An Unexpected Expense

In a study released by TD Bank, 65% of buyers with mortgages that required mortgage insurance said the higher monthly payment was more than they originally expected.

Private mortgage insurance is required on loans that exceed 80% of the home's value.  For conventional loans, the premiums range from 0.5% to 1% annually.  The PMI could add close to $100.00 a month to the payments on a $200,000 mortgage and over $200.00 a month on a FHA mortgage.

FHA has two components to its mortgage insurance which includes an up-front charge on closing of the loan and an annual charge.  The up-front premium is 1.75% of the mortgage which can be paid in cash at closing or added to the mortgage amount.  The annual premium ranges from 0.45% to 1.35% depending on the loan-to-value and term of the mortgage.

Most lenders are required to automatically cancel coverage when a 78% loan-to-value is reached which on a 30 year loan with normal amortization could be eight to eleven years depending on original loan amount and interest rate.   If the value of the home has increased as documented by an appraisal so that the current mortgage is below 80% loan-to-value, the lender can be petitioned to eliminate the PMI.

Beginning in April, 2013, FHA requires the mortgage insurance to be paid for the entire term of the mortgage.   Prior to this rule change, it was required to remain in effect for a minimum of five years but could be cancelled when the mortgage is reduced to 78% of the original purchase price.

A homeowner can greatly reduce their cost of housing by avoiding mortgage with a minimum 20% down payment.  If a higher loan-to-value mortgage is required to purchase the home, the objective should be to pay down the mortgage amount to relieve the need for the mortgage insurance.   Generally, loans with lower loan-to-value mortgages also have lower interest rates

 

 

 

What is a Seller's Market?

It is generally considered a seller's market when the conditions favor the seller.  This condition exists when demand is high and supply is low without any significant adverse economic conditions taking place.

Demand is determined by ready, willing and able buyers.  Low interest rates with indications that they will begin to rise fuels part of this demand. Rising prices also creates a sense of urgency to avoid higher housing costs.

Inventory is currently below what is considered balanced in most areas. In some areas and price ranges, homes are selling very quickly, with multiple offers and sometimes at above the listing price.  When too many buyers are chasing too few properties, things get competitive and the seller is the beneficiary.

Even when buyers and sellers come to an agreement on price and terms, a challenge can occur if the appraisal doesn't meet the sales price.  Either the purchaser has to come up with the additional cash or the purchase price has to be renegotiated.

A typical seller wants the most money possible for their home in the shortest time frame with the fewest inconveniences.  A Seller's Market provides the most likely environment for this to happen.

Don't Leave Home Without...

Planning a summer trip is usually focused on what you’ll do, see and experience.  Enjoy it even more by spending a little time before you leave to make sure your home is safe while you're gone.

Consider these suggestions along with your other normal efforts:

• Tell your neighbors you’ll be out of town and to be aware of any unusual activity.
• Notify your alarm company .
• Discontinue your postal delivery.
• Use timers on interior lights to make it appear you’re home as usual.
• Don’t make it easy for burglars by leaving messages on voice mail or posting on social networks.
• Post on social networks about your vacation after you’ve returned.
• Remove the hidden spare keys and give one to a trusted neighbor or friend.
• Lock everything, double-check and set the alarm.
• Take pictures of your belongings in case you need them.
• Disconnect TVs and other equipment in case of unexpected power surges.
• Adjust your thermostat.
• Arrange for lawn care.
• Consider disconnecting the garage door opener.
• Put irreplaceable valuables in a safety deposit box.

 It’s nice to go out of town on a well-deserved trip and it’s always nice to get back home…especially when it is just the way you left it.

Can You See the Savings?

If you’ve considered changing your light bulbs to energy-saving LED bulbs but decided not to make the investment because the prices were too high, you might want to investigate again.  The prices have come down considerably.

An initial investment now will generate immediate returns through energy costs and because they last longer, you won’t need to replace them for years.

The life of LED bulbs is projected to be from 35,000 to 50,000 hours compared to an incandescent bulb at 750 to 2,000 hours.  For normal home use, a LED bulb could last more than 20 years.

80-90% of the energy used by fluorescent and incandescent bulbs is wasted by the heat generated.  In contrast, cool LED bulbs converts 80% of the electrical energy to light energy.

• The color of LED lights is bright white, more like daylight, instead of the warm yellow of incandescent or the greenish tint of fluorescent bulbs.

• LEDs light up instantly instead of building to their intensity like some of the fluorescent bulbs.

• LEDs are more durable because they don’t have filaments or thin-glass bulbs like incandescent and fluorescent bulbs.

Shop around to find the best price on LEDs. If the LED only lasted 20,000 hours, you might have to purchase 20 incandescent bulbs during that same period of time.  Using the chart below, you can see that the LED uses about 10% of the wattage without compromising on the brightness.

What Can You Expect?

The two most frequently quoted constants in life are death and taxes.  Two more things would-be homeowners can expect in the near future are increases in mortgage rates and housing prices.

Interest rates have been kept artificially low for several years by the Federal Reserve in an effort to strengthen the economy. Policy is shifting to allow them to seek their own natural level and that will surely result in higher mortgage rates.  Rates on 30 year fixed mortgages are up over 1% from January, 2013.

Foreclosure activity is down, new home starts are up and prices have been increasing in most markets for two years.  Most expertsagree that the cost of housing is going up.

If the price were to go up by 2% and the mortgage rate by 1% while a buyer is “sitting on the fence” making a decision, the payment would go up by almost $175.00 each and every month for the term of the mortgage.  Even if a person can afford to make the higher payments, what could they have done with that extra $175.00 a month?  Buy furniture?  Car payment?  Principal reduction?  Retirement contribution?  Save for a rainy day?

Click here to determine what the cost of waiting to buy will be using your price home.

Interviewing a Mover

“I’d wish I’d know that before I made a decision.”  If you’ve ever regrettably said this to yourself, having a checklist might have prevented the issue in the first place.  This list of questions can provide you with things to discuss when interviewing a moving company.

Fees

• What is the charge for packing?
• Does it include boxes? If not, what do they cost and will you deliver them?
• Is there an additional charge to deliver some items to a storage unit?

Insurance

• How is a damage claim handled? 
• What insurance do you provide and is there a cost? 
• Does the insurance cover items packed by the owner? 
• Can additional insurance be purchased? 
• If items are covered by my Homeowner’s insurance, whose insurance pays first?

Unusual Items 

• Can you ship my car(s)? Will they be in the moving van or towed? 
• What are the charges for shipping cars, lawn tractors, etc? 
• What items cannot be shipped? 
• If a shuttle truck is needed because of the location of my house or size of the drive way, is there an additional charge? 
• If packing and loading are on different days, can you leave the beds and other basics out for us to use?

Dates 

• What dates are available for our move?
• What date will you pack and how long will this take? 
• What date will you load the van? 
• What date will the van arrive at my new location? 
• If my new home is not ready for delivery, how many days can it be delayed before there is a charge? 
• What is the charge for additional days or weeks?

Terms 

• Are there any additional fees that I’m responsible for that have not been discussed? 
• What are the terms of payment? 
• Is a down payment required? 
• When will the balance be due and who is authorized to accept it?

Personal Finance Review

You’ll need to earn $2.00 for every $1.00 you want to spend assuming you pay 50% of your earnings on income tax, social security and Medicare.  On the other hand, you get to keep 100% of every dollar you save on your personal expenses because the taxes have already been paid.

Periodically, review your expenditures with the diligence of an exuberant IRS agent on commission.  It’s an exercise that most people don’t feel they have time to do but the rewards make it entirely worthwhile.

• Get comparative quotes on insurance – car, home, other 
• Review and compare utility providers 
• Review plans on cell phones 
• Review plans on cable TV, satellite for unused channels and packages or receivers 
• Review available discounts on property taxes 
• Consider refinancing home – lower rate, shorter term or cash out to payoff higher rate loans 
• Consider refinancing cars 
• Call credit card companies to ask for a lower rate 
• Review all of the automatic charges on your credit cards – consider no-fee cards 
• Search for late fees that are regularly being paid and eliminate them. 
• Review all bank charges for accounts and debit cards; determine if they can be reduced or eliminated.

If you don’t want to review your credit card accounts, consider reporting the cards stolen so that new numbers will be issued.  You can notify the companies that need your number.  Companies who might have your number won’t be able to automatically renew services that you may no longer be using.  You can be assured that they’ll contact you when the old number doesn’t go through and you can re-evaluate the decision at that time.

Find a Better Return

A certificate of deposit will generate a cash flow based on the interest rate that it pays which is the only way it generates a return for the investor.

An investment in a stock that doesn’t pay dividends, would need to be worth more than you paid for it to earn a profit.  On the other hand, a stock that paid dividends could make the investor a profit even if it sold for the same price that he paid for it.

Investors can profit four different ways with an investment in rental real estate.

1. Cash flows that result from having a surplus after collecting the rent and paying the expenses.

2. Equity build-up results from a portion of each monthly payment reducing the unpaid balance.

3. Tax benefits can result from the depreciation allowed on the property and the preferential long-term capital gains tax rate.

4. Appreciation benefits the investor when the value of the property increases.

The most conservative investors in real estate make decisions to purchase a rental property based on its ability to generate a cash flow and reduce the mortgage through normal amortization.  If the property can offer an acceptable rate of return compared to other available investments, the tax benefits and possible appreciation become an added bonus.

With increased rents and low mortgage rates for investors, rental property can offer significantly higher returns than many of the available alternatives.  Contact me for more information- mleach@remax.net; you may be amazed about what is available in the market.

Rent or Buy - the cost is going up

Whether you continue to rent or decide to buy a home, according to recent Zillow 2014 housing projections, the cost is going up.  Zillow projects home prices to increase nationally by 3%, mortgages to rise to 5% interest rate by the end of the year and rents to go up by 2.5% on average.

If it will cost a person more whether they rent or buy, the conclusion can be made that one way or the other, they will pay for the house they occupy.  The question will be whether they buy it for themselves or their landlord? Will they benefit from the equity build-up and the appreciation?

The following analysis looks at a $200,000 home that can be purchased with a 30 year FHA mortgage at 4.3%.  The assumption uses 3% appreciation and tenant currently paying $1,750 a month in rent.

The house payment, principal, interest, taxes and insurance would be about $1,609 a month.  However, once you consider the benefits of the principal reduction each month, the appreciation and the tax savings and the increased cost of maintenance, the net cost of housing is closer to $630 per month.

Even if you ignored the tax savings, the net cost of housing would only be $919.06 per month.  The tenant would pay considerably more to rent than to own the home.  Over time, the decision to buy a home could result in a considerable financial asset that the tenant will not benefit from.

To estimate your cost of housing, use the Rent vs. Own.

Rate/Payment Relationship

A ½% increase in interest rate may not sound like much but it is roughly equivalent to a 5% increase in price.  It becomes obvious when you compare the payments.

If you financed 100% of the cost of a $250,000 home at 4.5% interest for 30 years, the payment would be $1,266.71 per month.  If the mortgage rate went up to 5%, the payment would be $1,342.05.  If the home increased 5% in value, the $262,250 loan at the lower 4.5% rate would have payments of $1,330.05.

The two payments are close enough to justify the statement that a ½% change in interest is approximately equal to 5% change in price.

Each time interest rates go up, fewer people can qualify to buy a seller’s home.  The mortgage rules that went into effect this year require buyers to meet specific payment to income ratios.  As demand picks up for the seasonal market, most experts expect rates to increase.

Buyers will be doubly challenged in the current market because prices are rising (NAR reports 11% last year) along with the anticipated mortgage rates.  Buyers who wait will inevitably be paying more to live in the same home had they acted sooner.

Check out on how Interest Affects Price for a home in your price range.

Making Room in Your Rooms

The more things you have, the more you have to take care of.  And in this case, the more that you have to store that gets in the way of finding the things that you actually use.  Periodically, you need to go through every closet, drawer, cabinet and storage area to get rid of the things that are just taking up space in your home and your life.

Every item requires the decision to retain or remove.  Consider these questions as you examine each item:

• When was the last time you used it?
• Do you believe you’ll use it again?
• Is there a sentimental reason to keep it?

You have four options for the things that you’re not going to keep.  If you know someone who needs it or will appreciate it, you can give it to them.  You can sell it in a garage sale or on Craig’s List.  You can donate it to a charity and receive a tax deduction or you can discard it to the trash.

Start with your closet. If you haven’t worn something in five years, get rid of it.  Then, go through the things again and if you haven’t worn it in two years, ask yourself the real probability that you’ll wear it again.

Another way to do it is to move it from your active closet to another closet.  If a year goes by in the other closet, the next time you go through this exercise, those clothes are on their way out.

If the items taking up space are financial records and receipts, the solution may be to scan them and store them in the cloud.  There are plenty of sites that will offer you several gigabytes of free space and it may cost as little as $10 a month for 100 GB at Dropbox to get the additional space you need.  It will certainly be cheaper than the mini-storage building.

Reasonable Expectations

Coffee should be hot. Beer should be cold. Mexican food should be spicy.  However, if these things are less than the standard that you expect, there are not any lasting consequences.

As the value of the object in question rises, either in price or gravity, the expectations usually increase and decisions become progressively more important.  Marriage, children, health and careers are certainly a few of the more important items that bear careful consideration.

The sale of the largest asset that most people own, their home, also merits having reasonable expectations.  A homeowner should expect to get the market value for their home in a reasonable period of time with as few inconveniences as possible.

According to the latest Home Buyers and Sellers Survey, more homeowners are entrusting the sale of their home to real estate professionals.  Owners can increase the likelihood of a favorable outcome by sharing their expectations with agents prior to listing their home for sale.

Challenge your agent to explain what they intend to do to:

• Price the home correctly
• Prepare the home to make a good impression
• Position the home in the marketplace

It is reasonable for a seller to expect the agent will work hard to sell the home; will tell the truth and represent the client’s interests to the best of their ability.  Agents exemplify remarkable service when they exceed the seller’s expectations.

How's Your IQ on the QM?

The Qualified Mortgage Rule came into effect on January 14, 2014 as one of the results to the Dodd Frank Reform Act to protect consumers from predatory lending practices.  This will affect the underwriting standards that the majority of lenders will use to qualify borrowers.

The ability to repay rule states that financial information must be supplied by the borrower and verified by the lender.  The borrower must have sufficient assets or income to pay back the loan which limits the maximum debt-to-income ratio of 43%.  In an effort to present a more accurate picture of the costs to the borrower, teaser rates can no longer hide a mortgage’s true cost.

A maximum of 3% in upfront points and fees can be paid on behalf of the borrower.  There can be no negative amortization, interest-only or balloon payments and the loan term limit cannot exceed 30 years.

While there are more requirements, most deal with good underwriting practices that are followed by reputable lenders such as considering and verifying things that affect the ability to repay the mortgage like income, assets, employment status, simultaneous loans, debt, alimony, child support and credit history.

What's the Point?

Prepaid interest, sometimes called “points”, is generally tax deductible when a person pays them in connection with buying, building or improving their principal residence.  When points are paid on a refinance, they are not a current deduction but have to be taken prorata over the life of the mortgage.

For instance, if $3,000 in points were paid on refinancing a 30 year mortgage, a deduction of $100 per year is allowed.  When the loan is paid off or replaced by refinancing again or the home is sold and the mortgage paid off from the proceeds, the balance of any un-deducted points may be taken in that tax year.

Your tax professional needs to be made aware of any of these situations so that he or she can accurately reflect the deductions in your return.  Currently, the most common situation is homeowners may be refinancing their home for the second, third or even, fourth time. If there are points that have not been completely deducted, they need to be treated in the year of refinancing.

For more information, see points in IRS Publication 936; there is a section on Refinancing in this publication. For advice considering your specific situation, contact your tax professional.

Cut Your Housing Costs in Half!

Serious shoppers wait for a 50% off sale to make the decision because of the bargain factor.  Renters who are serious about lowering their monthly cost of housing should consider buying with today’s low mortgage rates.  For an example, let’s assume a person buys a $200,000 home with 3.5% down payment on a 4.5% FHA mortgage for 30 years.

The total house payment would be approximately $1,508 per month.  However, once you consider the equity build-up due to normal amortization, a monthly appreciation estimated at 2% annually for this example, the tax savings and paying maintenance that a tenant wouldn’t be required to do, the net cost of housing is $772 a month.  This is almost half of the full mortgage payment.

If this person was paying $1,750 a month for rent, it would cost him almost $978 more to rent than to own. In the first year alone, it would accumulate to over $11,000 which is more than the down payment required of $7,000.

Owning a home is the largest investment that most people make and the down payment of $7,000 to purchase this home would grow to $58,837 in equity by estimating a 2% appreciation and normal amortization.

To check out what your real housing costs might look like, go to Rent vs. Own or contact your real estate professional.

Good advice for anyone considering a refinance.

What to Know Before You Refinance

http://www.foxbusiness.com/personal-finance/2014/05/22/what-to-know-before-refinance/

To-Dos: Your June Home Checklist

Here’s a visual reminder of things to get your home in shape for summer.

http://www.houzz.com/ideabooks/25486546

3 Myths About Home Staging

It’s really like helping your home to make a great “first impression.”

By Audra Slinkey, Home Staging Resource

There’s been a lot of talk about staging a home to sell these days because for the first time in a long time, sellers are getting above asking price offers! Making the most money on the sale of the house is the name of the game, and the agents who can do that for a neighbor/friend becomes the agent of choice.

Unfortunately, there are quite a few myths about home staging that need to be corrected…

Myth #1 – Staging is mostly “decluttering.”

FALSE! Staging is about “styling for the photo shoot.”

While removing the extraneous in a home in order to give the seller a view of the architectural details is a part of staging, completely clearing off the kitchen counters, dining tables, and coffee tables is most definitely NOT what a good home stager recommends.

Listing photos online often show kitchens, for example, with completely cleared countertops and that are overall lifeless.

But an expert home stager works with the home’s integrity to capitalize and merchandise the space into something that will resonate with the buyer online first — so they’ll then want to see the home in-person.

Photo credit: Karen Scovie of Staging Consultants, staging consultants.biz

Read the rest of the article here - http://styledstagedsold.blogs.realtor.org/2014/05/26/3-myths-about-home-staging/

Another Source for a Down Payment

Most taxpayers know that they will pay a 10% penalty if they withdraw funds from their IRA before they turn 59.5 years old.  There is an exception for first-time home buyers that allows a penalty-free withdrawal of up to $10,000 per person if they haven't owned a home in the previous two years.
This would allow a married couple who each have an IRA to withdraw a lifetime maximum of $10,000 each, penalty-free for a home purchase.
In many cases, the money would be used for a down payment or closing costs.   However, some buyers might consider this source to increase their down payment so they could qualify for a loan without mortgage insurance.
If the taxpayer qualifies for the penalty-free withdrawal, there may still be taxes due.  Contributions to traditional IRAs are made with before-tax dollars and the tax is paid when the funds are withdrawn.  Since Roth IRAs are made with after-tax dollars, there is no tax due when the funds are withdrawn.
Another interesting fact about this provision is that the taxpayer making the withdrawal can help a qualified relative which includes children, grandchildren, parents and grandparents.
Homebuyers who are considering using IRA funds for a home purchase should get expert advice from their tax professional concerning their individual situation.