"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.

 

Do you know someone struggling with their mortgage?

I'm writing because our area had an alarming up-tick in foreclosures in the last 30 days. We all know someone who is struggling to make their mortgage payments. Those of us who bought a home over the past few years, had no idea about the kind of economic upheaval that was going to follow. I have been watching trends in real estate for over 25 years and while I knew a bubble was coming, even I did not see the magnitude of this mortgage crisis. In fact, it appears that no one actually anticipated what was in store for those of us here in the epicenter of the auto industry.

But here we are. An estimated one fourth of the mortgage holders in the country owe more on their home than its current market value and I suspect that number is higher in Oakland and Macomb counties. One out of seven are in some state of default or foreclosure. And possibly, the most troubling statistic of all: the vast majority of homeowners who end up foreclosing on their home, do so without ever reaching out for help or attempt a short sale. Sad!

As a Certified Distressed Property Expert (CDPE) it is my mission to help homeowners avoid foreclosure and to help them get their lives on a positive path. If you, or anyone you care about is faced with an unmanageable mortgage, please know that I am here to help. My team's goal is to make a positive impact on those affected here in Metro Detroit. I invite you to visit my website or forward this link www.GwenCanHelp.com, for a copy of my most recent report entitled, “Need a Helping Hand? If your Mortgage and the Market Have Tossed You a Curve, You’re Not Alone.”

More help is available for financially distressed homeowners now, than ever before. In spite of what you may read, we have been very successful in navigating these programs for our clients that are affected. This is no time to go it alone, and the time to contact me about getting on the path toward financial stability is NOW! The biggest mistake most people make is waiting until it's too late for us to be able help. Pass this along to anyone who might need advice. We're doing our part to turn the market around, one homeowner at a time.

There is hope,

"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.

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.

BUYING VS. RENTING

A home is one of the most expensive purchases most of us will ever make during our lifetime. Whether you decide to rent or buy, either choice comes with its own rewards and risks. Homeownership offers many advantages over renting including:

Advantages of Buying versus Renting

Buying	Renting
Tax write-off	No tax write-off
You can upgrade your home as you see fit	Need permission to make any changes
Build equity in your home as value appreciates	Your money goes toward the landlords equity
Control of loan payment options	Rent can increase periodically
Pride of homeownership	You have no ownership

While owning your own home has many benefits, there are still risks to consider:

Disadvantages of Buying versus Renting

Buying	Renting
You're responsible for property maintenance	Your landlord or manager handles general repairs
Need to sell, rent or lease property in order to re-locate. May have to wait until market conditions are right	Freedom to move once your lease expires
You pay for all your own utilities, property taxes and insurance	May include utilities, property taxes, and property insurance
Home improvement upgrades can run into thousands of dollars	You're not financially responsible for improvements

However, all things considered, homeownership is by far one of the best single investments you can make given the potential long-term benefits.

When does it make sense to buy?

People, who have generally rented their whole lives, purchase a home for various reasons. Owning something of value with a chance of watching their investment appreciate is one reason. Purchasing a home to save money over the long-term is another.
Example

Let's say you're currently renting a two-bedroom, two-bath apartment. Your monthly rent is $1,000. You find a two-bedroom, two-bath at a market price of $250,000 (roughly the national average.) You have $25,000 saved - enough for a 10 percent down payment. For the purpose of this example, you're looking to finance $225,000, which includes closing costs.

Using one of several mortgage calculators on the Internet, your monthly payment would be approximately $1,385 for a 30-year fixed loan at an APR of 6.20 percent (the national average). After taxes and appreciation in equity, your monthly payment over five years would average $499 per month.

Costs Savings of Buying versus Renting

Calculations	Rent	Purchase
Monthly rent/estimated mortgage payment	$1,000	$1,385
Purchase price of home		$250,000
Percentage of down payment		25,000
Length of loan term (years)		30
Interest rate		6.2%
Years you plan to stay in the home		5
Yearly property tax rate		1%
Yearly home value appreciation rate		4%
Results
Price of home after appreciation		$304,163
Remaining balance after 5 years		209,887
Equity in house		94,276
Tax savings (28% bracket)		23,030
Avg. monthly payment over time	1,047	499
Total payments (over 5 years)	$62,820	$29,973
Total savings if buying		$32,847
Source: Ginniemae.gov. These calculations are estimates only. You should always seek the guidance of financial or tax experts before making any buying decisions.

The outcome could dramatically change should an unforeseen economic downturn or financial hardship occur (e.g., home improvement costs, catastrophic damage, etc.). While, no one can predict if home appreciation values will spiral downward, or if mortgage interest rates will rise, it's clear that under the right circumstances home ownership can be financially rewarding

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.

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.

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We greatly appreciate all the support we get and continue to update you with knowledgeable real estate news and information on the market.  Thanks again and keep following for more posts this week!

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.

The Underwood Team Always Brings Over-the-Top Client Care!

We want it to be known that we are truly dedicated to each and every one of our clients.  Here are some past clients' thoughts on why choosing The Underwood Team was the best choice!  Please follow us on our blog for more advice and information about selling or buying our home with The Underwood Team!

Not So Fast Buyers!

One of the challenges buyers are having with financing may be their own understanding or lack thereof. In a recent survey done by research firm Ipsos for Zillow, a surprising number of incorrect answers to true or false questions were given by prospective buyers.

Over 3/4 didn't realize how the mortgage rate was determined for a borrower thinking that annual income was the most important factor. Other considerations lenders do evaluate are credit score, debt-to-income and loan-to-value ratios.

A variety of myths seem to have influenced some of the common answers such as interest rates are set and released once a day; FHA loans are for first-time buyers only; prequalification commits the lender; lender fees are not negotiable and adjustable rate mortgages always go up.

Buyers' misunderstanding of actual mortgage practices may give some insight into why more of them are not taking advantage of the greatly reduced prices and incredibly low mortgage rates.

While getting solid information about mortgages and being pre-approved from a lender are very important, it is only one step in the home buying process. Success in buying a home in today's unique market should begin with a real estate professional that will coordinate all of the different parts of the transaction including mortgage, title, insurance and inspections.

Things to Consider When Selling Your Home

Dress Your House For Success


Spending a few hours beautifying your house can go a long way toward a quick sale at top dollar!  Here are a few suggestions that are a must for any home seller to follow:

1.  Take a walk through your house with a "buyer's" perspective.  Is it warm and inviting, or is it cluttered?

2.  Touch-up paint in all rooms.  If unsure, paint the entire room with a neutral color.

3.  The most examined rooms in the house are the kitchen and bathrooms.  Make sure these rooms shine!  Dripping faucets are easy to fix yourself as well!

4.  Prepare for a showing the same way you would prepare for company.  Make the beds, pick up clothes, sweep and mop as needed.  Showing that you care will help prospective buyers care.  A little effort goes a long way!

5.  Buyers will be interested in storage space in your house.  Make sure your closets are clutter-free to show optimal space.  Making them look more spacious will be a great selling point.

6.  Too much furniture can make a room look small and cramped.  Consider moving extra chairs or tables to storage facilities.

7.  What is the first thing your prospective buyers will see?  Your front door.  Make sure your door and entryway are spotless.  Paint if needed, and place a few bright flowers along the sidewalk.

With many years in the Real Estate Business, we've discovered that caring for our clients is the most important aspect of our job.  When you make the important decision to buy or sell a home, we're committed to going the extra mile to ensure that all of your needs are successfully met in a professional and honest manner.  Call us today for all your Real Estate needs!  Thank you for reading and have a great day!

What Sets Us Apart From Other Professional Real Estate Sales Associates, Realtors®?

The Underwood Team, REALTORS® brings 68 years of experience to the Lincoln, Nebraska real estate market.  With our contacts with you, we hope to provide you with information you can use to make you a more knowledgeable, confident home owner.  Please feel free to contact us with any questions or real estate needs!

What Sets The Underwood Team Apart From Other Agents?

For Buyers:
   1.  We have a universal key that gives us the ability to show all listings in the Lincoln, Seward, Milford, and surrounding areas in Nebraska.  We show our clients everything on the market that best suits their needs.
   2.  We have superior knowledge of the real estate market in Lincoln, Seward, Milford, Utica, and surrounding areas.
   3.  We watch the market daily for new and updated listings that meet our clients needs.
   4.  We are full-time real estate professionals.
   5.  We take time to explain things in a manner that allows our clients to make educated decisions.
   6.  One of the three of us on The Underwood Team is almost always available whenever we receive reasonable notice when our clients want to view homes.

For Sellers:
   1.  We are truly dedicated to our clients and our profession.
   2.  We are very thorough and always show up for all inspections and closings.
   3.  We believe in open houses and will have your home open at least once every 4-5 weeks (if the utilities are left on so we can turn on the lights, and cool the house in the summer and heat the house in the winter during open houses).
   4.  We watch the market weekly to determine whether the value placed on your home stays in-line with what the market is dictating- and we will be happy to share the information we gather with you about once a month if you would like to see it.
   5.  We call all agents who show our listings within 72 hours after the showing to ask for our feedback.  If the agent responds to our call we upload the remarks to our website so you can view the activity at a time that is convenient for you.
   6.  Most important, we are always here for you.  We are never to busy to listen to you and sell your house quickly and for the best price for you.

If you or someone you know is interested in buying or selling a house in the Lincoln, Nebraska or surrounding areas listed above please feel free to give us a call at 402.450.5060.  Or E-mail us at Ann.Underwood@HomeRealEstate.com or visit our website at www.UnderwoodTeam4You.com!

Hope everyone has a great day and enjoys this lovely spring weather!  Thank you for reading!