IRS Clarifies What's Needed to Claim Tax Credit

The Internal Revenue Service has clarified which documentation taxpayers need to submit to claim the first-time and move-up homebuyer tax credit.

While the IRS is still requiring the filing of Form 5405, it is not demanding that all parties’ signatures be on the HUD-1 settlement document in areas where requiring both the buyer and the seller to sign the document isn’t common.

The IRS clarification says: "In areas where signatures are not required on the settlement document, the IRS has clarified that it will accept a settlement statement if it is completed and valid according to local law. … The IRS encourages those buyers to sign the settlement statement prior to attaching it to the tax return.”

For repeat buyers, the IRS is seeking documentation that home buyers have lived in the previous property for a consecutive five of the past eight years. Proof can include property tax records, home owner insurance records, or mortgage interest statements.

Source: Washington Post (02/20/2010)

San Francisco condo resales stay steady

San Francisco's median resale condominium prices from November through January stayed steady from the same period a year ago, leading some analysts and real estate agents to conclude that values have settled into a range where they are likely to remain for some time.

According to city data analyzed by the Polaris Group, a San Francisco real estate firm that crunches housing numbers, the median price for a resale condo in the city - as opposed to a newly built unit - was $638,000 in the threemonth period ending Jan. 31.

That figure was essentially the same as the three-month period ending in January 2009 and was the first time since September 2008 that the median price has not experienced a year-over-year decline.

Analysts believe that housing prices across the Bay Area generally have begun to stabilize, but could be derailed by several factors, including a new wave of foreclosures, mortgage interest rate hikes and the Federal Reserve ending a program to buy mortgage-backed securities.

Chris Foley, a principal at Polaris, said that another big price dip is not likely to happen in San Francisco, given the city's relative shortage of existing housing inventory and a dearth of new construction coming onto the market. Prices currently are about where they were in 2004, he noted.

"Barring a cataclysmic event, either financial or natural, like an earthquake, we believe we are at the bottom and won't see great price appreciation for a while," said Foley. "There's no inventory overhang and there won't be any new construction for a while."

Foley said condo resales are a credible market indicator because they represent the biggest percentage of sales. Owners also generally are not under as much pressure to sell units as quickly as developers of new buildings, who are attempting to pay off construction loans, he said.

Foley said he believes that the market stabilization resulted from sellers becoming more realistic about prices the market would bear and buyers taking advantage of low interest rates and a lull in prices.

Some San Francisco real estate brokers say the market feels much improved from a year ago. They are seeing building owners return units to the market as condos that had been built in the past couple of years, but which had been rented out as apartments because sales were weak.

"The stock market crash in 2008 really changed things for a while and the beginning of last year was slow, but buyers are coming out again," said Realtor Eileen Bermingham.

Figures from another real estate research firm, DataQuick Information Systems, shows that resale condo prices are indeed back in the 2004 range. That year, the median price was $610,000. One year later, the median had jumped to $714,500.

A noticeable change in values started in 2004, when after three straight years in the $500,000 bracket, prices climbed another $100,000. The market hit its peak in May 2007, at $826,000.

Condo resales have seen less fluctuation than new units - particularly the ones at luxury downtown locales. Those buildings, many of them high-rises, started coming on the scene nearly a decade ago and sold briskly into 2008.

The 60-story Millennium Tower at 301 Mission St., for example, started selling units in November 2007 for an average of $2.5 million. By February of 2009, the Millennium had slashed prices by as much as 15 percent.

Waning interest in expensive new properties, in conjunction with banks reluctant to approve construction loans, has brought residential building in San Francisco to a near standstill.

As a result, it's likely that future construction will lag well behind an improved economy and job growth.

Source: SFGate.com; by: Robert Selna

Are interest rates about to rise?

Federal Reserve Bank of New York President William Dudley says the central bank will scale back its purchases of mortgage-backed securities late next month. While interest rates likely will climb when the program ceases, the extent of the rise remains to be seen.

Dudley says the Fed will act if rates spike too much. Still, analysts worry that the end of the MBA purchase program and expiration of the home-buyer tax credit, along with higher premiums and tighter underwriting of FHA mortgages, will work together to stifle home sales and price stabilization in the coming months.

Source: Inman News (02/08/10)

Fannie to Offer Closing Cost Aid on Foreclosures

Fannie Mae, the largest provider of residential home funding in the United States, announced Friday that it would pay the closing costs on purchases of foreclosed homes in its inventory.

The government-controlled company said buyers of qualified properties will get up to 3.5 percent in closing costs, or an equivalent amount for the purchase of new appliances.

The goal of Fannie is to clear out the nearly 50,000 properties it has in inventory— listed on HomePath.com, the Web site created by Fannie Mae last year to sell the growing number of foreclosed homes.

"Attracting qualified buyers to the market and reducing inventory of vacant homes is critical to stabilizing neighborhoods and helping the market recover," said Terry Edwards, executive vice president for credit portfolio management, in a statement.

Source: Reuters News, Al Yoon (01/28//2010)

6 Surprising Facts About the Buyer Tax Credit

The homebuyer tax credit is not as simple or straightforward as you might think.

Here are some nuances that will affect homebuyers who plan to use it.

* To qualify for the move-up tax credit, a home owner must have occupied the same principal residence for five of the last eight years consecutively.

* Buyers can elect to claim the credit on either their 2009 or their 2010 tax return, whichever is best for them.

* Buyers who claim the credit in 2009 can’t file electronically because the Internal Revenue Service hasn’t put the required forms on line. The wait for a refund is three or four months.

* The home can be a mobile home or travel trailer that is fixed to land owned or leased by the home owner. A mobile home or travel trailer that is actually mobile doesn’t qualify.

* The home can’t be purchased from a close relative, including a parent, spouse, child, grandparent or grandchild.

* A buyer who earns no taxable income or doesn’t owe any federal income tax can qualify for the tax credit and file a tax return just to claim it.


Source: Bankrate.com, Marcie Geffner (01/21/2010)

FHA Flipper Rules Waived - Starting February 1st

An excerpt from a HUD Release January 15, 2010 #10-011:

On 2/1/2010 there will be a one-year waiver of the regulation that prohibits insuring a mortgage on a home that has been owned for less than 90 days. There are some restrictions such as no reverse mortgages, must be arms-length and there are specific conditions if the sales price is 20% more than the purchase price.

Why this new rule? HUD says, “In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts that willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.”

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

For more information HUD No. 10-011.

Source: Duane Gomer (www.duanegomer.com)

FHA To Toughen Down Payment Rules

The Federal Housing Administration will raise the minimum down payment for its least credit-worthy borrowers, agency announced Tuesday.

Borrowers with credit-rating scores below 580 will be required to put down at least 10 percent. Those with a credit score above 580 will be able to continue to put down only 3.5 percent. The changes are intended to shore up the agency's finances.

The FHA also will increase its upfront mortgage insurance premium from 1.75 percent to 2.25 percent. The agency is expected to seek congressional approval to raise annual mortgage insurance premiums, paid by borrowers over the life of the loan, above the current 0.55 percent maximum. The amount it will seek has yet been announced.


Source: Reuters News, Corbett B. Daly (01/19/2010)

Another Tax Credit Extension in the works?!?

During his State of the State address, Governor Schwarzenegger today announced his 2010 proposals for California. Included in the proposals is a recommendation to set aside $200 million for a new round of $10,000 state tax credit by including both new and existing homes. Last year's tax credit only applied to new homes.

The tax credit could be combined with the recently extended and expanded federal tax credit for home buyers. The current first time home buyer tax credit is set to expire this March.

For more info, go to:
http://gov.ca.gov/press-release/14124/

20 positive tips for the New Year

I realize that this blog is mostly about real estate and local happenings, but I received an email from Jon Gordon today and couldn't help but pass it on. As many of us are thinking of New Year's resolutions, these 20 tips are always worth considering...

1. Stay Positive. You can listen to the cynics and doubters and believe that success is impossible or you can know that with faith and an optimistic attitude all things are possible.

2. When you wake up in the morning complete the following statement: My purpose is ____________________.

3. Take a morning walk of gratitude. It will create a fertile mind ready for success.

4. Instead of being disappointed about where you are, think optimistically about where you are going.

5. Eat breakfast like a king, lunch like a prince and dinner like a college kid with a maxed out charge card.

6. Transform adversity into success by deciding that change is not your enemy but your friend. In the challenge discover the opportunity.

7. Make a difference in the lives of others.

8. Believe that everything happens for a reason and expect good things to come out of challenging experiences.

9. Don't waste your precious energy on gossip, energy vampires, issues of the past, negative thoughts or things you cannot control. Instead invest your energy in the positive present moment.

10. Mentor someone and be mentored by someone.

11. Live with the 3 E's: Energy, Enthusiasm, Empathy.

12. Remember there's no substitute for hard work.

13. Zoom Focus: Each day when you wake up in the morning ask: "What are the three most important things I need to do today that will help me create the success I desire?" Then tune out all the distraction and focus on these actions.

14. Instead of complaining, focus on solutions. It's the key to innovation.

15. Read more books than you did in 2009.

16. Learn from mistakes and let them teach you to make positive changes.

17. Focus on "Get to" vs "Have to." Each day focus on what you get to do, not what you have to do. Life is a gift, not an obligation.

18. Each night before you go to bed, complete the following statements:

I am thankful for ____________.
Today I accomplished __________.

19. Smile and laugh more. They are natural anti-depressants.

20. Enjoy the ride. You only have one ride through life, so make the most of it and enjoy it.

Happy Holidays and New Year!

I want to wish you all the joys that this holiday brings, filled with the warmth of family and friends and enriched with the blessings of peace and prosperity. Have a Happy New Year.

If You Don't Buy a House Now, You're Stupid or Broke by Marc Roth

Here is an interesting article from Business Week written by Marc Roth.

Well, you may not be stupid or broke. Maybe you already have a house and you don't want to move. Or maybe you're a Trappist monk and have forsworn all earthly possessions. Or whatever. But if you want to buy a house, now is the time, and if you don't act soon, you will regret it. Here's why: historically low interest rates.

As of today, the average 30-year fixed-rate loan with no points or fees is around 5%. That, as the graph above—which you can find on Mortgage-X.com—shows, is the lowest the rate has been in nearly 40 years.

In fact, rates are so well below historic averages that it should make all current and prospective homeowners take notice of this once-in-a-lifetime opportunity.

And it is exactly that, based on what the graph shows us. Let's look at the point on the far left.

In 1970 the rate was approximately 7.25%. After hovering there for a couple of years, it began a trend upward, landing near 10% in late 1973. It settled at 8.5% to 9% from 1974 to the end of 1976. After the rise to 10%, that probably seemed O.K. to most home buyers.

But they weren't happy soon thereafter. From 1977 to 1981, a period of only 60 months, the 30-year fixed rate climbed to 18%. As I mentioned in one of my previous articles, my dad was one of those unluckily stuck needing a loan at that time.

Interest Rate Lessons

And when rates started to decline after that, they took a long time to recede to previous levels. They hit 9% for a brief time in 1986 and bounced around 10% to 11% until 1990. For the next 11 years through 2001, the rates slowly ebbed and flowed downward, ranging from 7% to 9%. We've since spent the last nine years, until very recently, at 6% to 7%. So you can see why 5% is so remarkable.

So, what can we learn from the historical trends and numbers?

First, rates have far further to move upward than downward; for more than 30 years, 7% was the low and 18% the high. The norm was 9% in the 1970s, 10% in the mid-1980s through the early 1990s, 7% to 8% for much of the 1990s, and 6% only over the last handful of years.

Second, the last time the long-term trends reversed from low to high, it took more than 20 years (1970 to 1992) for the rate to get back to where it was, and 30 years to actually start trending below the 1970 low.

Finally, the most important lesson is to understand the actual financial impact the rate has on the cost of purchasing and paying off a home.

Every quarter-point change in interest rates is equivalent to approximately $6,000 for every $100,000 borrowed over the course of a 30-year fixed. While different in each region, for the sake of simplicity, let's assume that the average person is putting $40,000 down and borrowing $200,000 to pay the price of a typical home nationwide. Thus, over the course of the life of the loan, each quarter-point move up in interest rates will cost that buyer $12,000.

Loan Costs

Stay with me now. We are at 5%. As you can see by the graph above, as the economy stabilizes, it is reasonable for us to see 30-year fixed rates climb to 6% within the foreseeable future and probably to a range of 7% to 8% when the economy is humming again. If every quarter of a point is worth $12,000 per $200,000 borrowed, then each point is worth almost $50,000.

Let's put that into perspective. You have a good stable job (yes, unemployment is at 10%, but another way of looking at that figure is that most of us have good stable jobs). You would like to own a $240,000 home. However, even though home prices have steadied, you may be thinking you can get another $5,000 or $10,000 discount if you wait (never mind the $8,500 or $6,500 tax credit due to run out next spring). Or you may be waiting for the news to tell you the economy is "more stable" and it's safe to get back in the pool. In exchange for what you may think is prudence, you will risk paying $50,000 more per point in interest rate changes between now and the time you decide you are ready to buy. And you are ignoring the fact that according to the Case-Shiller index, home prices in most regions have been trending back up for the last several months.

If you are someone who is looking to buy or upgrade in the $350,000-to-$800,000 home price range, and many people out there are, then you're borrowing $300,000 to $600,000. At 7%, the $300,000 loan will cost just under $150,000 more over the lifetime, and the $600,000 loan an additional $300,000, if rates move up just 2% before you pull the trigger.

What I'm trying to impress upon everyone is that if you are planning on being a homeowner now and/or in the foreseeable future, or if you are looking to move your family into a bigger home, then pay more attention to the interest rates than the price of the home. If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime.

Marc Roth is the founder and president of Home Warranty of America, which touches just about every part of the real estate industry since it sells through builders, real estate agents, title companies, mortgage companies, and directly to consumers.

Foreclosed homes aren’t always the best deal in town

Here are 10 reasons why foreclosures aren't always the best deal in town, offered by Vince Mastronardi, president of On-Site Specialty Cleaning & Restoration in suburban Detroit.

No heat in the winter. When a home has been left unheated, buyers run a risk of damaged pipes.

Not removed but ripped. Thieves and even angry former owners can do a lot of damage when they depart with fixtures and key systems like heaters and air conditioners.

Peeling, bubbling, and discoloration. Water incursion isn’t always obvious, but these are signs.

Mold. Where there is water there is mold. Look inside cabinets, behind drawers, and around built-ins.

Blocked drains and pipes. Sewer backups can be expensive to fix.

Black cobwebs. This is the result of a malfunctioning furnace, common in properties where there hasn’t been maintenance for a long time.

Homemade and handy. Where renovations don’t look professional, check with the municipal authority. They may have been completed without permits and that could mean they have to be redone.

Fresh paint everywhere. What is the seller covering up?

Check the basement. Look for discolored subflooring, which can point to mold. And search for asbestos, common in older homes that haven’t been brought up to code.

Air quality. Include air and surface testing in a home inspection. It’s a few hundred dollars well spent.

Source: On-Site Specialty Cleaning & Restoration (12/16/2009)

Raffle house winner sells house

A Colorado woman who won a $1.2 million home in Edgewater in a $50-a-ticket raffle in January has sold the property to a Severna Park church at a bargain-basement price.

"Hooray, finally!" said Karen McHale, 47, who lives in a home she built with her husband in the mountains west of Denver and never intended to move to the mid-Atlantic. "I tell you, that was a giant rock around my neck."

McHale said she bought two raffle tickets last year as a contribution to an Annapolis-based charity that was co-sponsoring the contest. The raffle venture came about when a mortgage broker teamed up with We Care and Friends, which helps at-risk youths, to sell his home.

A week after one of those tickets was chosen as the winner, McHale lost her job as a chemical engineer. Eager to sell the home before Dec. 31 to avoid paying about $300,000 in 2009 income taxes, she put it on the market in March for $799,000.

When no one bit, McHale dropped the price to $749,000 in May. A dozen prospective buyers asked after the property; no one submitted an offer.

McHale's husband, who works in construction, spent a week at the house in June, painting its 40 interior doors, hooking up a dishwasher and doing other last touches.

Two buyers made offers in September; both deals fell through.

Meanwhile, the six-bedroom, 4 1/2 -bath windfall, despite sitting empty, was accompanied by a hefty monthly bill: $600 to $800 in utilities and homeowner's insurance.

McHale finally sealed a $650,000 deal last month with Unity By the Bay, a church that has outgrown its quarters in a Severna Park strip mall. The church paid $450,000 in cash, McHale said, and she made a tax-deductible contribution of the additional $200,000 to stem the flow of her winnings to the IRS.

"We are all just so grateful to Karen McHale for her donation. The congregation is ecstatic," said board member Carol Kerr. "We have wanted to have our own building, but everything seemed so out of reach, pricewise, that we just haven't been able to make it happen."

All in all, McHale said, she will pocket about $200,000 after paying state and federal tax bills.

"It's amazing how fast you can spend it," McHale said, "but we're done now. We're back to normal."

A chunk of the profit went toward the mortgage on the McHale family's Colorado home. They also spent some of the money on a greenhouse to grow vegetables in a part of the country where winter lasts much of the year and a new Dodge truck to replace one that was falling apart.

One son, a budding chef, got a set of knives; another got help with his August wedding and honeymoon to Italy. At a recent lunch to celebrate the sale of the 6,000-square-foot Maryland home, McHale passed out $50 bills to a couple of dozen family members and friends.

Her original windfall was accompanied by enough stress and tax-code headaches that McHale said she's done gambling on faraway real estate.

"The Elks [Lodge] was raffling off a pig recently, and I bought tickets for that because I wanted the meat," she said, laughing. "But I'm not buying raffle tickets for any more homes in strange states.

Source: Washington Post written by Emma Brown on Tuesday, December 8, 2009

IRS Sets New Rules for Tax Credit

The IRS has spelled out guidelines for eligibility for the home buyer credit when co-borrowers purchase a property.

When a home-owning parent of an adult child co-signs for a mortgage and both names appear on the note, the IRS says that under some circumstances, the first-time home buyer can qualify for the whole amount.

The IRS says the parent doesn’t qualify for any portion of the credit, but if the child hasn’t owned a home during the three years preceding the current purchase and can qualify based on income, he or she can be allocated the entire $8,000 credit.

When unmarried individuals co-purchase a home and only one of them is eligible for the credit, then the full $8,000 can be allocated to the eligible buyer.

Source: Washington Post Writers Group, Kenneth R. Harney (12/04/2009)

Fannie Mae Announces "Deed for Lease" Program

WASHINGTON, DC -- Fannie Mae (FNM/NYSE) is implementing the Deed for Lease™ Program under which qualifying homeowners facing foreclosure will be able to remain in their homes by signing a lease in connection with the voluntary transfer of the property deed back to the lender.

"The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for modifications," said Jay Ryan, Vice President of Fannie Mae. "This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities."

The new program is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification. Under Deed for Lease, borrowers transfer their property to the lender by completing a deed in lieu of foreclosure, and then lease back the house at a market rate.

To participate in the program, borrowers must live in the home as their primary residence and must be released from any subordinate liens on the property. Tenants of borrowers in this circumstance may also be eligible for leases under the program. Borrowers or tenants interested in a lease must be able to document that the new market rental rate is no more than 31% of their gross income.

Leases under the new program may be up to 12 months, with the possibility of term renewal or month-to-month extensions after that period. A Deed for Lease property that is subsequently sold includes an assignment of the lease to the buyer.

For additional information about the Deed for Lease Program, including full details on program eligibility, please review the Guide Announcement on www.efanniemae.com.

Fannie Mae: New Affordable Housing Options

For those of you who have been bidding on property and losing out to investor groups, it looks like Fannie Mae has come to the rescue.

Fannie Mae announced Tuesday that it has launched several initiatives designed to stabilize neighborhoods and promote purchases by owner occupants and low-income buyers.

Fannie Mae’s “First Look” initiative offers buyers who intend to live in the home, particularly low-income buyers, an opportunity to make an offer during the first 15 days the property is on the market. Investors can only make an offer after the first 15 days have passed.

Other programs aimed at stabilizing neighborhoods include:

• Deposit Waivers. Fannie Mae will waive the earnest money/deposit requirement for public entities using public funds to purchase a Fannie Mae-owned property. Individual home buyers who have qualified for public funds and want to purchase a Fannie Mae-owned property do not have to meet the usual earnest money/deposit requirement either. Deposits for these buyers can be as low as $500.
• Reserved Contract Period. Upon receipt of an acceptable offer, buyers have the ability to renegotiate their offer after obtaining an appraisal.
• Extra Time for Closing. Buyers receive up to 45 days to close – 15 days more than is usually permitted for purchases of Fannie Mae-owned properties.

So, keep your eyes out and ask your Realtor if the property is Fannie Mae owned. Who knows, it may be the difference between you getting or not getting that future home!

Source: Fannie Mae (11/24/2009)

The complexity of new home buyer tax credits leaves potential buyers with many questions. Here are answers to some of the most confusing:

How does a current home owner qualify for the $6,500 credit?
Buyers must have lived in their homes for at least five out of the last eight years. The home they buy must become their primary residence, but buyers don’t have to sell their previous home. They can use the previous home as a rental or a second home and still claim the credit.

Does the new home have to be more expensive than the one the buyer currently owns?
No. It is fine to use it to downsize. If the property sells for more than $800,000, the buyers don’t qualify.

Can buyers who are building a new home claim the credit?
Yes, although the contract must be in place by April 30 and the buyer must move in by July 1.

Can buyers claim the credit if they purchase a home from a relative?
No. The legislation prohibits taxpayers from claiming the credit if the sale is between “related parties,” including parent, grandparent, child, or grandchild.

Source: USA Today, Sandra Block (11/24/2009)

Whether to Buy a Condo or Not...

These days it's not easy owning a condo, or any house located in a community that requires homeowners to pay fees. As more owners in these communities feel financially pinched, many aren't paying dues. That means residents who keep up with the bills have to pay a bigger share of the burden—and if there aren't enough reserves to pay to replace worn-out roofs or fix a cracked sidewalk, they face the possibility of bumped-up dues or an unexpected special assessment.

On the flipside, prices are low. And for the brave home buyer, there are bargains out there. The trick is looking closely at the homeowner association's health. Buyers need to question the association board about dues payments, and have their inspectors examine common elements before committing to a purchase. It's also important to review the financial documents that every buyer has a right to inspect before closing.

But what should you be looking for? We asked Leonard Baron, professor of finance at San Diego State University, for some tips:

• Make sure you get all the documents, and have sufficient time to look them over. Buyers are supposed to get all financial documents relating to the association during their inspection period, but often they arrive, incomplete, just a day or two before closing. That's not enough time to review documents that may be many pages long. So Prof. Baron advises that you bug your agent for them the minute your home goes into escrow, and demand at least three days to review them.

• Check the financial statement. About two-thirds of the association's budget should be operating expenses such as water, lights, elevator maintenance and landscaping; the rest should be set aside in a reserve fund for long-term maintenance and repairs. See if expenses exceed revenues due to foreclosures, unpaid dues or other reasons. If they do, ask the association what their plans are to make up the shortfall, and whether you should expect an assessment or higher dues. Ask also if there are plans to save costs by cutting pool hours, or the number of mowings or clubhouse cleanings. This could affect not only your comfort, but also the future marketability of your home.

• Review the reserve study. Not every state requires these, but they are becoming more common. For such a study, the association will hire an outside firm that will look at all long-term anticipated repairs and replacements over a period of 30 years, add up the costs, and put together a payment and maintenance schedule. The monthly dues you're charged should reflect the amount of money that needs to be put away to pay for these necessities, but you shouldn't simply assume that's happening. "Many times the boards, under pressure by the owners, will hold the line on raising fees, to the long-term detriment of the property," he says.

• See what percentage of reserve funds has been raised. In an ideal world, associations would save enough money over time to pay for every contingency. So if the roofs on 100 condo units will need to be repaired in 12 years at a cost of $240,000, for the reserve to be 100% funded after six years, half of that sum would need to have been put away for that purpose. But in the real world, associations often rob their own reserve funds to pay for operating and other expenses; Prof. Baron estimates that most are only funded 50% or less. Although the percentage of funding necessary varies by the age and size of a complex, (for instance a skyscraper with a complex mechanical system is much higher maintenance than a small townhouse community) in general, you should be wary if funding is below 40%. "You could be hit with thousands of dollars in assessments if something expensive fails," he says.

Source: WSJ, October 11, 2009, written by: June Fletcher

Why You Should Buy a Home Now...

Here is a great article from Duane Gomer on "Why You Should Buy a Home Now"

Let’s discuss two California families and the real estate market. We’ll call them Able and Baker.

Able sold a home at the top of the real estate market for $500,000 and bought a new home for $800,000, paying 10% down and getting a new adjustable rate mortgage for the remainder. Baker stayed in their existing $500,000 home and we all applauded Able for selling at the top of the market.

There are many different opinions on the amount of the drop in prices but we can all agree prices have dropped, more in some areas than others. For our example, we will use a simplified 35% drop on all homes.

Today, Able is in their home with a loan still around $720,000 and can’t refinance because their value is $520,000. Their property taxes are still hovering around $8,000 per year. This is called being underwater, and they could be facing tax problems because of forgiveness of debt, etc.

Baker decides to sell today and finally move up to a bigger home. Their home has dropped in value and they think they have suffered a loss of $175,000 as the home is worth only $325,000. They sell and buy the former $800,000 home for $520,000. They get a loan for $468,000 at the current rate of under 5% and their taxes will be about $5,200 per year.

They might also qualify for a $8,000 tax credit and other inducements in today’s market. Also, there could be appreciation as the market recovers and would you rather have appreciation start now on a $325,000 home or a $520,000 home? Plus they’re living in their move-up home and the family is happy. So, who is better off now. Able or Baker?

Remember the old real estate advantage. Sell when everyone is greedy and buy when everyone is needy. Yes, I know the really smart thing to do would have been to sell three years ago and rent until now. Did many people do that? I don’t think so.

We can go back in time only in the movies and it’s too late for could’ve, should’ve or would’ve. Hey, we all misread the economy then so let’s move now and not misread it again. If you want to move up to a better home and can afford it, consider doing it now. Remember the $8,000 tax credit sunsets December 1^st.


Source: Duane Gomer

Renting vs. Buying

Here is a great article I received from Duane Gomer on Renting vs. Buying. I think he does a great job of breaking down the cost/benefit of each...

Yes, buying real estate is a big commitment but many times not buying real estate is a bigger mistake. Let’s compare the costs of renting a property in today’s market versus buying the same property today.

First to establish an example. My figures will work with any example, but let’s use a home that would rent for $2,000 a month or would sell for $400,000 at 3% down.

What would your cost per year be to buy when compared to the $24,000 you would pay in rent?

Let’s use very oversimplified figures:

Interest: 5% on $388,000 = $19,400

Property Taxes = $ 4,000

Insurance = $ 1,000

$24,400

There are other factors to consider. For example, IRS tax relief for the deductible items above. Let’s use a 25% IRS tax rate and an 8% California tax rate. Interest and property tax payments are deductible so 33% of the $23,400 would result in a tax savings of $7,722. That brings the outlay each year to $16,678. That is less than renting.

Yes, there are other variables such as the interest deduction in later years will drop plus property taxes and insurance will increase, but rents will also rise. There will be expenses such as repairs to be paid by the owner but this could be offset by appreciation as real estate markets return to normal.

The major point of this posting is that the tax benefits of ownership are important when budgeting for yearly housing costs, as are future appreciation plus your pride of ownership so consider buying now not later.

Source: Duane Gomer www.DuaneGomer.com