"This Year I'm Going To..."

Every year, it seems like the same things are on the list but this could be the year you really do invest in a rental home.

Rents are climbing, home prices are cheap and mortgage rates are low for even non-owner occupied properties. A $125,000 home with 20% down payment can easily have a $300 to $500 monthly cash flow after paying all of the expenses.

There are lots of investment strategies that work but one that is easy to understand and execute is to stay with below average price range homes in predominantly owner-occupied neighborhoods. These properties will appeal to the broadest range of tenants while you hold them and buyers when you're ready to sell.

Single family homes offer an opportunity to borrow high loan-to-value mortgages at fixed rates for long terms on appreciating assess with tax advantages and reasonable control

This is the year to make some real progress on your resolutions. First, invest some time learning about rental properties by attending a FREE webinar on January 4th at 7:00 PM Central time by national real estate speaker Pat Zaby. Click here to register.

Last Minute Gifts Without Shopping

What do they want? What do they need? Will it fit? Do they already have one? These are the common thoughts running through our minds when trying to find the perfect gift.

The gift of really listening with no interrupting, no daydreaming and no planning your response is exactly what people want when they have something important to say.

The gift of affection with appropriate hugs, kisses and pats on the back can demonstrate your love for family and friends better than words.

The gift of laughter by sharing cartoons and funny stories will say "I love to laugh with you."

The gift of a simple written note shows sincerity and real heartfelt sentiment that may be remembered for a lifetime and could even change a life.

The gift of a sincere compliment supports a person's need to be accepted and appreciated. "You look great in that color", "That was outstanding" or "I really enjoyed that" can make someone's day.

The gift of random kindness or good deeds like holding a door or allowing someone to move ahead of you in a checkout lane shows respect for others.

Your smile, however, may be your most rewarding gift. Invariably, the person receiving the smile will in turn, smile back. The gift you gave will now be given back to you. It will be the right size and you can always use one more.

There's No Place Like Home

You don't have to be Dorothy in the Wizard of Oz to feel like there's no place like home.

Home is a place to call your own. It's a place to raise your family and share with your friends. It's a place to create memories. A home is a place to feel safe and secure.

Inspect all of your decorations and electrical lighting before using them. While you're enjoying the holidays this year, it's important to pay attention to some of the things that may affect your safety.

• Extension cords should not be placed under the carpet or rugs or bundled together which could cause overheating.
• Limit three standard size sets of lights to a single extension cord.
• Consider using portable or permanent ground fault circuit interrupters with all lighting to avoid possible shocks.
• Turn off holiday lights when you leave the home or got to bed.
• Avoid using candles near trees or wreaths.
• Do not allow natural trees to dry out during the time they're displayed to potential fire hazard.
• Make certain that all trees are on a firm, steady base to avoid tipping over.
• Don't burn wrapping paper in fireplaces.
• Small children are particularly susceptible to accidents and should be protected from potential harm.

Here's hoping your time at home is special during this holiday season. Please let us know if there is anything we can do for you.

Finding the Best Deal

Consumers are vigilant about buying opportunities like Black Friday, Small Business Saturday and Cyber Monday along with sales, coupons and rebates.  Some cautious buyers will even risk shopping early to find exactly what they want to waiting until the last moment for potentially lower prices.

In retail, the hype is more obvious and the signs may be easier to read than that of the home market.  Certainly, volumes have been written about the record low mortgage rates and that home prices have adjusted considerably lower in the last four years.

A more subtle indication of a home buying bargain is that statistics indicate that year-after-year, the average home prices fall in the fourth quarter.  The holidays beginning with Thanksgiving, winter weather and the distractions of gift purchases certainly contribute to lower home sales.  

Regardless of what is causing the reduced volume, the smart buyer can take advantage of the end of the year to get their best possible deal on a home purchase.  The buyers willing to buck the trend could easily benefit from lower prices and less competition from other buyers.

Why Pay Full Price?

No one wants to pay more than its value regardless of the product. When you buy bananas for 49 cents a pound at one store and see them for 39 cents a pound at another store, it's not the ten cent difference as much as it is about overpaying.

It seems like the natural way to start the negotiation process is to offer less than the asking price for the home. However, instead of the price, a buyer could negotiate condition, timing or terms. A few thousand dollars off the price may not make much difference in the monthly payments but it might make a big difference if it was negotiated in one of the other areas.

A buyer who only has enough available funds for down payment and closing costs will have to live in a home exactly the way it is for some time. They may not be able to make the changes that would really make it feel like home until they've saved more money.

Let's say you found a home that needed $5,000 worth of improvements and the seller would lower the price by that amount. Financing those improvements with a separate bank loan will result in higher payments due to a higher interest rate and shorter term than your mortgage.

Offering full price and asking the seller to make the improvements will result in lower monthly payments based on today's low mortgage rates and 30 year term. Another alternative is to negotiate with the seller to pay your closing costs so you'd have the cash to make the improvements.

Paying full price may cause the seller to consider concessions regarding condition or terms which can be balanced to affect the value of the property. Buyers can and should negotiate to acquire the home that meets their needs at the lowest possible cost of housing.

The Best Way Home

"It's not far, if you know the way." Maybe it is an obvious statement but there are some definite steps that will improve your success in buying a home in today's market.

1. Know you credit score - the best mortgage rates are available to borrowers with the highest scores. Unless you know what your credit score is at all three major bureaus, you don't really know what rate you'll have to pay.
2. Clean up your credit - it is estimated that about 90% of credit reports have errors. Some are not serious but others could affect a borrower from getting the best loan terms. It is your responsibility to know what is on your different reports and correct them if possible. You're entitled to a free copy of your credit report each year from Experian, Trans Union and Equifax.
3. Get pre-approved - Taking the time to make a loan application with a qualified lender even before you start looking at homes will provide peace of mind, make sure that you are looking at the "right" homes and may help you negotiate the best price on the home you select.
4. Do your homework - when you find the home that meets your needs and desires, research the tax assessments, school ratings, crime activity, possible zoning changes and comparable sales in the area.

As your real estate professional I can definitely help you with these important strategies to invest in a home to call your own, raise your family, feel safe and secure and share with your friends. Call for a recommendation of a trusted mortgage professional; there really is a difference.

Waiting Might Cost MORE!

The housing market has been in a downward trend for four years. There is some speculation that inventories will not reduce any time soon which will be necessary for prices to rise. However, there are other factors that can increase the cost of housing, specifically mortgages. FHA accounts for a large percentage of the current housing loans and is expected to be even more prominent when the Qualified Residential Mortgage Guidelines go into effect next year.

1. Rising rates are almost certain, due to looming inflation fueled by higher gas and food prices and the enormous amount of deficit spending
2. FHA loan limits have been reduced – they are lower than conventional limits in most markets and FHA has suggested that they might be reduced further.
3. FHA might increase the down payment to 5% or higher in an effort to have a more secure loan that will have less likelihood of going to foreclosure.
4. FHA might decrease the amount of seller contributions in a similar move to require the buyer to have a larger investment in the home and therefore be a more “qualified” borrower.
5. Congress may decide to increase the up-front MIP to build up the FHA reserves. The annual MIP has been adjusted twice since October 2010 when the Up-Front MIP was actually reduced.
6. Due to tougher conventional requirements, demand for FHA loans could exceed maximum annual insurable limits. If Congress is having a hard time raising the limit on national debt, they might not even consider raising the limits for FHA.

In an effort to solidify the lending industry, qualifying is becoming harder for the buyer and more expensive at the same time. Many of the rules changes could go into effect next year. In addition, market factors could easily play a role in increasing buyer’s costs. Waiting will very probably require a larger up-front investment for buyers in the future.

One Size Doesn't Fit All

Rarely, does one size fit everyone and the same goes for advice. The following suggestion is not right for everyone. However, for people with job security and who don't own a home; for people with good credit and enough savings for a down payment, there may never be a better time to buy a home.

Homes have had a significant price correction but in many markest, they have started to rise again. The lower prices combined with historically low interest rates make this an opportune time to buy a home if you can afford it.

One of the reasons homes are an attractive investment is that fact that you can use a small down payment and finance the balance for 30 years. The principle, called leverage, allows you to earn a return on the value of the home rather than the actual cash investment. Small appreciation can create a large rate of return on the initial investment of the down payment and closing costs.

The following example is a projection at the end of five years for a $175,000 home with 3% closing costs and a 5% interest rate for a 30 year term. The rate you see in each column is an annual rate of return based on the equity of the home at the end of the five year period due to both appreciation and amortization of the loan.

The nature of positive leverage will cause the returns to be higher with a smaller down payment. As you see in the table, the return is higher on the 3.5% down payment than with the 10% or 20% down payment.

If you're curious to see if this advice might fit your situation, you really need to sit down with a knowledgeable real estate professional who can help you assess your position. It's worth the time because there may never be a better opportunity than now.

Family & Friends' Mortgages

It all seems perfectly reasonable: one person is not satisfied with what he can earn currently in the market and another wants to find the most attractive mortgage to purchase their home. It can be a good match but the IRS has specific rules that govern the transaction.

The loan must be done in a business-like manner with a written note specifying the loan amount, interest rate, term and collateral. IRS requires that the mortgage be a recorded lien in order to allow the interest deduction.

Sometimes, these friends and family situations have a less than normal interest rate on the mortgage. However, the rate charged in the note is regulated by the minimum applicable federal rate which is published monthly by IRS according to current Treasury securities. For October 2011, the rate is 2.95% for terms over nine years.

The seller must report the interest paid to them along with the name, address and Social Security number on schedule B when the buyer uses the property as their principal residence.

A mortgage between family and friends can be good for both parties. It may allow the borrower a slightly lower rate without the expenses of a traditional lender while giving the note holder a higher rate than they can earn in available investments. Your tax professional can guide the transaction whether you're a buyer or seller and your real estate professional can help arrange to have the documents drawn and filed.

Yours or Theirs

It takes money to buy a home: yours or theirs. If you're not going to pay cash for a home, you need to find out exactly what you can borrow and what it will cost before you start looking at homes.

The mortgage process is not as clear cut a path as it was a few years ago. It is certainly more complex, takes longer and assumes that you're credit worthy. If you have less than stellar credit, a trusted mortgage professional can advise you how to improve your individual situation.

You are entitled to a free credit report from each of the three major credit bureaus each year. Go to AnnualCreditReport.com to get a copy of each from TransUnion, Experian and Equifax. Read the reports to determine if they're accurate. Surprisingly, about 90% of all reports have errors.

You can try to correct them directly with the credit bureau, but a trusted mortgage professional can help you with this process too. They have tools that are not available to individuals. Some errors may not be serious but others will keep a person from qualifying.

Housing affordability is at a near record height due to the incredibly low interest rates and low home prices. Some areas are experiencing absorption of the inventories which could impact price. If you're going to use "their" money to buy a home, the first step is to talk to a trusted mortgage professional. Call me for the name of a trusted mortgage professional.

 

"I Do" Want a Home

Forget Macy's and Crate & Barrel. Set up your bridal registry at the bank and use the funds for the FHA down payment on a home. This could be perfect for people getting married who already have their household items and really need help getting into a home.
FHA has had this little known program that allows cash gifts since 1996. Sellers, builders, real estate agents or anyone with a financial interest are restricted fom making a gift contribution. It's not difficult to set up and it's available with any FHA lender.

1. Inform your mortgage professional early of your intention to obtain all or part of your down payment from gifts to the FHA homeowner bridal registry.
2. Open a savings account at your bank named "bridal registry account"
3. Friends and family are given account deposit information

Gift registries are commonplace and really benefit both the giver and recipient. Etiquette websites like Emily Post state that alternative registries are acceptable. Couples are now suggesting to friends and family that they want help with their honeymoon, education or furnishing a home.

Interestingly, this program is not limited to people intending to be married. It is available for other situations where gifts are typically received by individuals. Other occasions could include graduation from college or graduate school.

IRS Rules Regarding a Sale by Surviving Spouse

I don't care how expected it is, the death of a spouse leaves the surviving spouse reeling and with a thousand questions. It's good to know that the IRS has given special consideration regarding the sale of their jointly-owned principal residence after the death of a spouse. If the surviving spouse does not remarry prior to the sale of the home, they may qualify to exclude up to $500,000 of gain instead of the $250,000 exclusion for single people.

• The sale needs to take place no more than two years after the date of death of the spouse
• Surviving spouse must not have remarried
• Both spouses must have used the home as their principal residences for two of the last five years prior to the death
• Both spouses must have owned the home for two of the last five years prior to the death
• Neither spouse may have excluded gain from the sale of another principal residence during the last two years prior to the death

If you have been widowed in the last two years and have gain in your principal residence, it would be worth investigating the possibilities. Contact your tax professional for advice about your specific situation. Contact me to find out what your home is worth in today's market. See IRS Publication 523 - surviving spouse.

Sale by Surviving Spouse

The IRS has given special consideration regarding the sale of their jointly-owned principal residence after the death of a spouse. If the surviving spouse does not remarry prior to the sale of the home, they may qualify to exclude up to $500,000 of gain instead of the $250,000 exclusion for single people.

• The sale needs to take place after 2008 and no more than two years after the date of death of the spouse
• Surviving spouse must not have remarried
• Both spouses must have used the home as their principal residences for two of the last five years prior to the death
• Both spouses must have owned the home for two of the last five years prior to the death
• Neither spouse may have excluded gain from the sale of another principal residence during the last two years prior to the death

If you have been widowed in the last two years and have gain in your principal residence, it would be worth investigating the possibilities. Contact your tax professional for advice about your specific situation. Contact me to find out what your home is worth in today's market. See IRS Publication 523 - surviving spouse.

You Must Be This Tall to Ride

Do you remember going to the State Fair or Six Flags as a child? There was a terrific ride your older siblings were going on but there, at the entrance gate, was a sign that read "You must be this tall to ride."

After standing in line and thinking you had just about made it, you found out that you weren't tall enough. Not only was it disappointing, it was slightly embarrassing. You never want to go through that again.

It's remarkably similar when buying a home. You can go through the entire property search process to find the right home and negotiate the contract only to find out that you don't measure up "financially." It's something that no one wants to go through if they have a choice.

Regardless of what you think you know, if you're buying a home, you need to physically visit with a trusted mortgage professional before you get serious. You'll find out your credit score which will directly affect the mortgage rate you'll pay. You'll discover possible blemishes on your credit that may be able to be corrected. You'll even get a pre-approval letter that you can submit with an offer which could dramatically affect your negotiations.

Remember how some rides didn't turn out to be as good as you thought they were going to be? You certainly don't want that disappointment with a lender involving one of the biggest decisions of your life. Contact me for a list of trusted mortgage professionals.

Keep Track of Improvements

People are staying longer in their homes according to the National Association of Realtors and the U.S. Census. Over time, even a modest appreciation could result in a significant gain and homeowners should have a strategy to minimize possible taxes.

Maintenance on a principal residence is not deductible but improvements can add to the basis which can reduce the gain in the sale. Improvements are easily identified if they add to the value of a home, prolong its useful life or adapt it to new uses.

Receipts and other proof, such as pictures, should be kept during ownership and for several years after the sale of the home. They can include the closing statements from the purchase and sale of the home and all receipts for improvements, additions or other items that affect the home's adjusted basis or cost.

For a principal residence, basis includes the price paid, plus certain acquisition costs and capital improvements made. When the property is sold for more than the basis, there is a gain. Currently, homeowners that meet the requirements can exclude up to $250,000 of gain if single or up to $500,000 if married filing jointly.

A simple strategy is to put documents that affect the basis of the home in one envelope. Any receipt for money spent on the home that isn't the house payment or utilities, goes into the envelope. Your tax advisor will be able to sort through them to determine the capital improvements.

For more information on determining basis or capital improvements, see IRS publication 523, Selling Your Home.

7 Reasons for FHA Assumptions

FHA loans that originated with lower interest rates have great advantages for buyers and sellers.

1. Interest rate won't change for qualified buyer
2. Lower interest rate means lower payments
3. Lower closing costs than originating a new mortgage
4. Easier to qualify for an assumption than a new loan
5. Lower interest rate loans amortize faster than higher ones
6. Equity grows faster because loan is further along the amortization schedule
7. Assumable mortgage could make the home more marketable

Any FHA lender can approve a buyer for the assumption of an existing FHA mortgage but the most likely place to start would be the current note holder. The seller may have acquired a loan information letter that will verify that the mortgage is an FHA loan, the rate, the unpaid balance and how to make application for approval.

Approving the new buyer on the assumption will allow the seller to receive a release of liability on the loan. This will eliminate the possibility of further financial responsibility if the buyer doesn't continue to make the payments.

Home Energy Audit

With the exception of a mortgage payment, the largest homeowner expense is utilities; and energy is the major component. There are lots of contributing factors such as air leaks, insulation, heating and cooling equipment, water heaters and lighting.

It's estimated that 75% of the electricity to power home electronics is consumed when the products are turned off. Computers, monitors, TVs, cable and satellite boxes, DVRs and power adaptors are spinning your electric meter even when they're not being used.

Unplugging devices can actually make a difference in the size of your electric bill. Plugging several of these offenders into a power strip with a single on/off switch may make the task easier. Most computers have options to put them into sleep mode or even turn off when not in use.

Take 3 1/2 minutes and watch Energy 101. Consider hiring a professional home energy auditor or do-it-yourself. The Department of Energy has a checklist with some valuable suggestions.

Converting a Home to a Rental

What's keeping you from taking advantage of the low prices and mortgage rates available today? Concerned that you may need to sell in a few years and won't be able to get your equity out of your home?

Suppose a buyer purchases a home and finds out that they need to move in two years. Instead of selling the home, they could convert it to a rental. It's possible that it could have a positive cash flow even with the small down payment. In most cases, the conversion would not accelerate the mortgage.

The price of homes and low interest rates combined with a very strong rental market in most areas has attracted a lot of investors. Non-owner occupied mortgages generally require 20-30% down payment compared to a 3.5% down payment for a FHA owner occupant.

The following example looks at a home that might have been purchased as a principal residence and then converted to a rental at the end of two years. There are certainly lots of variables to consider but the high indicated rate of return merits closer examination of the possibilities.

For the buyer who has good credit and ample funds for down payment and acquisition costs, there may never be as good a time to buy a home as now. For the buyer who is concerned that they might have to move in the near future, converting it to a rental might make a great investment opportunity.

 

Competing with Cash

It's not fair! 29% of all sales made in June and July 2011 were cash. How does a buyer who needs a mortgage compete with a cash buyer?

You've been looking for a home for months after thinking about it for years. You've found the home you want and meets your family's needs. You write a contract but before it's even presented to the seller, another offer comes in. With all the homes on the market, you'd think you wouldn't have to deal with multiple offers but you'd be surprised how many times it does happen.

There are some proven strategies that can minimize the advantage of an all-cash buyer.

1. Get pre-approved and submit the letter from the lender with the offer
2. Move fast to minimize competing with other offers
3. Submit larger than normal earnest money to show your sincerity
4. Be flexible about closing and possession
5. Avoid unnecessary contingencies in the contract
6. Write a letter emotionalizing why you want the home

Significant Problems

"The significant problems you face today cannot be solved at the same level of thinking you were at when you created them." Albert Einstein

The housing market has definitely caused significant problems for some people but is also providing some amazing opportunities for others. Agents aren't like retailers who wake up one day realizing they have the wrong merchandise on the shelves.

Everyone needs a place to live and whether you rent or buy, you pay for the house you occupy. While the home for sale remains the same, the methods that produce results have to change.

Listing agents are diametrically opposed to the objectives of buyer's agents. This is not to say that there cannot be a win-win situation but each agent is trying to negotiate the best price and best terms for their client.

Financing can make listings more marketable and structure a transaction to provide the buyer with the cheapest cost of housing. Personal experience is a great teacher but a very expensive way to learn. An expert, like a Residential Finance Consultant can provide information and tools to make better decisions to be able to profit in the current market.

Silent Killer

Carbon monoxide is colorless, odorless and toxic. It's called the "silent killer" in homes because some victims are not even aware that the deadly condition exists.
Homeowners must be concerned about unmaintained furnaces, water heaters and appliances that can produce the deadly gas. Other sources could include leaking chimneys, unvented kerosene or gas space heaters and even exhaust from cars operating in an attached garage.
The Environmental Protection Agency suggests the following to reduce exposure in the home:

• Keep gas appliances properly adjusted
• Install and use an exhaust fan vented to the outdoors over gas stoves
• Open flues when fireplaces are in use
• Do not idle car inside garage
• Have a trained professional inspect, clean and tune-up central heating systems annually

There can be many symptoms of carbon monoxide poisoning that can resemble other types of poisoning. Headaches, nausea, vomiting, dizziness and feelings of weakness or fatigue are a few of the most common symptoms. Lower levels of exposure may be mistaken for the flu.

Roughly half the states have laws regarding carbon monoxide detectors in homes. Regardless of the requirements, what person would want to put their family, guests or themselves at risk for something so deadly? The devices can be purchased for as little as $20 and plugged into the wall like a night light.

More To Sell

If you had a 3.5% mortgage on your current home and were buying another home, transferring your low interest rate mortgage would be ideal. Unfortunately, lenders don't allow that.

When buying a home today, it would be smart to think about selling it in the future. To have a good home with unique features makes it marketable. To have attractive financing that could be assumed would add to the salability.

Consider getting a FHA or VA loan to purchase your home. The present advantages are that these loans are priced competitively and a little easier to qualify for than conventional loans. The future advantage is that FHA and VA loans are assumable at the original note rate for qualifying buyers.

There's more to sell than the home itself when you have an assumable loan. The mortgage payment could lower the cost of housing significantly. A buyer may easily be willing to pay more for the home due to the attractive financing, especially if it helps their equity grow faster.

The Investment Alternative

To say the investment market is unsettling is an obvious understatement. The market is down 8% in the last ten days and the news doesn't give much hope that things are going to get better in the near term.
Preservation of capital is probably today's most important investment consideration and making a profit would be a bonus. Of all the conventional investment alternatives like stocks, bonds, mutual funds, gold, commodities, CDs and annuities, housing is the best asset class in America.
Homes have had a 30% to 40% price correction in the past four years. Mortgage rates are at near all-time low rates with 30 year terms available for investors. Rents have increased significantly over the past two years while vacancy rates have decreased. People will always need a place to live.
Five year certificates of deposits earn a little over 2% but rental properties are yielding eight to ten times more than that. Income properties are tangible assets that have benefitted dramatically in inflationary times. Cash assets can be devastated by inflation and diversifying into income properties can provide real protection.
Single family homes offer investors the opportunity to borrow large loan-to-value mortgages at fixed rates for long terms on appreciating assets with tax advantages and reasonable control. Investing in rentals can provide stability, safety and a higher rate of return.

Woulda - Coulda- Shoulda

It is the mantra of people who missed a great deal. It's the theme song of the procrastinator. It's the refrain that reminds us of the one that got away.
Some people are still beating themselves up because they didn't recognize the housing bubble was really going to burst. It is impossible to change the past but will they see the signs of the next housing trend?
In the past four years, prices have adjusted with 30% corrections nationally and much more in areas with high percentages of foreclosures. New homes are almost non-existent. Interest rates are slightly above record lows. Consumer goods are skyrocketing; our budget deficit and national debt are staggering and escalating inflation appears certain.
"Forget stocks. Don't bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing." states Shawn Tully, Senior Editor at-Large for Fortune magazine in a March 28, 2011 article.
"If I would have known that this was the best buyer's market ever, I could have taken advantage of the prices and interest rates; I should have fixed my cost of housing for years to come." Don't catch yourself saying this. You owe it to yourself and your family to get firsthand information to see what your options really are.

Wasted Water

A typical household uses 185 to 300 gallons of water a day and the majority of it goes down the drain from the toilet and the shower. Updating your commodes will serve as a conservation effort while lowering your water bill.
Today's toilets use less water, prevent staining and resist clogging better than the older toilets and you might be surprised at how easy they are to install. Replacements generally cost from $100 to $300.
Toilets made in the 1950's used, on average, seven gallons per flush. Compare that with one that only uses 1.6 gallons per flush and it's a big saving. Multiply by the times a toilet is flushed in a year and the number of toilets in your home and it will save a lot of water.

Gallons of Water Saved in a Year with 1.6 gpf
Age of Toilet	Gallons Per Flush	Flush 3 times a day	Flush 5 times a day
Prior to 1950's	7.0	5,913	9,855
1960's	5.5	4,271	7,118
1980's	3.5	2,081	3,468
After 1994	1.6	-	-

 
Watch this video to see how easy the project is done and even if you decide to hire a plumber, you'll have a better understanding of how it works.

I Want a Bigger/Nicer Home but...

There are homeowners that would like to have a larger/nicer home but are patiently waiting for the market to improve. A frequently heard objection is that they can't sell their home for what it is currently worth.

Buying up in a down market is actually advantageous because while you might get less for the home you're selling, you're also getting the larger home for less. For instance, if you had to sell a $200,000 home for a 10% discount, you might feel that you left $20,000 on the table. However, buying a $300,000 for the same 10% discount would put you $10,000 ahead on the sale and purchase.

The other obvious matter is that when the mortgage rates increase while you're waiting for the market to improve, it dramatically increases your cost of housing with higher payments. The cost of housing is affected by price and mortgage rates.

To accurately evaluate your current options, you need facts and assessment tools that will provide you the information to make an informed decision.

Targeting the Mortgage Interest Deduction

It's obviously going to be a Herculean task for Congress to balance the budget and reduce the deficit. It's sort of like the country song lyric that goes "everyone wants to go to Heaven but nobody wants to go now." It is estimated that the mortgage interest deduction cost the government $100 Billion last year which is why it is a target for cuts.
The Mortgage Interest Deduction has been part of Income Tax laws in this country since 1913. The United States of America is one of the few countries in the world that allow such a deduction. Our goverment has always supported homeownership as is evidenced in the different tax benefits it receives.

• Mortgage interest deuction up to $1,000,000 in acquisition debt on a principal residence and second home
• Deduction of interest on Home Equity debt of $100,000 over acquisition debt used for any purpose
• Capital gain exclusion on up to $500,000 for married couples filing jointly and $250,000 for single homeowners
• Favorable long-term capital gain rates if gain exceeds exclusion limits
• Property tax deduction

There is an interesting relationship between a good economy and a healthy housing market. Contrasted to profits from the stock market which tend to be plowed back into other investments, profits from home sales tend to be spent on consumer products that directly benefit the economy.

The National Association of REALTORS supports the MID and reports that one job is created for every two homes sold. It further states that $60,000 is pumped into the economy for each home sold and that homeownership accounts for over $2 Trillion of the U.S. gross domestic product.

American homeowers are currently paying 80-90% of all federal income tax collected. Some economists believe that a healthy housing market is a leading indicator for economic recovery and that tampering with a significant homeowner benefit like the mortgage interest deduction would hurt the economy.

"I Do" Want a Home

Forget Macy's and Crate & Barrel. Set up your bridal registry at the bank and use the funds for the FHA down payment on a home. This could be perfect for people getting married who already have their household items and really need help getting into a home.

FHA has had this little known program that allows cash gifts since 1996. Sellers, builders, real estate agents or anyone with a financial interest are restricted fom making a gift contribution. It's not difficult to set up and it's available with any FHA lender.

1. Inform your mortgage professional early of your intention to obtain all or part of your down payment from gifts to the FHA homeowner bridal registry.
2. Open a savings account at your bank named "bridal registry account"
3. Friends and family are given account deposit information

Gift registries are commonplace and really benefit both the giver and recipient. Etiquette websites like Emily Post state that alternative registries are acceptable. Couples are now suggesting to friends and family that they want help with their honeymoon, education or furnishing a home.

Interestingly, this program is not limited to people intending to be married. It is available for other situations where gifts are typically received by individuals. Other occasions could include graduation from college or graduate school.

Who Represents You?

In almost every state in the U.S., buyers have the option of being represented by their real estate agent. This relationship creates responsibilities that require the agent put their client's interests above their own.

The duties a buyer or seller can expect to receive among others are honesty, accountability, full disclosure, representation and reasonable skill and care. In a nutshell, the agent who represents you is working in your best interest.

It's a special relationship that doesn't exist with most of the other professionals involved in a real estate transaction. Mortgage and title officers are limited to their duties of honesty, accountability and specific requirements under the Real Estate Settlement and Procedures Act.

This special relationship with your real estate agent makes it advantageous to have them coordinate your efforts with the other professionals in the home buying process. Since most buyers' and sellers' transactions are infrequent, the agent can bring valuable experiences to the transaction.

A Residential Finance Consultant is trained and has special tools to help you make better decisions when you buy or sell and in between. Our goal is to help you improve and maintain the investment in your home so we can earn the right to be your lifelong real estate professional.

REALTOR® Magazine-Daily News-Tight Credit Continues to Shut Buyers Out

REALTOR® Magazine-Daily News-Tight Credit Continues to Shut Buyers Out

Wendy Huang, Named one of D Magazine’s Best Real Estate Agents in Dallas 2010 & 2011

Daily Real Estate News

Daily Real Estate News

Top 10 FHA Loan Advantages

Fannie Mae and Freddie Mac underwritten conventional, FHA and VA loans account for the vast majority of mortgages chosen by buyers to finance their home purchase. While buyers have the choice on which product to use, there are some considerable advantages to FHA.

1. More tolerant for credit challenges than conventional loans.
2. Lower down payments than conventional loans.
3. Broader qualifying ratios - total house payment with MIP can be up to 31% of borrower's monthly gross income and total house payment with all recurring debt can be up to 43%.
4. Seller can contribute up to 6% of purchase price - this money must be specified in the contract and can be used to pay all or part of the buyer's closing costs, pre-paid items and/or buy-down of the interest rate.
5. Self-employed may qualify with adequate documentation - two year's tax returns and a current profit and loss statement would be required in addition to the normal qualifying and underwriting requirements.
6. Mortgage Insurance Premium can be released in five years when the balance is 78% of original sales price
7. Liberal use of gift monies - borrowers can receive a cash gift to assist in purchase from family members, buyer's employer, close friend, labor union or charity. A gift letter will be required specifying that the gift does not have to be repaid.
8. Special 203(k) program for buying a home that needs capital improvements - requires a firm contractor's bid attached to the contract specifying the work to be done. The home is appraised subject to the work being done. If approved, the home can close, the money for the improvements escrowed and paid when completed.
9. Loans are assumable at the existing interest rate - assumptions require buyer qualification but are actually easier than qualifying for a new mortgage. Closing costs are lower on assumptions than originating a new mortgage.
10. If the rate on the assumable mortgage is lower than current rates for new mortgages, it could add value to the property.

One More Chance?

Fixed Rate mortgages are at their lowest level for 2011 as reported in the current Freddie Mac weekly Primary Mortgage Market Survey. Many qualified buyers missed the opportunity last fall in October and November to refinance at record low rates. This may give homeowners one more chance to refinance and save money on their payments.

An important thing to keep in mind is that points paid in connection for refinancing a home are generally not considered prepaid interest and must be spread over the life of the mortgage. Some advisors suggest that you have the lender quote a "par value" loan to eliminate the points which will lower refinancing costs even though the mortgage rate will be slightly higher.

Additional income tax information is available in IRS Publication 936.

Cash Now - Mortgage Later?

You might think that a person who pays cash doesn't have many concerns or at least not the same ones as most people.  Roughly, about 9% of people paid cash for their home last year with a considerably higher percentage paying cash this year. 

The first question that comes to mind when I hear someone say they want to pay cash for a home is "Do you think that you might put a loan on the home in the future?"  Paying cash may affect your ability to deduct the interest on a mortgage placed on the home at a later date.

Currently, a homeowner may deduct the interest on up to $1 million of acquisition debt.  Paying cash for a home establishes acquisition debt at $0.  At that point, the only deductible interest would be home equity debt which is limited to $100,000 over acquisition debt.  You can get more information about this from IRS Publication 936.

On the surface, paying cash certainly seems simple but it may have consequences later.  As a Residential Finance Consultant, I can point out the areas when advice from a tax professional is in order.

Start Your Projects

Summertime is almost here and millions of Americans will be starting home improvement projects.  Whether they're classified as maintenance, updating or energy saving, they should make homeownership more enjoyable.

Remodeling magazine's 2010-11 Cost vs. Value Report suggests that some improvements are a better investment than others.  Front door and garage door replacements are two of the easiest and return the greatest percentage of cost on resale.

Kitchen and bathroom updates transform an older home and instantly give visitors and buyers a fresh impression. Countertops and appliances can be expensive but yield great results.  Painting the cabinets and replacing the hardware is much less expensive to change the look and feel of the rooms.

Energy efficiency enhancements can improve your enjoyment of the home and help save money on utility costs.

• Replace older appliances - refrigerators, ceiling fans, water heaters, air-conditioners
• Add insulation to keep your home cool in the summer and warm in the winter
• Seal air leaks around doors and windows; holes in attics and crawl spaces with caulk, spray foam or weather stripping - more information
• Seal all heating and cooling system ducts - more information

Looking through the eyes of a buyer could show you what features most date your home and could order the priority that you tackle the projects.

5223 Lincoln Shire Court - Dallas_TX_75287

5223 Lincoln Shire Court - Dallas_TX_75287

Not as Flush as You Think

Not as Flush as You Think

You've got $500,000 in liquid assets for your retirement and you're still 15 years away.  All your bills are paid;  have a small mortgage on your home; cars are paid for and great credit.  You're planning on sailing into retirement...or maybe not.

If you want to retire with $100,000 income in today's dollars and expect to live for 25 years after retirement, you'll need to have a net worth of $2,267,130 at retirement age not counting what Social Security may provide.  Your $500,000 will grow to $813,720 in 15 years which will leave you almost $1.5 million short.  You'll need to save $76,442 each year for the next 15 years.

Is this surprising?  Did you even imagine that you were that far away from where you need to be?  It might be a staggering amount to save each year but there is another way...investing.  Probably not in a 5 year certificate of deposit that earns 2.25% or a volatile stock market that seems to go up or down without logic.

Real estate over the long term has proven to be a solid, predictable investment.  With the price corrections in the last three years combined with today's low interest rates make housing very affordable.  Rents are going up in many markets and owning rental property is very attractive.

Step one is to buy your own home and then, start aquiring good rental properties.  A successful strategy includes average price range or lower, in average condition, in predominantly owner-occupied neighborhoods.  Rental homes are more more attractive than alternative investments because they provide high loan-to-value mortgages at fixed rates for 30 years on appreciating assets with tax advantages and reasonable control.

If you would like to explore the possibility of investing in rental property, attend Introduction to Rental Properties, a FREE webinar on Saturday, December 18, 2010 at 10 AM Central Time Zone.  Register Now.

The best Family Gift

The Best Family Gift

A home is a place of your own where you can raise your family, share with friends and feel safe and secure. Other benefits for homeowners include better physical health, higher lifetime income, higher student test scores, and lower teen delinquency.

Reduced prices and low interest rates have placed housing affordability at its highest but rates have started inching up in the past few weeks which will directly result in higher payments.

Credit, debt ratios and income are the limiting factors that could be keeping you from taking advantage of these opportunities. Isn't it time you found out where you stand to buy a home?

The benefits of talking with a qualified mortgage officer and pre-approval are without question. It saves time, money and removes the uncertainty of not knowing. The direct benefits include:

• Amount the buyer can borrow - as interest rates rise, the amount decreases
• Looking at "Right" homes - price, size, amenities, location
• Find the best loan - interest rate is tied to credit score; do you qualify for the best rate?
• Uncover credit issues early - time to cure possible problems; 90% of credit reports have errors
• Bargaining power - helps negotiate price, terms and timing
• Close quicker - verifications have been made; takes less time to close

Call me for a recommendation and a list of what you need to share with a loan officer. It may be the best gift you give your family.

Gift card exp.

I was going through a drawer looking for a card when I found an airline ticket credit voucher for $100 that had expired.  What a waste!  That got me to thinking of all of the gift cards that were given this year and will get tucked away and forgotten that may end up expiring too.

That led me to another thought which was the extended tax credit for members of the military, Intelligence and Foreign Service who have served outside of the U.S. for at least 90 days between January 1, 2009 and May 1, 2010.  This gift card comes from Uncle Sam and could be worth $6,500 to $8,000.
Qualifying buyers have until April 30, 2011 to get a completed sales contract and then, must close it by June 30, 2011.  The bonus that comes with this gift card is that the recapture of the tax credit doesn't apply if the qualified service member receives government orders to move prior to the three year residency period completion.  For additional information, go to IRS.gov.
There's more to finding the "Right" home than driving around looking at houses.  A Residential Finance Consultant can help you make better decisions to help you understand the tax advantages, financing alternatives and investment aspects of homeownership.

Daddy , you are the best

A young couple was looking at a home for the third time and had invited their parents to see it.  The dad had quickly asumed his self-appointed role as tire kicker and was talking about how expensive mortgage rates were compared to what a certificate of deposit was paying.
The next thing you know, he has the kids cornered and says to them "I have a CD coming due and if you'll pay me what I'll be earning, I'll loan you the money to buy the home.  You'll save quite a bit even from the low mortgage rates being offered."  The young couple shouts "Daddy...you're the best!"  Dad goes on to say "and this way, you won't have to worry about all those fees the mortgage company charges."
A third party lender would always record the lien to protect the mortgage but Dad may not because of the relationship with the children.  He might not even ask them to sign a note.  This could affect the interest deduction for the buyers.
Even though the young couple will be making payments on the loan, the mortgage must be a recorded lien to be a qualified interest deduction.  This situation definitely warrants professional tax advice and can be easily remedied by having the title company draw a note and mortgage and filing it with the county tax office.

Equity is Forced Savings

Equity is simply the difference in an owner's unpaid balance and the value of their home.  Amortization and appreciation contribute to the equity over time.  The equity is usually realized when the home is sold but it can also be accessed by a home equity loan or a cash out refinance.
Most people think that it takes years to significantly pay down a mortgage and they're partially correct.  A five percent interest rate on a mortgage takes approximately 20 years to pay down half of the original amount borrowed.
A mortgage is like a forced savings account because each payment is first applied to the interest due on the borrowed money but another part pays down the principal.  On a $188,175, 5%, 30 year mortgage, the first payment of $1,010.16 includes $226.10 principal reduction.  In the first year, the owner would have increased the equity in their home $2,776.24.


In the example below, the buyers paid $195,000 for a home that is estimated to appreciate only 1% per year for 7 years.  With a 3.5% down payment, the equity in the home at the end of 7 years would be $41,921.  55% of the equity would come from amortization; 29% would come from appreciation and 16% from the down payment.
 

The Difference a Day Makes

A man was selling a property which was currently rented but had previously been his home for over two years.  After discovering it had been rented for the last 2.5 years, it was asked if he had planned on taking the principal residences capital gain exclusion.  He said he hoped it would be possible.

When asked if he was aware of the requirement that he must have owned and used the home for two out of the last five years (730 days), he said he knew about it but wasn't sure what it meant.  "In this case, it means the home needs to be ready to sell, priced correctly, sold and closed within six months."
The motivation for the seller was simple...minimizing or eliminating the unnecessary payment of taxes.  If his gain in the home had been $200,000, not qualifying for the exclusion would cost him $30,000 in long term capital gains tax.  It's a big difference and timing is important.
Selling a home for the most money is one thing; protecting your best interests is another.  I help people understand the tax advantages, financing alternatives and investment aspects of homeownership.

Homeownership Worth the Sacrifice

A place you can call your own, to raise your family, share with your friends and feel safe and secure.  These are all strong motivations for securing the American Dream of owning your home.

The motivation is so powerful that buyers are willing to sacrifice to make their dream come true.  According to the 2010 NAR Home Buyers and Sellers Survey, 41% 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 was more important than the immediate gratification of things that were considered less important.  Consulting with a real estate professional and a recognized lender can outline a proven plan for the first-time buyer to follow.  45 minutes can provide valuable information to get the facts about the market and the best way to make your dream come true.

Sacrifices made to Purchase Home by First-Time Buyers
Cut spending on luxury items or non-essential items	41%
Cut spending on entertainment	23%
Cut spending on clothes	26%
Cancelled vacation plans	15%
Earned extra income through second job	9%
Sold a vehicle or decided not to purchase a vehicle	6%
Other	5%
Did not need to make any sacrifices	45%
NAR 2010 Profile of Home Buyers and Sellers – Exhibit 5-6

Everything Except the Down Payment

It's one thing to have the down payment and not qualify because of credit scores but in today's tough financial environment, it may be even more frustrating to have good credit, income and job stability without the down payment.

The 2010 NAR National Housing Pulse Survey states that 79% of respondents identified the down payment and closing costs as obstacles to homeownership.  73% express a lack of confidence in getting approved based on a concern that banks have made it too hard to qualify for a home loan.

Most buyers depend on the savings or the proceeds from the sale of a previous primary residence for the down payment.  The savvy agent can recommend some other legitimate sources such as a gift from a relative or friend that doesn't have to be repaid.

Another frequently overlooked source of down payments could be the buyer's IRA.  If neither buyer has owned a home within two years, each may withdraw $10,000 from their own IRA to be used to buy a home.  The money must be applied within 120 days from the withdrawal.  The 10% penalty normally associated with early distributions is avoided but it will be subject to income tax since it was exempt the year it was deposited into the IRA.

Full disclosure of the source of the down payment needs to be made to the lender.

Sources of Down Payment First-Time and Repeat Buyers	All Buyers	First-Time	Repeat
Savings	66%	74%	57%
Proceeds from sale of primary residence	23%	1%	42%
Gift from a relative or friend	18%	27%	8%
Sale of stocks or bonds	7%	6%	8%
401k/pension fund including a loan	7%	8%	6%
Loan from a relative or friend	6%	9%	3%
Inheritance	4%	4%	3%
Individual Retirement Account	3%	3%	3%
Equity from primary residence buyer continues to own	2%	*	3%
Loan or financial assistance from source other than employer	2%	3%	1%
Loan from financial institution other than a mortgage	1%	2%	1%
Proceeds from sale of real estate other than primary residence	2%	*	2%
Loan or financial assistance through employer	1%	1%	*
Other	4%	5%	3%
National Association  of REALTORS® Profile of Home Buyers and Sellers 2010