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As a financial education company, we often see financial crises coming because employees contact us when they have financial problems or concerns they need help resolving. With the recent mortgage crisis, we began to see a major spike in calls on debt in the year leading up to the meltdown. Debt calls in 2006 increased to an all time high—representing close to half of our total calls at the time. Even worse, many callers were frantic. They weren’t looking to simply reduce their debt load; they were struggling to make ends meet. They weren’t asking about putting together a plan to pay off high interest rate debts; they were beginning to consider drastic options like foreclosure and bankruptcy. It was rather like seeing a car crash in slow motion. You know it’s coming and you can tell the driver to slam on the brakes or swerve out of the way, but it’s too late to do much more. Today, there’s another mortgage crisis in the works—that is, NOT having one—choosing to rent when you can afford to buy; choosing to forgo building equity in a home as a major source of retirement security—something that may be more necessary now than ever before with a soft stock market and low interest rates. This emerging crisis is not yet at the car crash stage– more at the reckless driving without a seat belt stage. There is time for Americans to resolve this one, but they must change their perspective on home ownership before it’s too late. Why own a home when you can rent? We are hearing this question much more these days as people choose to “sit out” of the real estate market or disregard homeownership altogether after seeing many of their friends and family end up in short sales or foreclosures. Renting is the low-risk option for these callers. It’s the only way to ensure that nightmare will never happen to them. The problem is that it will; it’s just a different nightmare. Consider this: A homeowner with a $1,500 monthly payment would still be writing the same check fifteen years later while prices everywhere increase around them.In August 2011 the Consumer Price Index included a .4% increase in rents, the biggest increase since 2008, which represents an annualized increase of 4.8%. If rents didn’t even increase that much but simply kept up with inflation at a 3.2% annual increase, a $1,500 rent payment would cost that renter nearly $900,000 over the next 30 years. The same $1,500 payment made to their mortgage would be only $540,000 (because the payments don’t increase with inflation) and of course would end with a final payment. There might even be some real equity in the property, even with a dismal 1% growth rate over 30 years, a $300,000 property would appreciate well over $100,000 giving the homeowner an additional nest egg for retirement. The renter, by contrast has no equity in their home, so in addition to almost $900,000 in rent in the above example, the renter would also be giving up $400,000 in retirement assets (and that’s at a growth rate of just 1%– far lower than even the lowest growth rate over a 30 year time period). At a time when retirement is becoming much more challenging, an extra $400,000 (or likely more) can make a major difference, not to mention the impact of NOT having to pay a mortgage. How much less would you have to save for retirement if you didn’t pay the mortgage? And this doesn’t even include the tax benefits. The US government essentially subsidizes your house payment by allowing a mortgage interest and property tax deduction on Schedule A of the 1040. Any points you pay when you get the loan can also be deducted. Then an amazing thing happens: the IRS allows a tax exclusion on the sale of a primary residence. Owners who live in their property two out of the past five years, who have equity and sell their primary residence, receive a maximum capital gain exclusion of $250,000 (if married $500,000.) Where else can you get a tax break on an investment and then receive the proceeds tax free? I can’t think of another investment like it. So, deciding that “renting” is safer and there’s no need to take the risk of buying a home or even waiting in an effort to time what is an unpredictable real estate market, buying only when prices have been up for a while, can be very costly. It doesn’t bring with it the emotional trauma of a foreclosure or short sale. But it is a slow drain on your finances, that over time, could compromise your ability to retire or at the very least, to retire the way you want, when you want. All that said, I’m by no means advocating homeownership for everyone. For many, renting is the right option, at least for now. If you can’t afford to own a home, you shouldn’t even consider buying—one of the key lessons learned from the mortgage crisis. Your mortgage should be under 25-30% of your income not including bonuses or promotions and you should have an emergency fund of 3-6 months expenses in savings before you purchase a home. Also, if you don’t qualify for a reasonable interest rate on a mortgage due to credit problems, if your income is unstable, or if you crave mobility, renting is the better choice. Renting is cheaper than buying in the short term and has other advantages. Repairs: as a renter, when you turn on the shower and freezing cold water spurts out in your face, you simply make a phone call to the landlord and they have to install a new water heater instead of you footing the bill. Mobility: If you have a job opportunity or promotion in another state, you simply give notice and move. You don’t have to go through the arduous process of selling (or not being able to sell) your home. You are free from the obligations of homeownership. Property taxes: As a homeowner, even when your mortgage is paid off you still have to pay property taxes and insurance, and those costs will continue to rise. Just remember that freedom has its price and, in this case, it is a steep one. It costs much more in the long run to rent, which is why homeownership can be the ultimate retirement strategy. When people are making decisions on whether to buy a house or not, many aren’t factoring in thirty years from now when the home is paid off. They are wondering if the market is at the lowest point possible, if interest rates will drop even lower or if the property will appreciate. This vital element of homeownership has a long incubation period. We always hear that an employee’s peak earning years come after age 50, when you combine high earnings with the elimination of an expense that takes up a third of most people’s take home pay, people have a real chance to meet their financial goals. Homeownership is the ultimate retirement plan. Home ownership isn’t for everyone, but for many, it is the best choice. The smartest choice, of course, is making the right decision for the right reasons based on your own circumstances. Homeownership basics apply just the same as they always have: buy only the home you can afford, lock in a fixed rate loan with the lowest interest rate possible, and refinance only to get a lower rate and only for the same loan amount and same term. What got many people in trouble during the financial crisis was going to the extreme and buying a house they could barely afford with a variable rate loan payment. When the payments reset with higher interest rates, many couldn’t make the payment. They never should have been in the house in the first place. If Americans don’t recover soon from their pessimism around homeownership, we predict another fallout from the financial crisis will surface many years from now when a nation of renters tries to retire. They won’t have equity in their homes. Their paychecks will be stretched to the limit, not leaving room for saving and investing for retirement and other financial goals such as college funding. Instead of their expenses reducing through retirement, they will look straight down the barrel of increased rent payments for the rest of their lives. Homeownership makes a significant difference in the long run so it is concerning to see so many walking away from the American Dream. We don’t want to see it become the American Nightmare. |
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Check out my interview with Kathy Soltero! The advantages of low interest rates vs the end of the tax incentives. Click Here! |
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You've been hearing mortgage rates have dropped, however, just because interest rates have dropped doesn't mean refinancing makes the most financial sense. Before submitting a mortgage application or having your credit pulled, find out how much you will save by refinancing and what costs you'll incur. I will help you do the math. The last thing you want to do is greatly increase the amount you owe to save a few dollars a month. |
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5.2.10 Foreclosure Related Event Definitions A borrower whose previous residence or other real property was foreclosed on, sold through a short sale, or has given a deed-in-lieu of foreclosure within the previous three years is generally not eligible. If the foreclosure was greater than three years prior to the date of the application, and the risk decision received is an Accept, the loan does not need manual downgrading and foreclosure documentation is not required. Pre-foreclosure: A pre-foreclosure involves the sale of the property by the borrower to a third party for less than the amount owed to satisfy a delinquent mortgage, as agreed to by the lender, investor, and mortgage insurer. A pre-foreclosure must meet the three year seasoning requirement. Short Sale: In a short sale the servicer/investor of the mortgage agrees to payoff of a lesser amount than is actually owed, even on a current mortgage, to facilitate the sale of the property to a third party. A short sale is considered a pre-foreclosure and must meet the three year seasoning requirement. |
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http://www.nature.org/aboutus/howwework/conservationmethods/privatelands/conservationeasements/ Conservation EasementsConserving Land, Water and a Way of Life
Mindful of the spread of suburban sprawl into the once-remote Loess Hills of western Iowa, Barry and Carolyn Knapp donated to The Nature Conservancy a conservation easement that protects a thousand acres of their farm. © Heather Waugh/Lakeside Studio Conservation easements are one of the most powerful, effective tools available for the permanent conservation of private lands in the United States. The use of conservation easements has successfully protected millions of acres of wildlife habitat and open space, keeping land in private hands and generating significant public benefits. What is a Conservation Easement?A conservation easement is a voluntary, legally binding agreement that limits certain types of uses or prevents development from taking place on a piece of property now and in the future, while protecting the property’s ecological or open-space values. Learn more about how a conservation easement works. How The Nature Conservancy Uses EasementsFor more than four decades, The Nature Conservancy has been using conservation easements to protect landscapes from development — affording them better protection than could be accomplished through outright purchase. In the Blackfoot Valley of Montana, for instance, the Conservancy accepted the state’s first conservation easement on 1,800 acres in the mid-1970s. Today, 30,254 acres in the Blackfoot are covered by easements — and it is one of the most intact landscapes in all of Montana. |
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The tax benefits of homeownershipReal Estate Tax Talk By Stephen Fishman
Inman News™ February 04, 2011 Q: How can real estate agents be a resource for buyers on tax issues, such as the tax benefits of buying vs. renting? A: Unless a real estate broker or agent is a bona fide tax professional -- for example, has an MBA or other specialized training in taxation -- he or she should not give clients detailed tax advice. As a real estate professional, you are licensed to help your clients buy real estate -- not serve as their professional tax adviser. If you give tax advice and it turns out to be wrong, it could cost the client a bundle of money, and leave you with a lawsuit for malpractice. If a client does ask you for tax advice, and you give it, a good practice is to have the client sign a statement providing that he or she has not relied on your advice and that the transaction is contingent on the approval of the client's tax or legal counsel. That said, the tax benefits of real estate ownership are something every buyer should understand. You need to understand them as well. When it comes to the tax benefits of renting vs. buying, the benefits of buying are many, while there are few or no tax benefits for renting. This simple fact can help get renters motivated to take the plunge into homeownership. The tax benefits of buying a home include: Home mortgage interest deduction: The interest paid on a mortgage or mortgages of up to $1 million for a principal residence and/or second home is deductible as an itemized deduction. In the early years of a home loan most of the payments consist of interest, so this deduction is particularly substantial during the first years of homeownership. Depending on the state a buyer lives in and his or her tax bracket, this deduction can reduce the cost of borrowing by one-third or more. Home equity loan deduction: Homeowners can borrow up to $100,000 against the equity in their home and deduct the interest as an itemized deduction. The money can be used for any purpose, such as paying off high-interest credit card debt. In contract, the interest on credit card debt is not deductible. Property tax deduction: Homeowners also get to deduct from their federal income taxes the state and local property taxes they pay on their home. This is another itemized deduction that renters don't get. Deductible homebuying expenses: Various closing costs ordinarily involved in a home purchase are also deductible as itemized deductions, including loan origination fees (points), prorated interest on a new loan, and prorated property taxes paid at settlement. $250,000/$500,000 home-sale exclusion: Perhaps the greatest tax benefit of owning a home comes when a person sells it at a profit. Homeowners who lived in their home for two of the prior five years prior to its sale need pay no income tax on a substantial amount of their profit -- $250,000 for single homeowners and $500,000 for married homeowners who file jointly. This exclusion can be used once every 24 months. 14 days of free rental income: Another little known tax benefit of owning a home is that the owner can rent it out for up to 14 days during the year and pay no tax at all on the rental income. In contrast, a renter who sublets his or her rental must pay income tax on all the rental income he or she earns. Tax benefits of renting: The only tax benefit that a renter can qualify for by virtue of being a renter is the home office deduction. This is a business deduction available to renters who own a business and have a home office they use regularly and exclusively for business purposes. Some employees can qualify for this deduction as well. The deduction is limited to the amount of profit earned from the business each year. If a renter pays a lot of rent, this deduction can be substantial. Homeowners who are in business and have a home office can also qualify for the deduction. Of course, the value of the tax benefits of buying a home depends on the state the buyer lives in and his or her tax bracket. Buyers who live in high tax states like New York or California get the most benefit. This is why the blanket statement "it's always better to buy than rent" is not always true. It all depends on the buyer's individual circumstances. You should encourage prospective buyers to run the numbers. There are some excellent websites you can refer clients to that have online calculators they can use to compare the costs of renting vs. buying a home. A good rent vs. buy tool can be found on the Smart Money Magazine website: http://www.smartmoney.com/personal-finance/real-estate/to-rent-or-to-buy-9687/. Freddie Mac also has a good online calculator: http://www.freddiemac.com/corporate/buyown/english/calcs_tools/. Stephen Fishman is a tax expert, attorney and author who has published 18 books, including "Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants," "Deduct It," "Working as an Independent Contractor," and "Working with Independent Contractors." He welcomes your questions for this weekly column. |
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Surprisingly, homebuyers will hire a buyer's agent when purchasing a resale home; yet rarely consider that "no-cost" advantage when looking at new homes. There are many reputable home builders in the Greater Phoenix area that build a quality product, but new homebuyers need and deserve the benefits of exclusive representation to protect their rights. Buying a new home without representation is like GOING TO COURT WITHOUT AN ATTORNEY! Following are several factors to consider. 1. Generally, Representation is Cost-Free
The seller generally pays a sales commission to the buyer's agent. They see it as a gratuity or incentive for an agent to bring them business. Most home developers extend a "courtesy to independent buyer agents" meaning they build sales commission into the selling price and have a commission-sharing program between the designated broker and the buyer's agent. The reality is, every buyer has the right to their own representation and the builder automatically allocates for paying an agent in the home price. When you don't use an agent, the builder just gets to put that money back in their pocket. It is absolutely illegal for the seller to offer you a "better deal" specifically because you came in without representation. That doesn't mean it never happens, but it is pretty rare that they will put that savings back it into your pocket, as the assumption is that they simply don't have to. The money allocated for real estate commissions comes from a different account and is taxed differently. Besides, the next buyer who comes along may not have one anyway! 2. There Could Be a Negotiation Advantage
Rarely will a homebuilder discount the selling price, earnest deposit, etc. to a unique buyer. However, if that advantage is a possibility an experienced homebuyer agent will have a better opportunity of negotiating a discount than the homebuyer. 3. Re-Negotiation may be necessary. In this turbulent market, price adjustments are not uncommon. As your buyer's agent, I will stay on top of the current market pricing and interest rates to be certain you are getting the best deal possible from contract to close. The builder's agent can't and won't, as it is in the builder's best interest to keep you contracted at as high of a price as possible. 4. A Buyer's Agent Exclusively Represents Your Interest
The builder's broker represents the builder (seller) and not you as the buyer. Their allegiance is to the builder's interest. Period. Particularly when it's cost-free, a new homebuyer deserves equal representation. A skilled, experienced buyer's agent knows your rights and will carefully review every aspect including the "fine print" to protect your interests. They know the right questions to ask and are obligated to give you their best advice. 5. Builder's Financing. Most clients who purchase a home from a builder also finance with the builder's preferred lender. Some builder's lenders are better than others. My knowledge of finance and mortgages can come in very handy when negotiating a loan with a builder's lender. 6. Always Have a New Home Professionally Inspected
Even new homes can have hidden defects and less than standard quality workmanship. A buyer's agent can help you arrange for an expert licensed inspector and even assist by attending on your behalf if you are out of state or accompanying you on the "final walk through inspection". 7. We Can be Your Eyes and Ears if You are Not Local. A buyer's agent can be present when you cannot. We can also take pictures throughout the construction process to keep you in the loop on your new home's construction process. We can refer to you and meet with contractor's, landscaper's, pool builders, and anyone else on your behalf. 8. Your Agent Will Have No Emotional Attachment to the Home. Remember that emotions can run high in real estate transactions; agents can act as a buffer to help things run more smoothly and take some of the stress load off of your shoulders. 9. Many Builders are Going Out of Business. Do you know what you would do if the builder closed their doors before your home was complete? 10. Take Your Buyer's Agent On Your First Visit
Most builders will only consider commisioning a buyer's agent if he or she accompanies you on the very first "sign-in visit". Therefore, it typically doesn't matter to the builder if the agent is present on return visits. |
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Putting your home on the market can be an intimidating experience for a lot of different reasons. Emotional responses to the idea of having strangers walk through your home can range from “it feels a little weird” to “I’m having trouble sleeping at night”. Safety is a concern when selling your home; after all, that is one of the major reasons we REALTORS® will site for hiring a professional instead of attempting to sell on your own. We use certain safeguards to help insure the showing process is made safer for our clients. Keys will be placed in a state of the art lock box, and these things make the “little black box” in an airplane look like an egg carton! It’s easier to take off the front door than it is to break into that key box. We also use a showing service for added protection; there is always a secondary record of which agents are showing your home, when they have scheduled, and their contact information. While these two things are helpful, we also suggest several things that the homeowner can do to keep their homes and families safe during the selling process. Showings are by appointment only.When people see a sign in your yard they will get curious. Sometimes folks will stop by, ring the doorbell, and ask if they can take a look at your home. We suggest that if someone wants to look at your home and they have just stopped by that you thank them for their interest and call us to set up an appointment. We only want qualified people touring your home, and we will gladly show it to them, but they must show that they are actually in the market to make a purchase. While the showing service is a good system, it is not perfect. Occasionally there are miscommunications and an agent may show up unannounced. If this happens we suggest that you again, thank them for their interest and give us a call. We will confirm the appointment with the agent and centralized showing, and we ask that you require the agent to use the lock box for entry to the property. A business card and a sign on the car may look professional, but having these does not mean that the person at the door is an agent. Don’t leave your mail in plain sight.Most of us have a spot where we keep our mail. Often times it is on the same desk where our computer sits so it’s conveniently there when we pay the bills. Personal information is exactly that, personal. When we hear this advice, most of us think about our bank and credit card statements. Of course we won’t leave that stuff laying around for anyone to take a peek. But what about those personal letters full of details about an upcoming trip out of town? Nobody needs to know your schedule. Make a habit of keeping your mail stashed away. It will be one less thing you have to straighten up before that next showing. Speaking of the computer…Many of us keep our lives documented on our computer. All kinds of personal information is located in files and bookmarked for convenience. While your house is on the market it’s a good idea to password protect your computer (actually, that’s not a bad idea whether you’re selling or not) so that your personal information isn’t just a click or two away. What’s on the calendar on the fridge?Do you keep a calendar on your fridge? Many of us do. I’ve toured lots of homes where the fridge is covered with photos of the family and drawings done by the kiddos. I’ve also seen doctor’s notes, prescriptions that haven’t been filled yet, and a wide variety of personal notes about upcoming events, details about planned family outings, day care pick up instructions, and the list goes on and on. Clear this appliance of any details that might compromise your selling position or the “where’s and when’s” about your family. It will give the kitchen a neater appearance and protect the safety of your family. How about the little valuables?Prior to putting your home on the market, take a walk around and make notes about some of your valuables. Do you have jewelry that you love, but don’t really wear that often? How about heirlooms or collectables that are tiny and easy to conceal? It’s a scary thought to think that someone touring your home is just looking around to see what you have, and it really doesn’t happen that often. But you have to consider that some people, who would normally never think about stealing, may find themselves tempted when an opportunity arises. Remove the temptation. Get a safety deposit box or lock up your valuables in a small safe at home hidden from plain sight. Weapons…protect your interests as well as those of the buyer.Many people have a weapon for home protection. Don’t just assume that because it is out of sight in the drawer of your night stand that it is protected. Should people be going through your night stand…absolutely not. Does that mean it is alright to leave a weapon there…absolutely not. Occasionally buyers will bring children along when touring homes. A curious child left unattended can get into trouble quickly. At a minimum you should equip your weapon with a trigger lock and keep it in a high, hidden location. I prefer to keep the weapon in one location with the ammo in another location, all locked up and secure. We are here to help you!One of our main objectives when we place your home on the market is keeping your family as safe as possible. Following these tips will help us to help you during the selling process. If you would like to discuss these tips in more detail, need additional selling tips, or just have general questions about selling your home or the local real estate market please feel free to give me a call or email. We are always available and happy to help in any way that we can. I hope you find these tips helpful and look forward to talking to you! |
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