You probably already have a financial plan for yourself in place. Most likely you sat down with an adviser at some point to set up a budget and diversify your investments. Or maybe you did it yourself online or at the dining room table. But what about your home specifically, probably the biggest investment you’ll ever make? Did you really take everything into account: repairs and upgrades, the mortgage, insurance, and taxes? Probably not.
You need a separate financial plan for your home. Spend a weekend creating one. Once you have a handle on your home’s expenses, you can devise a long-term strategy that’ll let you live there for years with maximum enjoyment and minimum anxiety.
The mortgage: Paying it—and then some
Yes, you already shell out a lot for your mortgage, but can you pay more? Even a little extra each month can add up. Let’s say you have $200,000 outstanding principal and a 20-year fixed-rate mortgage at 5%. Your monthly payment is $1,319.91. But if you can manage to pay another $100 a month, you’ll save $14,887 in interest. Run the numbers for yourself and check to make sure your loan does NOT have a pre-payment penalty in place. And don’t fret too much about losing the mortgage interest deduction come tax time. Toward the tail end of the life of a loan most of your payment is going to the principal, not the interest.
Nevertheless, the same extra $100 might also go into a retirement plan every month, or be put aside for the inevitable home repairs (more on those later). A debt-free life may be enormously important to your peace of mind, however an extra $1,200 toward your child’s college fund every year may feel even better. It’s about what’s ultimately important to you, both emotionally and financially.
Insurance: Protecting your property
You’ll want homeowners insurance with full replacement coverage in case your house is burned to the ground. This sounds simple, but be careful on the calculation. Remember that you own a house as well as the land on which it sits. So even though you bought your home for $300,000, it may cost only $100,000 to rebuild it. Your policy limits should reflect this.
The differences are regional. Where land is at a premium, like much of Southern California, a higher percentage of the purchase cost is for the property rather than the structure. Where land is cheap, like much of North Dakota, most of the value of a new house is the house itself. Don’t be deceived by shifts in market values. You may have bought a $1.2 million townhouse in Florida during the boom that now may only sell for $600,000. But the replacement cost of the townhouse hasn’t changed much, so you can’t cut insurance costs that way.
Do, however, try to cut costs by asking your insurance agent about discounts. Making structural improvements, such as adding storm shutters, can lead to lower rates. Membership is certain groups, such as AARP or veterans’ organizations, entitles some policyholders to breaks on premiums as well.
Repairs and renovations: By choice or necessity
Throughout the life of your house, you’ll be making two kinds of changes. The first is the fun kind, like a marble floor for the living room. The second is the essential, behind-the-scenes change: a new water heater. You don’t have a choice about when you’ll do the latter, but you can prepare for it financially.
It’s a good idea to have a rainy-day fund. Start with the inspection report you received when you bought the house. Did the inspector indicate that you would need a new roof in five years? A new furnace in 10? Get estimates on what these repairs will cost and start saving. Consider ongoing non-emergency maintenance too.
As for the discretionary upgrades, act prudently. According to Remodeling magazine, an upscale major kitchen upgrade, for example, could cost nearly $112,000, but only about 63% of that will be recouped in the home’s resale value. This isn’t to say you shouldn’t upgrade. If you can afford to redo your bathrooms, go ahead. Just don’t confuse your necessary repairs (new furnace—about $4,000) with your discretionary upgrades (Viking range—$6,000 and up).
Taxes: (Almost) no way around them
Taxes are an essential part of your home’s financial plan. The bank that holds your mortgage may already handle your real estate taxes with an escrow account. If so the expense is built into your monthly mortgage payment. Check your statements or call the lender. Otherwise create a dedicated fund for property taxes, which can run into the thousands of dollars annually.
You may be able to reduce your tax burden by getting a reassessment. Do your homework first. Are comparable houses taxed less than yours? Ask the local assessor what formula is used to set tax rates. If you’re in a special group, you might get some help from state or local programs. Check around to see what’s available in your area.
Wednesday, February 24, 2010
Monday, February 15, 2010
Fourth Quarter Home Sales Up
Sales of existing homes were up 27.2 percent during the last three months of 2009 compared to the same period a year earlier, hitting a seasonally adjusted rate of 6 million, the National Association of Realtors reported.
That's a 13.9 percent increase from the 5.29 million annual rate seen during the third quarter, as homebuyers moved to take advantage of low interest rates and a tax credit that was set to expire but was ultimately extended and expanded by Congress, NAR said.
Sales increased from the third quarter to the fourth in 48 states and the District of Columbia, with 32 states seeing double-digit gains, NAR said. Year-over-year sales were higher in 49 states and Washington, D.C., and all but three states had double-digit annual increases.
Distressed property accounted for 32 percent of fourth-quarter transactions, down from 37 percent a year earlier.
The national median existing single-family price fell 4.1 percent year-over year to $172,900 -- the smallest price decline in more than two years, said NAR chief economist Lawrence Yun.
That's a 13.9 percent increase from the 5.29 million annual rate seen during the third quarter, as homebuyers moved to take advantage of low interest rates and a tax credit that was set to expire but was ultimately extended and expanded by Congress, NAR said.
Sales increased from the third quarter to the fourth in 48 states and the District of Columbia, with 32 states seeing double-digit gains, NAR said. Year-over-year sales were higher in 49 states and Washington, D.C., and all but three states had double-digit annual increases.
Distressed property accounted for 32 percent of fourth-quarter transactions, down from 37 percent a year earlier.
The national median existing single-family price fell 4.1 percent year-over year to $172,900 -- the smallest price decline in more than two years, said NAR chief economist Lawrence Yun.
Tuesday, February 9, 2010
Short Sales - A Buyer's Prospective
Intro to Short Sales
A short sale occurs when a property is sold for less than the amount owed on the mortgage and the lender agrees to accept that amount as satisfaction of the total amount owed to pay off the home loan. The lender determines if the seller is eligible to sell the home at less than the outstanding debt due to a hardship (divorce, unexpected hospitalization and medical expenses, job loss, death of a family member or a similar catastrophic situation). Additionally, a budget must show that the seller’s expenses exceed their income/assets, they are behind on their payments and there is no way to repay the lender. The risk with short sales is that the ultimate decision to sell the home lies in the lender’s hands. There are no guarantees in short sales.
Good News about Short Sales
Condition of home is generally better than a REO.
History of home is provided by seller in disclosures.
Generally only highest and best offers submitted to lender.
Not so Good News
Time. A buyer must be patient and not have any contingencies in regards to time.
No guarantee the lender will accept the home as a short sale.
The seller may not even qualify for a short sale if no legitimate hardship exists.
Short sales aren’t always a bargain - price set by listing agent.
Lenders will likely reject low offers. AND Lenders can change conditions after acceptance.
Lenders can raise buyer closing costs.
Loss of control of the transaction depending on professionalism of the listing agent.
Seller sometimes not motivated to sell.
A short sale is not for the faint at heart. But if you are patient and willing they can be a great option to get the home of your dreams - I can personally attest to that!!!
A short sale occurs when a property is sold for less than the amount owed on the mortgage and the lender agrees to accept that amount as satisfaction of the total amount owed to pay off the home loan. The lender determines if the seller is eligible to sell the home at less than the outstanding debt due to a hardship (divorce, unexpected hospitalization and medical expenses, job loss, death of a family member or a similar catastrophic situation). Additionally, a budget must show that the seller’s expenses exceed their income/assets, they are behind on their payments and there is no way to repay the lender. The risk with short sales is that the ultimate decision to sell the home lies in the lender’s hands. There are no guarantees in short sales.
Good News about Short Sales
Condition of home is generally better than a REO.
History of home is provided by seller in disclosures.
Generally only highest and best offers submitted to lender.
Not so Good News
Time. A buyer must be patient and not have any contingencies in regards to time.
No guarantee the lender will accept the home as a short sale.
The seller may not even qualify for a short sale if no legitimate hardship exists.
Short sales aren’t always a bargain - price set by listing agent.
Lenders will likely reject low offers. AND Lenders can change conditions after acceptance.
Lenders can raise buyer closing costs.
Loss of control of the transaction depending on professionalism of the listing agent.
Seller sometimes not motivated to sell.
A short sale is not for the faint at heart. But if you are patient and willing they can be a great option to get the home of your dreams - I can personally attest to that!!!
Monday, February 1, 2010
Avoid Foreclosure Rescue Scams
A record high 2.8 million properties were hit with foreclosure notices in 2009, according to realtytrac, putting even more Americans at risk of facing foreclosure rescue scams. Homeowners who fall behind on mortgage payments need to tread carefully when seeking assistance, since foreclosure rescue scams come in many guises. A day spent researching legitimate options, from a mortgage modification or principal forbearance to a short sale or deed-in-lieu, could keep you from becoming a scam victim.
Homeowners facing foreclosure are prime targets for scam artists. The U.S. Federal Trade Commission identified 71 companies running suspicious foreclosure rescue ads, and the Better Business Bureau counts foreclosure rescue rip-offs among its top 10 scams. Understanding how these scams work can help you avoid becoming a victim.
The variations are seemingly endless, but one popular foreclosure scam involves a representative of a so-called foreclosure rescue company promising to negotiate a deal with your lender. The rep, vowing to take care of everything, will instruct you not to contact your lender, lawyer, or credit counselor during the supposed negotiations. The more brazen ones will even tell you to pay your mortgage directly to them.
Once you pay an upfront fee ranging from $500 to $5000 or hand over a few months' worth of mortgage payments, the scam artist will disappear. You'll be left with an emptier wallet and a mortgage that's in even deeper trouble because no deal was cut and no payments were made on your behalf.
A bankruptcy foreclosure scam can involve a promise to fend off foreclosure in exchange for an upfront fee. Instead of getting you legitimate relief, the fraudster will pocket the fee and secretly file a bankruptcy case in your name. The scam may seem to work initially, because a bankruptcy filing will stop foreclosure proceedings temporarily, but they'll resume. Compounding your problems, a bankruptcy can mar your credit report for 10 years.
Another common scam, called the bait-and-switch, results in a scam artist taking ownership of your home. You sign documents supposedly for a new loan that will make your mortgage current. What's really happening is you're signing over the deed of your house. In this scenario you would still owe on your mortgage but no longer own the home.
In a rent-to-own scheme, you're told to surrender a home's deed as part of a deal that lets you stay put as a renter. The scam artist, perhaps claiming to be able to refinance at a better rate with you off the title, promises to sell the house back to you in the future. However, terms of the deal may make it all but impossible for you to repurchase the home, or the scammer may get you evicted by raising the rent beyond your means. Either way, you end up losing the home while remaining on the hook for the unpaid mortgage.
Being aware of the warnings signs can protect you from foreclosure rescue scams. Red flags include:
•Demands for high upfront fees.
•Guarantees to stop a foreclosure.
•Instructions to make mortgage payments to someone other than your lender.
•Pressure to sign over a deed.
Legitimate foreclosure counselors won't put on a full-court press, nor will they guarantee that you won't lose your home to foreclosure. What they will do is review your financial situation and offer up options. Foreclosure counselors approved (http://www.hud.gov/offices/hsg/sfh/hcc/fc/) by the U.S. Department of Housing and Urban Development won't charge you a fee either.
Homeowners facing foreclosure are prime targets for scam artists. The U.S. Federal Trade Commission identified 71 companies running suspicious foreclosure rescue ads, and the Better Business Bureau counts foreclosure rescue rip-offs among its top 10 scams. Understanding how these scams work can help you avoid becoming a victim.
The variations are seemingly endless, but one popular foreclosure scam involves a representative of a so-called foreclosure rescue company promising to negotiate a deal with your lender. The rep, vowing to take care of everything, will instruct you not to contact your lender, lawyer, or credit counselor during the supposed negotiations. The more brazen ones will even tell you to pay your mortgage directly to them.
Once you pay an upfront fee ranging from $500 to $5000 or hand over a few months' worth of mortgage payments, the scam artist will disappear. You'll be left with an emptier wallet and a mortgage that's in even deeper trouble because no deal was cut and no payments were made on your behalf.
A bankruptcy foreclosure scam can involve a promise to fend off foreclosure in exchange for an upfront fee. Instead of getting you legitimate relief, the fraudster will pocket the fee and secretly file a bankruptcy case in your name. The scam may seem to work initially, because a bankruptcy filing will stop foreclosure proceedings temporarily, but they'll resume. Compounding your problems, a bankruptcy can mar your credit report for 10 years.
Another common scam, called the bait-and-switch, results in a scam artist taking ownership of your home. You sign documents supposedly for a new loan that will make your mortgage current. What's really happening is you're signing over the deed of your house. In this scenario you would still owe on your mortgage but no longer own the home.
In a rent-to-own scheme, you're told to surrender a home's deed as part of a deal that lets you stay put as a renter. The scam artist, perhaps claiming to be able to refinance at a better rate with you off the title, promises to sell the house back to you in the future. However, terms of the deal may make it all but impossible for you to repurchase the home, or the scammer may get you evicted by raising the rent beyond your means. Either way, you end up losing the home while remaining on the hook for the unpaid mortgage.
Being aware of the warnings signs can protect you from foreclosure rescue scams. Red flags include:
•Demands for high upfront fees.
•Guarantees to stop a foreclosure.
•Instructions to make mortgage payments to someone other than your lender.
•Pressure to sign over a deed.
Legitimate foreclosure counselors won't put on a full-court press, nor will they guarantee that you won't lose your home to foreclosure. What they will do is review your financial situation and offer up options. Foreclosure counselors approved (http://www.hud.gov/offices/hsg/sfh/hcc/fc/) by the U.S. Department of Housing and Urban Development won't charge you a fee either.
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