water department may have a consumer help line that can offer suggestions also.

More Home for a Lower Cost of Housing

What if you could live in a larger and possibly newer home for less than you are currently? Would you consider moving? Do you want to hear more?

Interest rates, while they’re expected to go up, actually took a small dip and are still hovering at the 4% or below mark for a 30 year mortgage and almost one percent less for a 15 year term.

Let’s assume that you have a $225,000 mortgage currently at 6% which has a principal and interest payment of $1,348.99. With a 4% rate, you could have a $282,561 mortgage with the same payment. A $57,000 more expensive home could help you get what you need most such as more square footage or a different location or a newer home.

If you’re going to be making that payment for years to come, why not allow lower interest rates to help you get the features you want without having to necessarily pay a higher payment. Taking that logic a little bit further, let’s see how utilities can make a difference too.

A newer home could easily have lower monthly utility costs than your current home due to being more energy efficient. Construction materials, windows, doors, insulation, modern HVAC systems and energy efficient appliances all contribute to lower utility costs. A new home with these advantages could easily save a homeowner up to 25-50% on utilities for the same size home.

The concept is simple: get the most home you can for the amount you spend on the payment and utilities. It will take some investigation and your real estate professional can help.

Get Ready for College

One of the important things as a parent is to plan for their children’s education. Let’s look at two different approaches: a savings account or investing in rental real estate.

Assuming your child is five years old and you start putting $250 a month in a savings account earning 2%, in 13 years you’d have $44,497.41 to pay for their college. Anticipating that isn’t going to be enough, you’d have to save $500 a month to end up with $88,995.

Another way would be to make a lump sum contribution of $20,000 today in a mutual fund earning 5% that would be worth $37,713 in 13 years. You’d have to make a $47,196 initial contribution to end up with the same $88,995.

An alternative to savings would be to invest in a $100,000 home in a good area. Assuming a three percent appreciation and rent of $1,000 a month, an initial investment of $23,500 could have a future wealth position of $83,838 at the end of 13 years.

Obviously, this is just an example of why rental homes are the IDEAL investment providing Income, Depreciation, Equity build-up, Appreciation and Leverage. While rentals certainly have more risk and management than a savings account, they do provide an opportunity for a higher rate of return.

If you’re concerned about paying for college tuition in the future, it is certainly worth investigating the possibility of investing in rental homes today.

Wait a Year...It Won't Matter?

There is a frequently quoted expression “more money has been lost from indecision than was ever lost from making a bad decision.” Regardless of the extent of its accuracy, most people can recall when procrastination has cost them money.

There are markets so short of inventory that buyers have become frustrated after losing bids for several homes and have decided to wait until more homes come on the market. In the meantime, the shortage of homes is driving the prices up more by the month.

There are buyers who can’t find what they want for the price they want to pay and think that waiting will somehow change things. In some cases, what they want just keeps moving farther and farther away from them.

The other dynamic in play is, of course, the mortgage rates. While they’ve remained low for several years, most experts agree that they’re going to rise; it’s just a matter of when. If you look at what positive increases in both of these would do, it becomes apparent that waiting will matter.

A $250,000 home purchased today on a FHA loan at 4% for 30 years will have a principal and interest payment of $1,151.76. If a buyer were to wait a year and the price increased 5% and the rate went up by 1%, the payment would increase by over $200 a month. In a seven year period, the increased payment alone would cost the buyer over $17,000.

Use the Cost of Waiting to Buy calculator to see how much it will matter based on the home you want to buy and what you think the prices and rates will do in the next year.

Who is Your Champion?

The Super Bowl and World Series determine the football and baseball champions. Since there can only be one champion, the other team loses the competition. In feudal times, a knight might champion for the king or a patriotic, romantic or religious cause.

Fierce competition can occur when buying or selling a home because each party wants to get the “best deal” possible. When the buyer and seller are not equally matched, and they rarely are, it is important to have a champion on your side to fight for your cause.

The price of the home, the type of financing and concessions, personal property, closing dates and possession are just a few of the many things that can be negotiated in a contract. Since the seller wants to get the most for their house and the buyer wants to pay the least, their causes are diametrically opposed.

Even after the contract is signed, removing the contingencies can cause considerable negotiations. The inspections or the appraisal could be the source of reevaluating the terms and provisions of the contract.

Negotiating the sale or purchase of a home is definitely a competition and you need a champion on your side.

It's Hard to Imagine

With mortgage rates below 5% since 2009, you’d think any homeowner who should refinance would have already. However, it is estimated, there are approximately 6.5 million borrowers who would benefit with significant monthly savings by refinancing.

Rodney Anderson of Supreme Lending, on his weekly radio program, described a recent pipeline meeting where they reviewed every pending mortgage application his company was processing. They had seven refinancing applicants whose current mortgage was over 9% and twelve with a rate between 7% and 9%.

“Some 550,000 American homeowners with a mortgage could save $500 or more each month by refinancing at today’s rates. Over three million could save at least $200 per month.” said Ben Graboske, CTO with Black Knight Financial Services.

Getting a lower interest rate should be reason enough but eliminating the mortgage insurance should make the decision a no brainer. With increased home values, the loan-to-value ratio may no longer require mortgage insurance which would add additional savings.

Homeowners need solid information about what their home is worth and whether they’d benefit from refinancing. The most reliable solution is to talk with a qualified mortgage professional. The internet is a great place for generalized info but each person’s situation is unique. Call if you'd like a recommendation of a trusted mortgage professional or would like to know what your home is worth.

What's Stopping You?

The majority of tenants say they’d like to own a home but continue to pay rent and missing out on financial and emotional advantages. There seems to still be a lot of misinformation in the marketplace.

There are a number of programs for low or no down payment options. Veterans can get into a home with no down payment or closing costs. In qualifying areas, USDA has zero down payment programs. FHA requires 3.5% down payment and there are conventional programs for as little as 3% and 5% down.

People with credit issues need expert opinions about their specific situation. Borrowers with bankruptcies or foreclosures may be eligible to purchase again after certain periods of time. There are short-term fixes for some types of credit problems. There is an extended list of individual issues that a skilled mortgage professional may be able to overcome.

Most tenants realize considerably lower cost of housing by owning once the appreciation, amortization and tax savings are considered. The savings in the first year alone could easily be more than the down payment required.

Plug in your own numbers in a Rent vs. Own to see what your real cost of housing may be. Contact us for a recommendation of a mortgage professional who can give you accurate information about your situation.

Build Equity Faster

Equity is an asset and an appreciating home is an investment. While some people have resolved themselves that a mortgage payment is a normal part of life, others have set goals to get their home paid for as soon as possible. There are several strategies that will work but they all require persistent vigilance.

A shorter term mortgage such as 20, 15 or even 10 years will not only pay off sooner, it will generally have a lower interest rate. A recent comparison at Freddie Mac’s Primary Mortgage Market Survey showed a 30 year fixed-rate mortgage at 4.04% compared to a 15 year fixed-rate at 3.20%. The fees for the shorter term were even .1% less. The shorter term with the lower rate would have a higher payment but some people consider it forced savings.

Additional principal contributions to any length fixed-rate mortgage will save interest, build equity and shorten the term of the loan. Some homeowners may apply lump sums at various times during the year such as when bonuses are paid or a tax refund is received.

Other owners might increase their payment by $100, $200 or more each month. Setting the increased payment through electronic banking would insure that you consistently make the extra amount.

Bi-weekly payments make 26 half-payments in a year which equals 13 full-payments. Because of the frequency, it reduces the interest that is due. This might work well for borrowers who are paid every two weeks but could present cash flow problems for those who are paid on schedules that don’t coincide.

Making one extra payment a year will have almost the same effect as a bi-weekly payment. The 13th payment would be completely applied to principal.

Before embarking on one of these strategies, it would be wise to verify with your lender that it complies with their policies. Check out the Equity Accelerator to see how it could affect your loan.

Three M's of Homeownership

Among the many reasons people have to own home, they include having a place of their own, to raise a family and to share with friends. Additional benefits include security, investment, peace, pride and enjoyment.

Together with the benefits come the responsibility to take care of the home for its livability and viability as a sound decision. A homeowner’s concerns can be broken down into three areas.

The maintenance on the property is something that every homeowner deals with. Changing filters are easy to handle yourself. Other things might require a skilled professional but identifying the “right” one can be challenging.

Minimizing expenses can reduce the cost of living in the home. It’s good to recognize when a repair is appropriate compared to a replacement. Reputable and reasonable service providers are key to keeping expense low.

Managing debt and risk becomes the financial side of the effort. Taking advantage of low interest rates or shorter terms for refinancing, making additional principal contributions are just a few ways to manage debt. Home warranty programs and homeowner insurance tips can reduce risk.

We sincerely want to be a resource for you not only when you buy or sell but all of the years in between. It is actually the reason we send this newsletter to you.

Grilling Safety

More people grill in July than any other month. While grilling is all about good food, fun, friends and celebrations, it is important to make sure that accidents don’t interrupt your activities. Approximately half of the injuries involving grills are thermal burns. If you work with fire, there’s a chance of getting burned.

• Only use BBQ grills outdoors and in ventilated areas.
• Place the grill away from home or anything that could be flammable. 
• Keep grill stable.
• Keep fire under control.
• Keep children away from grill.
• Never leave the grill unattended.
• The grill lid should always be open before lighting it.
• Grease should not be allowed to build up in the grill. 
• Use long-handled utensils.
  
  Gas/Propane
• Check the tank hose and connections for leaks before using it for the first time each year by using a light soapy water solution to see if bubbles appear.
• If you smell gas when the grill is lit, move away from the grill and call the fire department.
• If the flame goes out, turn off the gas for 15 minutes and open the lid before re-lighting it.
  
  Charcoal
• Never add any starter fluid or other flammable liquid to a fire.
• Only use charcoal starter fluid and not gasoline, kerosene or other flammable liquid.
• Keep starter fluid away from heat sources and out of reach of children.
• Electric charcoal starters do not use fire but have a coil to ignite the coals.
• When finished cooking, close off the grill vents to suffocate the fire and save some of the remaining charcoal.

 Practice safe grilling and enjoy the occasions to cook outdoors and share with your family and friends.

Eliminate Mortgage Insurance

Why would you consider refinancing if your mortgage is only two or three years old and the rate is not considerably higher than what is currently available on new loans? Because you may be able to eliminate the mortgage insurance and have significant monthly savings.

Many homes have seen their values rise in the past few years. The current loan-to-value ratio may be low enough to no longer require mortgage insurance. In some cases, a homeowner might actually pay a little higher rate than they currently have but lower their monthly payment dramatically because the mortgage insurance isn’t required.

A rough rule of thumb is that mortgage insurance is not needed on loans at or less than 80% of value. There could be programs available that would allow a higher LTV than 80%.

Careful consideration should also be given to the fees required to refinance. Lenders differ in not only the rates they charge but also the fees associated with the loans and the process. If you’d like a recommendation of a trusted mortgage professional, we’d be happy to make a recommendation.

Where Are the Sellers?

Low inventories resulting in multiple offers are contributing to what experienced agents are calling the most challenging market they’ve ever worked. While buyers with resources may find the market difficult, purchasers with minimum cash and credit are struggling to find and get into a home.

First-time buyers feel the impetus to purchase because they’re renting and are concerned about being priced out of the market with rapidly appreciating prices and rising interest rates.

Sellers may not feel the same urgency because they already own a home. While they might find it appealing to change homes, they may not feel a pressing motivation causing them to act.

In some cases, sellers are so attached to their low interest rate mortgage that instead of selling, they’re keeping the home for a rental property. This may be a good investment for people with additional cash resources for the down payment and closing costs on the replacement property.

Why now is a good time to sell:

1. The economy is strong.
2. The majority of home sales occur in the months of May through September.
3. Many buyers find it preferable to move in the summer because their children are out of school and they can avoid the winter weather.
4. Mortgage rates are still very low but are starting to rise.
5. Current low inventories in most markets result in higher prices and less competition.

Contact your real estate professional to evaluate the opportunities of making a move.

Take Pictures Now

Preserve the memories you’re making by taking photographs of your home now. The pictures will remind you of the role your home played with your family and life.

Reminiscing is easier when scrolling through pictures to remind you of people and times. One of the least heard regrets is that we should have taken more pictures.

Shots to consider:

• The front of the home from across the street    
• Times when your yard and plants looked exceptional
• Holiday decorations
• Special occasions in the homes like birthdays, anniversaries, graduations, etc.
  Home improvements
• Major purchases for the home
• Times when the home looked the best and the worst
• Family, friends and pets in the home
• Your children’s height marks on a door frame
• The view from a favorite window

From an organizational standpoint, put the pictures in a folder with your address as the name. Even if you don’t take time to name each picture, you’ll have the file date to identify when it was taken. Since the cost of film and processing has disappeared, there is little reason not to chronicle your life in pictures.

Make Your Offer Standout

If a seller was looking at two offers for exactly the same price on their home, there would still be things that could make one standout more than the other. If there happens to be more than two offers, things can really get sticky for a buyer. For that reason, it is good to craft the most attractive offer possible because even if you don’t have competition now, another offer could come in during negotiations and derail all your efforts to that point.

Anything that can give the seller the peace of mind that one contract will close on time and as agreed will make them more comfortable in accepting one offer over another. Buyers can consider putting up larger than customary amounts of earnest money and limiting the contingencies to only the most essential items.

The closing costs could be more expensive to the seller based on the type of mortgage a buyer is obtaining. One buyer may be asking the seller to pay part or all of their acquisition costs and the other buyer is paying their own costs.

The borrower who has a signed, preapproval letter will appear to have a greater certainty to closing than a buyer who only says they have talked to a loan officer. Some lenders' letters are considered “gold” and others may not be worth the paper they’re written on. The seller will depend on their listing agent to advise them.

In most cases, the seller will be taking all or part of the cash they receive from the sale of their home and buying another one. If they have to put a contingency clause in the contract based on their current home selling, it weakens their position. Conversely, it will strengthen a buyer’s position if they don’t have to make their offer contingent upon selling their current home.

Even shortening the inspection periods and offering to close early or possible lease the home back to the seller for a short time can be valuable negotiating factors.

Finally, don’t overlook the value of a personal hand-written letter that tells the seller why you want their home. An emotional connection has been known to make a difference for one set of buyers getting the home.

Who would want to be without one?

When the 75 year old man who had been widowed four times was asked why he was getting married again, he said “for the little bit that they eat, I wouldn’t want to be without one.”

In a torrential rainfall, you wouldn’t want to be without an umbrella. It is also understandable that when purchasing or selling a home, more and more people want an agent involved.

NAR’s Homebuyers and Sellers Profile states the trend in owners trying to sell their home themselves has declined over the past ten years from 14% in 2003 to only 9% in 2014. Similarly, the number of buyers purchasing directly through an owner has decreased from 2001 to 2014 from 15% to 5%.

It is natural to think that a seller wants to get the highest price for their property while the buyer wants to pay the least possible. Negotiations may be the most valuable service provided by an agent because of the clear conflicts of interest such as the price, terms and condition.

Other areas of contention that could affect a party without an agent:

• The real estate agent who represents the other party
• The attorney who represents only one party
• Home and pest inspectors regarding condition
• The buyer’s lender regarding terms
• The lender’s appraiser regarding value
• The title company in an effort to satisfy challenges to clear title
• Municipal authorities to mitigate code violations

 Even when there are two licensed agents involved, there could be a question of representation. This is a discussion that buyers should have with a real estate professional before looking at houses.

You've Got Money!

Imagine that after checking www.SSA.gov to see what you can expect when you retire and estimated what your minimum required distributions from your retirement accounts will be, you’ve discovered that you’re not going to have enough retirement income to cover your living expenses.

Ideally, it would be perfect if the extra money you need would just come to your mailbox each month with the same certainty as your social security or retirement income.

Rental homes are a popular choice for passive income because they are an investment that most people understand based on their experience owning a home. They’re easy to manage and the rents should keep pace with inflation.

Mortgage loans for investors are available to investors with good credit and at least 20% down payments. While 30 year terms are the most common, some investors wanting to have the home paid for by retirement may choose a 15 or 20 year term.

A tried and true strategy is to choose average or slightly below average priced homes in predominantly owner-occupied neighborhoods. This will appeal to more prospective tenants wanting to live in good communities and should provide a higher level of revenue.

When an owner has a good property with a good tenant, the income is as predictable and convenient as going to the mailbox each month. To learn more about rental homes, contact your real estate professional.

Live the Dream

Consumers are more easily living the American Dream of owning a home because of the incredibly low mortgage rates. Today, most buyers can get a much lower rate than their parents or grandparents got on their first home.

In a recent housing survey, FNMA released information about consumers' thoughts on the current market. Almost two-thirds would rather buy than rent and believe that now is a good time to buy. Half of the respondents expect rent and home prices will go up.

Top Ten reasons to move the dream to reality:

1. It’s cheaper than renting in most cases
2. Avoid rental increases in the future
3. Equity build-up with amortization of each payment going to principal
4. A home is a forced savings account
5. Appreciation increases your equity and your overall investment
6. Mortgage interest and property tax deductions
7. Home equity interest deduction
8. A place you can call your own
9. A place to share with friends and family
10. Capital gains exclusion on profit

Buyers need the confidence that they can afford a home and proof for the sellers when they’re ready to submit a contract. If a buyer has steady reliable income, a good record of paying their bills, money saved for a down payment and are prepared to pay the mortgage each month, the next step is to get pre-approved by a trusted mortgage professional.

Take a look at the Rent vs. Own to see what the real cost of owning a home for your price range.

 

Amortization

The word describes the process of accounting that will repay a loan over time. Residential buyers will most commonly be required to have an amortized mortgage.

When amortizing a fixed rate mortgage, the payment remains constant for the entire term but the allocation of what goes to principal and interest changes with each payment that is made. Since an amount of each payment retires the principal, the interest due on the next payment is calculated on the unpaid balance after the previous payment was made.

This means that an increasing amount is applied to principal on each payment while the amount owed in interest decreases. If normal payments are made each time, on time, the loan will be completed paid off at the end of the term.

You can see in the example of a mortgage of $200,000 at 3.25% for 30 years that it has a fixed principal and interest payment of $870.41. There is $541.67 due in interest with the first payment and the remainder is applied to principal leaving an unpaid balance of $199,671.25. Since the interest due in the second payment is based on a lower principal, a little more is applied to principal.

If you’d like to have an amortization schedule for a mortgage, click here and enter the information about the loan.

Pay More or Less

Paying more for your house payment does not make your home more valuable. It does mean that the mortgage rate may be higher than it has to be.

Even though fixed rates may never again be as low as they are currently, an adjustable rate mortgage may provide the lowest cost of ownership depending on how long a borrower plans to own a home. There are different types of ARMs but the one in this example is a 30 year mortgage with the rate fixed for five years and can adjust every one year after that based on independent indexes.

Another feature of a FHA ARM is the maximum rate change in one period is 1% and the maximum lifetime cap is 5% over the initial rate.

In the example below, the payment on the adjustable is $153.48 lower for the first five years or 60 payments. Another interesting thing is that lower interest rate loans amortize faster than higher interest rate loans. In this example, the ARM has a lower unpaid balance at the end of the first five years by $4,239.

The total savings on the ARM at the end of the first period is $13,477. If a borrower felt confident they would sell the home prior to the breakeven point of 8.5 years, the ARM would produce a lower cost of housing even if the mortgage rate escalated the maximum at each adjustment period.

To help determine whether you pay more or less, consult with a trusted mortgage professional and your real estate agent to learn the advantages and disadvantages of different programs. To try your own comparison, check today’s rates at the Freddie Mac Mortgage Rate Survey and plug your numbers into an Equity Accelerator

Basic Legal Documents

Many times, young adults feel “bullet-proof” and don’t consider the urgency to get involved or spend the money to take care of certain legal aspects of their lives because they think they’re going to live forever.  Since no one is guaranteed longevity of life, if you want to be in control of who gets what and who is in charge now based on an untimely incapacitation or death, it is important to investigate these basic legal documents.

Will – This is a legal instrument that specifies your desires to care for your minor children and to distribute your personal property after you die and who will manage the process.  Anyone who has property and minor children needs a will.

Living Will – This legal instrument specifies your intentions regarding end of life decisions or to designate an individual to make those decisions on your behalf.  Many times, a person who had been diagnosed with a terminal condition or who is facing a serious surgery or hospitalization might feel a sense of urgency to have this document.

Power of attorney – This document allows you to appoint someone you trust, not necessarily an attorney, to handle important legal and financial matters for you if you are unable to make decisions for yourself.  The time limit can be for a specified period of time or indefinitely.

Trust – This arrangement involves an entity called a Trustee who takes control and manages property for someone else’s benefit called a beneficiary.  When property is placed in a trust, the trust becomes the owner of the property.  There are different types of trusts and a qualified advisor can explain and recommend which type would be best suited for your situation.

HIPPA Release Form – The Health Insurance Portability and Accountability Act, known as HIPPA, was created by Congress to protect the privacy of a person’s health information.  Health care providers are prohibited from discussing any aspect of your medical information with anyone who is not directly involved in your care.  To allow friends or family who do not have legal responsibility for you to have access to this information, this release form is necessary.

Most of the issues affecting these types of documents are determined by state law.  Since they are legal documents, it is recommended that you seek sound financial and legal advice.

Basic Legal Documents

Many times, young adults feel “bullet-proof” and don’t consider the urgency to get involved or spend the money to take care of certain legal aspects of their lives because they think they’re going to live forever.  Since no one is guaranteed longevity of life, if you want to be in control of who gets what and who is in charge now based on an untimely incapacitation or death, it is important to investigate these basic legal documents.

Will – This is a legal instrument that specifies your desires to care for your minor children and to distribute your personal property after you die and who will manage the process.  Anyone who has property and minor children needs a will.

Living Will – This legal instrument specifies your intentions regarding end of life decisions or to designate an individual to make those decisions on your behalf.  Many times, a person who had been diagnosed with a terminal condition or who is facing a serious surgery or hospitalization might feel a sense of urgency to have this document.

Power of attorney – This document allows you to appoint someone you trust, not necessarily an attorney, to handle important legal and financial matters for you if you are unable to make decisions for yourself.  The time limit can be for a specified period of time or indefinitely.

Trust – This arrangement involves an entity called a Trustee who takes control and manages property for someone else’s benefit called a beneficiary.  When property is placed in a trust, the trust becomes the owner of the property.  There are different types of trusts and a qualified advisor can explain and recommend which type would be best suited for your situation.

HIPPA Release Form – The Health Insurance Portability and Accountability Act, known as HIPPA, was created by Congress to protect the privacy of a person’s health information.  Health care providers are prohibited from discussing any aspect of your medical information with anyone who is not directly involved in your care.  To allow friends or family who do not have legal responsibility for you to have access to this information, this release form is necessary.

Most of the issues affecting these types of documents are determined by state law.  Since they are legal documents, it is recommended that you seek sound financial and legal advice.

Are You Ready?

For whatever reason you’ve delayed buying a home, it may be time to reconsider that decision based on today’s conditions and what is expected to happen in the future.

Rents are continuing to increase to the point that in most markets, it is significantly less expensive to own than to rent.  Even after you factor repairs into the equation, the low interest rates, principal accumulation due to amortization, appreciation and tax savings lower the monthly cost of housing.

Low inventories coupled with strong demand cause a rising effect on prices.  Another reason for higher values is that builders, especially in certain price ranges, have not ramped up new home starts to keep up with the demand.

Recently, the Federal Reserve announced that they intend to start raising rates. Most experts agree that higher interest rates are a foregone conclusion; it is just a matter of when it will happen.

A $300,000 home today could cost considerably more one year from now.  With a 20% down payment, if prices go up by 3% and the interest rates increase by .5%, the principal and interest payment at 3.625% would be $1,094.52 for 30 years compared to $1,198.05 at 4.125%.

The question is not necessarily “can you afford the additional $103.53 more per month that you’d have to pay for the home during the 30 year term?”  More importantly, “How would you feel about having to pay more because you weren’t ready to make a decision and what would you have spent it on if you didn’t have to pay a higher payment?”

Rent Again?

After you take the training wheels off your bike and learn to ride it, you’d never consider putting them back on again.  Similarly, once you’ve owned a home, you might think you’ll own a home from now on but there may be some situations where it might make sense to rent again. 

Big shifts in a person’s life like a divorce, death of spouse, empty nesting or a temporary transfer to a new city are certainly things that may warrant renting, at least temporarily, until those circumstances develop the particulars.

A good example might be that you think you’d like to move downtown.  Before selling your home and purchasing a condo, it might be enlightening to rent an apartment to see how you’ll adapt to the changes in that style of living.

The sales and purchase expenses incurred with real estate are absorbed over the period ownership which is usually between ten and twelve years.  When the holding period involves only a few years, it can negatively impact a homeowner’s equity.

Like any move, especially coordinating the sale and purchase of two homes, there are a lot of issues involved.  Your real estate professional can provide information that will help you to make better decisions on whether to buy, sell or rent again.

Home Too Big Now?

Once the kids are grown, have careers, relationships and get a place of their own, parents find that they may not need their “big” home like they did before. Their lifestyle may have changed and the house just doesn’t “fit” anymore.

Benefits of a smaller home:

• Easier to maintain 
• Lower utilities
• Lower property taxes 
• Lower insurance
• More convenient location
• Convenience of a single level
• Possibly more energy efficient
• Possibly lower maintenance

Moving from a larger home frees equity from the previous home that can be invested for retirement income, purchase a second home, travel, education or just to have a nest egg for unexpected expenses.  The profit on the home, in most cases, will be tax-free up to the exclusion limits set by IRS.

There will be expenses involved in selling a home as well as the purchase of a new home.  These will lower the amount of net proceeds available to invest in the new home.

Like any other big change in life, it is recommended that you take your time to consider the possible alternatives and outcomes.  Your real estate professional can provide information that can be valuable in the discernment process such as what your home is worth, what you will net from a sale as well as alternative properties for your next stage in life.

FHA or Conventional?

Buyers with a minimum down payment are generally faced with the decision of whether to get a FHA or a conventional loan.  With the new 3% down payment program on conventional loans, it may become more confusing which loan to pursue.

The two loan programs have mortgage fees that can differ greatly.  FHA has a 1.75% up-front mortgage insurance charge in addition to the monthly mortgage insurance charge which was recently lowered by .5%.

FHA’s mortgage insurance is a fixed amount where conventional mortgage insurance providers’ fees are determined by individual companies and according to the credit score of the borrowers.  A borrower with a good credit score will be charged less than a borrower with a marginal credit score.

Mortgage insurance on conventional loans can be cancelled when the equity in the property reaches 20%.  FHA mortgage insurance in most cases, is paid for the life of the mortgage.  Once a borrower has a 20% equity in their home, to eliminate the monthly FHA mortgage insurance, they would need to refinance the home with a conventional loan and would not be eligible for any refund of the up-front fee paid at closing or added to the mortgage.

If a borrower has a low credit score, FHA may be the better choice because conventional underwriters may have a higher minimum score.  FHA loans also tend to be more lenient than conventional loans when a borrower’s total monthly debt exceeds 45% of their monthly income.  FHA tends to allow borrowers a shorter time frame after foreclosures and bankruptcies.

The decision-making factor is which mortgage will provide the lowest cost of housing including payment and all loan fees.  A lot of information is necessary to make a good decision and typically, the borrower isn’t able to acquire it on his/her own.

A trusted mortgage professional is very valuable in not only providing the information but guiding the borrower through the entire process.  Your real estate professional is uniquely qualified to make such a recommendation.

Selecting a Lender

Finding a mortgage lender is not a problem. Selecting someone who will help you find the best loan product for your situation even if it means sending you to another lender is paramount.

There is a huge advantage to be able to sit across the table from someone you’re doing business with and look them straight in the eye. It’s difficult to make an informed decision based on a website and a phone call.

Doing business with a full-time professional who specializes in residential loans like you’re trying to get is important. You want the loan officer to be familiar with local conditions, values and practices.

It’s to your benefit to have a loan officer who has the experience to put the unusual transaction together even if yours is not. 

Here are a few questions that will be helpful in selecting the right loan officer.

1. What percentage of your business are FHA & VA compared to conventional mortgages and how long have you been doing them?
2. What percentage of your loans close on time according to the sales contracts?
3. Will my credit score affect my interest rate?
4. Will you help me select the best loan product for me regardless of your commission?
5. Are there prepayment penalties on any of the loans we’re considering?
6. Are there any restrictions on refinancing any of the loans we’re considering?
7. When is my loan rate locked-in? Is there a charge for that?
8. Is your loan underwriting in-house?

A real estate professional can be your best source of information and can recommend a trusted lender. If you have any questions as to what kind of answers you should expect, please give me a call.

 

Invisible, Odor-free and Potentially Hazardous

Most people’s first introduction to Radon is during the inspections of a home. It can be as much a surprise to a seller as it is a buyer. Radon is an invisible and odor-free, cancer-causing radioactive gas.

Radon can get into a home through cracks in solid floors, construction joints, cracks in walls, gaps in suspended floors, gaps around service pipes, cavities inside walls and even the water supply.

It is estimated that one out of every fifteen homes in the United States has elevated radon levels. The EPA recommends that you test your home which is the only way to find out if you and your family are at risk. If the level found is 4 picocuries per liter or higher, the EPA suggests that you make repairs or install a radon reduction system. Even lower levels can have health risks.

The EPA’s interactive map is available to find state and county information but still recommends that all homes should test for radon. More information can be found from the EPA in A Citizen’s Guide to Radon.

Test kits are inexpensive and can be purchased at stores like Lowe’s or Home Depot if you choose to do it yourself. If levels indicate a high enough level, you can contact a qualified radon service professional for another test or to mitigate your home. You can get information on identifying these professionals at www.nrpp.info and www.nrsb.org. 

 

Fast and Easy But is it Accurate?

There are sites all over the web that offer to tell you what your home is worth.  Simply plug in your address and email and you’ll get a value.  It’s fast; it’s easy but is it accurate?

The value is determined by what is called an Automated Valuation Model (AVM) that analyzes public record data with computer decision logic.  Square footage, age, number of bedrooms and location are easily definable objective data.  The challenge is identifying, measuring and comparing the subjective data.

An AVM cannot identify how unique features might add or detract from the value, if the market is declining or why the comparable sales apply or don’t apply to the subject property.  Is a home worth more because it is near shopping or less because it is across the street from a high-traffic commercially zoned property?

Experienced professionals are more likely to make proper adjustments for condition, market appeal and positive and negative influences.

Imagine that you’re going out for dinner and you consult HamburgerAVM.com to tell you how much a hamburger is worth.  It might be accurate based on condiments, vegetables and weight but can it address things like taste, quality, cleanliness, service, convenience or atmosphere.  You certainly couldn’t present the printout to the waiter to negotiate a lower price.

An AVM can be a tool that a homeowner, prospective buyer, mortgage officer, appraiser or real estate agent can use to get a quick idea of price but there are inherent limitations that can only be considered by personal examination balanced with experience in the market place.

Experience and understanding of the subject property and the marketplace are critical to having confidence that a value is accurate.  Any person could go through the same steps to arrive at a value but an experienced, well-trained professional is far more likely to assess all of the variables more accurately.

Home is Worth the Sacrifice

There are many reasons people want a home with the most frequent responses being a place of their own, to raise their family, share with their friends and feel safe and secure.  These are all strong motivations fueling the American Dream of owning your own home.

The motivation is so dominant that buyers are willing to make sacrifices to have their dream come true.  According to the 2014 National Association of REALTORS® Home Buyers and Sellers Survey, 72% of first-time buyers cut spending on luxury or non-essential items.  They also cut spending on entertainment, clothes and even cancelled vacation plans.

The value of getting their own home is more important than the immediate gratification of things that are considered less important.  While qualifying guidelines were increased last year, there are still more buyers purchasing homes at near record-low mortgage rates.

Save on Homeowner's Insurance

Insurance is a way to hedge the risk of a possible loss on an asset that a person or entity cannot afford.  The cost of the coverage is determined by risk and exposure to the insurer and reflected in the premium.

Another way to say it is: don’t buy insurance when you can afford the loss.  If you have a mortgage on your home, you must have insurance.  It is probably prudent for most people to have property insurance but certain coverage might be avoided because you can afford the loss if you were to have an occurrence.

1. Call your current agent and review your insurance coverage.  Ask if there are any available discounts whether your property qualifies for now or after certain improvements are made.  Monitored alarm systems, dead bolts, smoke detectors, updated electrical, certain types and ages of roofs among other things may be eligible for individual discounts. 
2. Compare the newly revised coverage and premium with other reputable agencies and insurers.  Shopping can be time consuming but experts agree that the exercise can be valuable and should be considered every few years. 
3. Deductibles are an easy way to affect the premium based on the initial amount of loss that the insured wants to assume.  The higher the deductible, the lower the premium.  Determine the amount of risk you want to assume and select an appropriate deductible.
4. Consider bundling your home and auto policies for possible discounts and leverage for better service.
5. Don’t become a co-insurer.  Most policies stipulate that a building must be insured for at least a certain percentage, usually 80% of its insured value to be able to collect the full amount of a partial loss.  Insured value is not always the same as market value.  The land is not considered in the value but replacement cost of the dwelling is.

It isn’t possible to purchase insurance after a loss; it must be purchased before a loss is incurred.  Premiums are based on careful analysis of insurer’s loss and overhead expense plus a profit.  As a homeowner and an insured, it would be equally wise to analyze coverage, claim service, your risk tolerance and the premium you’ll pay for that coverage.

Homeowner Tax Tips

Even if you’re having a professional help you with your income tax return, you need to provide them with information on the money you spent that might be deductible.  Look at the following list to see if any of these things need a little more investigation to determine if they apply to your situation.

• If you refinanced your home for the second or subsequent time in 2014, there may be points that can be taken as an interest charge.
• Compare mortgage interest, property taxes and other eligible itemized deductions to your standard deduction to see which will give you a larger deduction.
• If you’re paying mortgage insurance premiums with your payment, you may be eligible to deduct them.
• If you purchased a home in 2014, there may be some deductions found on the HUD-1 form you received at closing.
• If you purchased a home in 2014 and the seller paid points on your behalf in order to get a mortgage, you may be able to deduct them.
• If you purchased and installed in 2014 qualified residential energy efficiency property or improvements, you may be eligible for tax credits.
• If you have dedicated, exclusive space in your home for a home office, you may be eligible for a deduction that may include a pro-rata share of insurance, utilities and other things.

For more information, see IRS Publication 936, Home Mortgage Interest Deduction; 2014 Instructions for Schedule A.

If you need another copy of your closing statement for the home you purchased or sold in 2014, contact your real estate professional.

1/2% Could Make a Big Difference

Over 50% of homebuyers don’t shop to find the best interest rate for their mortgage.  While a buyer wouldn’t rarely purchase the first home they look at, they will accept the rate and terms offered by only one lender.

While the borrower and the property affect the rate and terms that a lender may offer, it is not to be said that all lenders will offer the same terms and rates to the same buyer.  Credit score, home location, home price and loan amount, down payment, loan term, interest rate type and loan type all affect the interest rate but different lenders can interpret this information differently.

Shopping around to compare rate and terms for a mortgage is a reasonable exercise considering that a half percent lesser interest rate could not only lower the payment but the cumulative interest that is paid while that loan is outstanding.

Some borrowers don’t shop the mortgage because they are concerned that having their credit checked multiple times could adversely affect their credit score.  The credit bureaus take this into consideration when several requests are made by the same category of lender in a short period of time.

Check to see the difference 0.5% could make in the mortgage you’re considering by using the calculator provided by Consumer Financial Protection Bureau.  Contact your real estate professional for a list of trusted mortgage professionals to consider.

Converting a Home to a Rental

A simple decision to rent your current home instead of selling it when moving to a new home could have far reaching consequences.

If you have a considerable gain, in a principal residence and you rent it for more than three years, it can lose the principal residence status and the profit must be recognized.

Section 121 provides the exclusion of capital gain on a principal residence if you own and use it as such for two out of the last five years.  This would allow a temporary rental for up to three years before the exclusion is lost.

Let’s assume there is a $100,000 gain in your principal residence.  If it qualifies for the exclusion, no tax would be owed. If the property had been converted to a rental so that it didn’t qualify any longer, the gain would be taxed at the current 20% long-term capital gains rate and it may incur a 3.8% surcharge for higher tax brackets.  At least $20,000 in taxes could be avoided by selling it with the principal residence exclusion.

Depreciation, a tax benefit of income property, is determined by the improvement value at the time of purchase or at the conversion to a rental whichever is less.  If the seller sold the home and took the exclusion and then, bought an identical home for the same price, he would be able to have 60% more cost recovery and avoid long term capital gains tax.

It is always recommended that homeowners considering such a conversion get advice from their tax professional as to how this will specifically affect their individual situation.

Get Ready to Garage Sale

A well-planned garage or yard sale can make room in your home, get rid of unused items and make some money but it needs some planning to be successful.

• Start early to research and plan
• Promotion is key
• Display items attractively
• Price items right
• Organize checkout

Saturdays are generally the best day but there may be some exceptions.  Experienced garage-salers believe that a well-planned one-day event will do as well as a multi-day event.  Serious purchasers will look for the “new” sale and most people don’t come back multiple days.

Advertise in local newspapers and free online classified sites like craigslist.  If several families are going together for the sale, mention that in the ad; it will be a big draw.  Mention your bigger-ticket items like furniture, equipment and baby items.

Garage sale signs can be purchased or made at Staples, Fedex Office or Kwik Signs.  Signs need large lettering so they’re easy to read while people are driving. Most important info: Garage or Yard Sale, address, date and time.  Directional signs are also important.  Balloons and streamers to attract attention to the signs are very helpful.

Consider using the service Square so that you can take credit cards.  The cost is 2.75% per swipe and can be done on your smartphone or iPad.  You’ll need to sign up at least two weeks in advance to receive your reader.

Unless you’re having an estate sale, keep your home locked.  You don’t want people wandering through your home while you’re outside.  If you start to accumulate a lot of money, take some of it inside.  Don’t discuss how much money you’ve made during the sale or how successful it has been.

People will want to bargain; it’s the nature of the game.  Consider this strategy: less negotiations early in the sale and possibly, more toward the end of the sale.

Downsizing Might Make Sense

With roughly 12.5% of the population over 65 years of age, it is understandable that some of them are thinking of downsizing because they may not need the amount of space they did in the past.  There is something to be said for the freedom acquired by divesting yourself of “things” that have been accumulated over the years but are no longer needed.

Moving to a less expensive home, could provide cash that could be invested for additional income or savings for unanticipated expenditures.

Savings can also be recognized in the lower utility costs associated with a smaller home, not to mention, the lower premiums for insurance and property taxes.

Going from the home where you reared your family to one of the new tiny homes may be a bit extreme but downsizing to 2/3 or 50% of your current home may certainly be reasonable.  In some situations, your interests may have changed so that a different area or city might be a possibility.

At one time, IRS had a once-in-a-lifetime exclusion of $125,000 of gain from a principal residence but it was changed so that homeowner’s are eligible for an exclusion of $250,000 of gain for single taxpayers and up to $500,000 for married taxpayers who have owned and used their home two out of the last five years and haven’t taken the exclusion in the previous 24 months.

Homeowners should consult their tax professionals to see how this may apply to their individual situation.

Reducing Interest Expense

0% financing has induced car buyers into taking the plunge because it doesn’t cost anything to use someone else’s money.  While mortgage rates are not at zero, they’re close enough that many buyers are applying similar logic.

Qualified mortgage interest is deductible on taxpayers' returns subject to the maximum acquisition debt of one million dollars.  For the fortunate homeowners who have paid off their mortgage, their acquisition debt was reduced to zero and only the interest on a maximum home equity debt of $100,000 is deductible.

If you have to pay interest, deductible interest is preferable because it reduces your actual cost.

Consider the following example of a taxpayer with a $500,000 debt-free home.  If they did an 80% cash-out refinance of $400,000, $100,000 would be considered home equity debt and the interest on that would be deductible on their income tax.  The other $300,000 of debt is considered personal debt and the interest is not deductible.

However, because the rates are currently so low, the loss of deductibility of the interest doesn’t have as much impact as if the rates were higher.  The key is to have a good purpose for the money that would offset the actual cost of the interest.

Paying off a higher rate debt such as credit cards, student loans, possibly, business debt could all have significantly higher interest rates.  Refinancing a home and eliminating debts like these could be a big savings.

All lenders are not the same.  Call for a recommendation of a trusted mortgage professional.