Five Reasons Homeownership Trumps Renting

The seemingly endless run of bad housing news is discouraging some potential home buyers from considering a purchase. But the truth is that the advantages of homeownership have very little to do with investment gains. The best things about owning a home have a lot more to do with personal comfort and satisfaction.

Here are five of them:

· Be your own landlord. The bank can only kick you out if you don’t pay; a landlord can be much less dependable – deciding to sell the property or choosing to live there themselves.

· Paying the principal is forced savings. Yes, it’s possible that home prices will fall further. It is also possible that your 401(k) will lose value. But over the long haul, both are likely to enjoy modest gains in value.

· Fixed-rate mortgages never rise – and eventually you pay them off. With mortgage rates at record lows, people who buy now are locking in real bargains.

· Good schools. Family-sized rentals are harder to come by in areas with excellent public schools.

· Spacious properties in pleasant neighborhoods. Sizable homes in attractive communities are almost always owned – not rented.

Source: The New York Times, Ron Lieber (08/27/2010)

20-Year Mortgages Cut Interest Significantly

Buyers with the ability to stretch a little might consider a 20-year fixed-rate mortgage instead of the traditional 30-year, suggests CBS Money Matters’ financial adviser Ray Martin.

Martin points out that a $200,000 mortgage with a 30-year term and an interest rate of 4.75 would have a monthly payment of $1,043 and the total interest over the life of the loan would be $175,600.

The same mortgage with a 20-year term at 4.5 percent would have a monthly payment of $1,265 with total interest over the life of the mortgage of $103,670.

Young home buyers planning to have children will have their 20-year mortgage paid off by the time their kids enter college, a big financial advantage, Martin points out.

Source: CBS, Ray Martin (08/04/2010)

Five Surprising Reasons to Buy a Home Now

ForSaleByOwner.com offers five good reasons why now is a great time to buy a house:

1. Low mortgage rates serve as an equity shock absorber. When buyers borrow at today's record-low rates, they start building equity as soon as they close. That means they can absorb a few ups and downs as the still-recovering housing market gains traction.

2. Houses are in move-in condition. Home owners have continued to spend on maintenance and repair, according to the Harvard Joint Center on Housing. As these houses enter the market, they are in marked contrast to tattered foreclosures.

3. Terrific houses are coming on the market. Foreclosures are finally starting to clear the system, and they are being replaced by some very attractive properties.

4. Appraisal regulations are finally aligned with market realities. Fannie Mae has adjusted its appraisal guidelines, giving appraisers more flexibility to set values that reflect the current market.

5. Plenty of programs. Many programs that encourage middle-class families to buy homes continue to exist, despite market downturns. Buyers who qualify can get a big boost by combining one of these programs with today's low mortgage rates.


Source: ForSaleByOwner.com (07/29/2010)

Renting Unsold Property May Be a Good Move

Home owners who can’t or don’t want to sell their homes in today’s market but must move should consider renting out the property.

Current rents may not be high enough to cover carrying charges, including mortgage, taxes, and insurance. Nevertheless, renting out the property may still make sense if property values rise in the next few years.

Offering a 12-month lease that converts to month-to-month is a good idea, if the owners are considering selling eventually. Include language in the lease that allows a real estate professional to show the home to potential buyers with 24 hours’ notice to tenants.

Source: Money Magazine, Amanda Gengler (07/28/2010)

Seller Financing Can Have Tax Advantages

Offering to hold either a second mortgage or a primary mortgage in either a residential or a commercial sale can be a good deal for the seller.

The primary advantage is deferral of taxes due. Sellers are normally taxed as the principal is received, spreading the tax bill over several years, explains Richard Schank, a financial planner with PTS Brokerage in Mt. Laurel, N.J.

Other advantages can include:

· Support for a higher-than-average price.
· An interest rate that provides a relatively high return on investment.

The safest arrangement includes obtaining a deed in lieu of foreclosure from the buyer, which allows the seller to take back the property if the note isn’t paid in a timely fashion.

Source: Investor’s Business Daily, Jeff Schnepper (07/15/2010)

What to Look for in an Outdoor Kitchen

Outdoor kitchens continue to be one of the hottest trends in home décor, but not all of them are created equal.

Here are some things to consider when evaluating the safety and durability of this attractive yet vulnerable feature:

• Is there adequate ventilation? Extensive outdoor cooking spaces should be carefully designed to keep smoke and odors away from dining spaces.
• Was the installation done by licensed and insured installers? If something does goes wrong — even years later — these professionals will stand behind their work.
• Are the cabinets, countertops, and appliances really weather proof and likely to hold up?

Source: The Plain Dealer (Cleveland, Ohio), Roxanne Washington (07/01/2010)

100 Dollars Can Go a Long Way for a Great Looking Yard

Got a hundred bucks and a free weekend? Then you've got what it takes to invest in some yard care improvements.

"Some of the best upgrades to your yard can be done with a few dollars and a few hours," says Trey Rogers, Ph.D., the Briggs & Stratton Yard Doctor. "When budgets are tight, get creative and do it yourself."

For those who'd like one-on-one advice from Rogers, enter the Yard Smarts Boot Camp. Attendees will learn how to easily take care of their yard, tour amazing green spaces and win a new lawn mower and more. Visit www.yardsmarts.com to enter.

What can you do for $100 right now?

-- Mow the right way. Don't scalp your lawn. Instead, let it grow a little longer, which is healthy for the lawn. When you mow, cut only one-third the length of the grass blade. Cost: About $3.00 for a month of mowing.

-- Apply bark mulch. Few things dress up a yard more than mulch around flowerbeds and trees. Cost: About $3.00 per bag.

-- Fertilize naturally. When you mow, leave a light layer of grass clippings on the lawn as a natural fertilizer. Cost: $0.

-- Maintain your mower. Once a year, change the oil, replace the spark plug and change the filter. Tune-up kits are available and make it easy. Cost: $10-14 for a walk-behind mower.

-- Let nature water your lawn. If water is costly where you live, let nature handle irrigation. If too little rain falls, your lawn may go dormant, but unless you are in a drought situation, it will green up again when the rain falls. Cost: $0.

With the rest of your $100 bill, splurge on some annual flowers to dress up your front doorway, patio or deck.

Source: RISMEDIA, June 29, 2010

Renting Can Be a Good Option for Sellers

Home owners who have been trying to sell their properties for a year or more might consider lease or a rent-to-own option.

A lease option agreement gives the tenant the option to buy at a predetermined price for a rent that is slightly higher than market. In a lease purchase, a buyer commits to buying the property. In exchange, the seller credits a percentage of each payment toward the purchase price.

Either arrangement is likely to attract serious renters who would like to buy the property if they can. In exchange, they’ll take good care of it.

Negotiating these agreements can be tricky, and the owner should always get help from a real estate attorney.

Source: The Wall Street Journal, June Fletcher (06/16/2010)

Mortgage Rates Hit an All-Time Low

Average interest on a 30-year fixed mortgage fell to an all-time low of 4.69 percent this week, down from 4.75 percent a week ago, reports Freddie Mac.

Although rates have held below 5 percent since early May, Michael Fratantoni of the Mortgage Bankers Association notes that demand for purchase loans has fallen in six of the past seven weeks and now is at a 13-year low. Consumers have grown used to low rates, he explains, adding that they balk at buying because they are more concerned about stagnant wages and high unemployment.

Source: Washington Post, Dina ElBoghdady (06/25/10)

Effort to Extend Tax Credit Closing Deadline Gains

The U.S. Senate voted Wednesday to extend the home buyer tax credit closing deadline to Sept. 30, giving an estimated 180,000 buyers who met the contract deadline of April 30 extra time to close the transaction. The extension was added to a bill to pay for jobless benefits, which still must pass.

The NATIONAL ASSOCIATION OF REALTORS® estimates that one-third of qualified applicants have been notified that they will be unable to close by the deadline. The Mortgage Bankers Association says delays are caused largely by the volume of transactions.

The overall bill, once it passes the Senate, must be approved by the House.

Source: Associated Press, Andrew Taylor (06/16/2010)

After foreclosure: How long until you can buy again?

Financing a home after foreclosure is possible for most homeowners. Those who default on their mortgages due to economic hardships, such as job loss, may receive approval for another mortgage in as little as two years, while it may take more than seven years for strategic defaulters to be approved.

• Lenders utilize several methods in determining whether to grant mortgages, including the amount of money borrowers have saved; employment histories; and payment history.

• According to the chief economist with the Mortgage Bankers Association, lenders may be more willing to finance a mortgage for a borrower who defaulted on their mortgage as a result of factors beyond their control.

• Some homeowners who strategically default—intentionally not meet their mortgage obligations although they have the financial means to do so—assume they can raise their FICO scores by paying their others bills on time. However, most future loan underwriters will scrutinize their records very closely, and if they determine the borrower strategically defaulted on their previous mortgage, the repaired credit score will not overshadow the walkaway.

• Although not impossible for strategic defaulters to finance another home purchase, it likely will be more difficult. Lenders may ask for down payments of 30 percent or more to provide sufficient collateral to enable the bank to recoup most of its money in a foreclosure. These borrowers also may be charged higher interest rates, even above the levels other borrowers with similar credit scores would receive.

For more information, see article

(Source: CAR & CNNMoney.com, 06/04/2010)

How to Help a Family Member Buy a Home

Helping someone close to you buy a low-cost property – $50,000 or less – is a fairly straight-forward transaction, although it may require specific legal advice, says Charles Carter, an attorney and a consultant at Haint Blue Realty in Mount Pleasant, S.C.

Carter suggests that buying a property outright, using the gift exclusion ($13,000 for singles; $26,000 for married couples) to pay for a down payment and closing costs and then giving the recipient a 30-year mortgage on the remaining amount at 5 percent interest is a good way to go.

There won’t be any gift taxes. And the mortgage holder may later cancel the mortgage and gift what remains on the loan as another annual gift-tax exclusion.

Source: McClatchy-Tribune News Service, Charles Carter (06/03/2010)

Fannie Tightens Interest-Only Requirements

Fannie Mae announced Friday that it plans to require borrowers using interest-only mortgages to put down 30 percent of the sale price.

Fannie Mae also said it will only buy adjustable-rate mortgages underwritten to require that borrowers could afford the loans even if interest rates reset to the higher of either:

1. The loan’s initial interest rate plus two percentage points.
2. The cap, the maximum the interest rate can rise.

"Our goal is to make sure consumers can sustain their mortgages and remain in their homes over the long-term, while helping our lender partners offer a range of mortgage products for qualified borrowers," says Marianne Sullivan, senior vice president of Single Family Credit Policy and Risk Management at Fannie Mae, in a prepared release.

Source: CNN Money.com, Les Christie (04/30/2010)

Service Members Get Extra Year for Tax Credit

Members of the U.S. military, foreign service and intelligence communities have another year to purchase a home and claim the home buyer tax credit.

Any service member who is or has been on extended duty for 90 days or more between Jan. 1, 2009 to April 30, 2010, has until April 30, 2011, to sign a sales contract and until June 30, 2011, to close on the property. Both the $8,000 first-time and the $6,500 repeat home buyer tax credits are included in the extension.

The rule that requires buyers to repay the credit if they move out of their home within three years has also been waived for qualified service members if they receive government orders to move.

Source: The National Association of Home Builders (04/26/2010)

How Delinquencies Impair Your Credit Score

Fair Isaac, which developed FICO scores, used a comparison between two people to explain how mortgage delinquencies affect credit scores.

Fair Isaac derived these numbers from a theoretical calculation based on hypothetical borrowers – one with an initial score of 680 and one with an initial score of 780. FICO scores range from 300 to 850.

The hypothetical person behind the 680 score had six credit accounts, while the person with the 780 score had 10. The consumer with the 780 score had no missed payments other than the mortgage; the 680 example had two late payments before they failed to pay the mortgage.

After a mortgage delinquency, the two scores would look like this:

• After 30-day delinquency, 680 score drops to 620 to 640; 780 score declines to 670 to 690.

• After 90-day delinquency, 680 score falls to 595 to 610; 780 score goes to 645 to 665.

• After foreclosure, short sale, or deed-in-lieu, 680 goes to 575 to 595 and 780 drops to 620 to 640.

• After bankruptcy, 680 drops to 530 to 550; 780 declines to 540 to 560.

Source: CNN, Les Christie (04/22/2010)

Five Costly Mistakes First-time Buyers Make

Buying a first home can be a daunting experience. Here are five common and costly mistakes that novice home buyers make:

1. Ignoring the costs of having a low credit score. Lower-score borrowers pay thousands of dollars in increased interest rates over the life of the loan.

2. Muddying the waters by shopping for other things before closing. Lenders continue to check credit scores right up until the time of closing. Too much shopping could cause the lender to take back the loan.

3. Scrimping on an inspection. Being surprised by the need for expensive repairs can be financially devastating.

4. Buying without contingencies. Buyers should give themselves an out if the inspection turns up problems or the bank raises the interest rates.

5. No money for insurance. Insurance can be surprisingly pricey. Buyers who don’t budget for it can face a nasty surprise.

Source: CNNMoney.com, Les Christie (04/19/2010)

Classic Williamsburg Colonial in Lafayette

New California Tax Credit May Go Fast...

The $100 million allocated for California's first-time homebuyer tax credits may be depleted in about 10 to 20 days or sooner, according to C.A.R.'s Economics team. California's Franchise Tax Board (FTB) plans to begin accepting applications on May 1, 2010 for tax credits up to $10,000 for first-time homebuyers and for homes that have never been previously occupied. However, the total tax credit allocation for all taxpayers is $100 million for first-time homebuyers and $100 million for new homes, both on a first-come, first-served basis.

C.A.R.'s forecast of 10 to 20 days to deplete the $100 million allocation for first-time home buyers is based on estimated May sales figures and other parameters. It does not take into account the possibility that buyers scheduled to close escrow in April may delay closing until May to take advantage of the tax credit. If a shift in closings from April to May occurs, the first-time homebuyer tax credits may be depleted even more quickly than indicated above.
Applications for the California tax credit must be faxed to the FTB after escrow closes. The FTB will update its website when the 2010 application form and other information become available.

REALTORS® are reminded not to give their clients any tax or legal advice, such as the availability of funds under the California tax credit program. Agents should encourage their clients to seek specific advice from an accountant, attorney, or other professional as they deem appropriate.

For more information, please refer to C.A.R.'s Homebuyer Tax Credit Chart 2010.

Source: CAR Realegal (04/15/10)

No More State Tax on Forgiving Debt

Distressed homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure, or loan modification. Enacted into law yesterday, Senate Bill 401 generally aligns California's tax treatment of mortgage debt relief income with federal law. For debt forgiven on a loan secured by a "qualified principal residence," borrowers will now be exempt from both federal and state income tax consequences. The existing federal exemption is for indebtedness up to $2 million, whereas the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000.

"Qualified principal residence" indebtedness is defined as debt incurred in acquiring, constructing, or substantially improving a principal residence. It includes both first and second trust deeds. It also includes a refinance loan to the extent the funds were used to payoff a previous loan that would have qualified.

The tax breaks apply to debts discharged from 2009 through 2012. Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment.

Taxpayers who do not qualify for the above exemptions (e.g., second home or rental property) may nevertheless be exempt under other provisions. Most notably, taxpayers who are bankrupt are exempt from debt relief income tax. Also, taxpayers who are insolvent are exempt from debt relief income tax to the extent their current liabilities exceed current assets.

For more information about mortgage forgiveness tax consequences, go to California Franchise Tax Board's Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue Service's Mortgage Forgiveness Debt Relief Act and Debt Cancellation webpage. The full text of Senate Bill 401 is available at www.leginfo.ca.gov.

5 Signs a Home has Potential

The best deals on homes these days are often on properties that aren’t perfect.

Home shoppers looking for a great deal should keep these factors in mind when they are looking for a place with potential:

· Location, location, location. It’s still true that you get a better deal when you buy the worst house in a great neighborhood than you do when you buy a fancy house in a not-so terrific neighborhood.

· Less than 50 years old. Properties older than a half decade are likely to have more fundamental problems — like aging wiring, inadequate plumbing and sagging foundations.

· Livable floor plan. Buyers should select a home with a basic design they can live with. Once they start moving walls, they’re into big money.

· Light. Houses with the most potential have plenty of natural light.

· Good storage. Adding storage isn’t cheap, so it’s smart to choose a property that already has it.

Source: MSN.com, Marilyn Lewis (04/12/2010)