Debt Relief = Income

Many times a homeowner might feel relieved being out from under the obligation of a mortgage they can’t afford even though the property was lost due to foreclosure or short sale. If a lender cancels or forgives debt, a taxpayer must include the cancelled amount in their income for tax purposes depending on the circumstances. The tax significance could be serious.

Congress enacted the Mortgage Relief Act specifically to help homeowners who might be affected in the housing crisis that started approximately in 2007. The Act expired on 12/31/12 but was temporarily extended by Congress until December 31, 2013.

This relief only applies to a taxpayers’ principal residence which does not include second homes and investment property. The maximum amount is limited to $2 million of mortgage debt forgiveness or $1 million if filing separately.

Another provision is that the debt relief is limited to acquisition indebtedness used to buy, build or improve the property. It excludes cash equity loans whether made separately or in a refinance of the original mortgage.

Due to the serious consequences involved in short sales and foreclosures, it is advised that homeowners faced with this possibility should seek expert advice from their legal and tax professionals.

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Inventory is dramatically shrinking and it is commonplace in many markets to have multiple offers on a home. While the sellers would prefer to be able to choose the best offer for them, it can be incredibly frustrating for the buyers who might consider the following tips to get their offer accepted. 

1. Remove the uncertainty that you may not be approved for a mortgage by having a pre-approval letter from your mortgage company.

2. Show your sincerity by increasing the normal amount of earnest money customary for the area and price of the home. The earnest money will be applied toward your down payment and closing costs. Consider placing even more money in escrow when the contingencies have been met.

3. Specify a closing date in the contract but acknowledge that you can be flexible to accommodate the sellers moving date. If it becomes an issue, it still must be mutually agreed upon.

4. Make the contingency periods shorter if possible to make the seller feel that they’ll know sooner that the offer is solid.

5. If the contingency really isn’t important to you, leave it out of the offer. The more contingencies included in a contract, the more the seller will feel might happen to keep it from actually closing.

6. Write a personal note to the seller explaining why you like and want their home. Consider including a picture of your family and pets.

7. Physically sign the offer with a felt tip pen of contrasting color. You’d be surprised how this adds a personal touch to the offer.

Offer a fair price for the property in your initial purchase agreement. It shows sincerity and good faith that you’re actually trying to purchase the home and not trying to take advantage of the seller. The old adage that you can always go up later may never happen if there are multiple offers on the property in the beginning.

Renters Want to Buy

Fannie Mae, in a recently released study, states that consumer attitudes continue to be favorable about homeownership, particularly with the younger generations, ages 18 to 34. Slightly over half of them think that owning makes more sense than renting when comparing the financial and lifestyle benefits.
90% of aspiring owners expect to purchase a home someday and slightly over half think they’ll do it within five years. The primary challenges are having sufficient savings and the difficulty of getting a mortgage today. Younger renters see renting as a temporary stepping stone toward homeownership.
Homeowners are far more likely than renters to be “very positive” about their housing experience. Some of the benefits identified are:

• Having control over what you do with your living space
• Having a sense of privacy and security
• Having a good place for your family or to raise your children
• Having the best investment plan
• Living in a nicer home
• Building up wealth
• Saving for retirement
• Living in a place where you and your family feel safe
• Feeling engaged in your community

To satisfy a buyer’s doubts about qualifying for a mortgage, make an appointment with a trusted mortgage professional. If you’d like a recommendation at no cost or obligation, please contact me at team@viewbozemanrealestate.com.  Check out this Rent vs. Own to see the real cost of owning a home.
For more information about the Fannie Mae survey in presentation form, Click Here.

What's It Worth?

How much is a one carat diamond worth? Anyone who has shopped for one knows that the price could have a significantly wide range of value. It's been said that purchasers  should consider the color, cut, clarity and carat size to compare stones but when it gets down to decision time, buyers still want to know “how much is it worth?”
Real estate valuation can be equally as confusing to the public. There are three commonly used tools that today’s home buyers rely on to make decisions but they vary significantly in the methods used to make the determination as well as the possible final consideration.
Appraisals are an opinion or estimate of value based on specific guidelines made by individuals who are licensed and possibly certified. Buyers and sellers may be reluctant to engage an appraiser because there is a fee of several hundred dollars that must be paid in advance even if no sale is ever consummated.
A Broker’s Price Opinion (BPO) as defined by the National Association of REALTORS® is an “estimate of the probable selling price of a property.” The Dodd-Frank Act describes a BPO as “an estimate…that details the probable selling price of a particular piece of real estate property and provides a varying level of detail about the property’s condition, market, and neighborhood, and information on comparable sales, but does not include an automated valuation model.”
A Comparative Market Analysis (CMA) is a commonly used tool of salespeople to provide information to buyers and sellers to facilitate a sale. In most cases, it would be difficult to distinguish a CMA from a BPO because the steps considered are essentially the same and practitioners commonly use the terms interchangeably.
Another method called Automated Value Model (AVM) use software to search available data on the Internet to arrive at an approximation of value. Zestimates found on the Zillow site use this method. AVM’s may not consider all the market activity such as MLS sales and active listings. They can’t make adjustments based on human experience and market knowledge.
For what it’s worth, a buyer or seller might want to acquire as much current and factual information as possible from a trusted real estate professional familiar with the market before making a decision on the largest single asset most people acquire.

Will the "Good Life" Be Ready When You Are?

The Life of Riley was a TV show from the 50’s starring William Bendix but the title’s origin came from an expression meaning that a person was living the “good life.” Most people envision themselves living the good life by retirement but don’t really have a plan to get there.
There’s a rough rule of thumb used to estimate how much net worth a person would need by the time they retire to generate a certain income. The target annual income is divided by a safe, conservative yield to determine the investable assets needed.
A person who wanted $100,000 annual income generated from a 5% investment would need investable assets of $2,000,000. If a person had $500,000 now, they would need to accumulate $1.5 million more by the time they retire. If it was estimated to be 15 years away, they would need to save about $100,000 a year, each year until retirement.
It is a sobering example that could be depressing without a plan. It might be easy to say, “I should have started sooner” which may be true but there is still hope.
Gradually, over the next several years, accumulate rental property and allow the tenant to retire the debt for you. The equity in each property will grow from the amortization of the loan each time a payment is made. It also grows as the property increases in value due to appreciation.
Single family homes as rentals offer the investor an opportunity to meet their retirement and financial goals for the following reasons:

• The ability to borrow large loan-to-value mortgages
• At fixed interest rates
• For long terms (easily up to 30 years)
• On appreciating assets
• With significant tax advantages
• And reasonable control not offered by alternative investments.

Breathe Easy

The benefits of regularly changing the heating and air-conditioning filters are obvious to homeowners; the real challenge is creating a system to make sure it gets done. 
A reasonable schedule would be to replace it with a new one-inch pleated filter every 60-90 days. Households with shedding pets should consider replacing them every month. Some people change their filters every month when they pay their electric bills.  A simple system would be to set a recurring appointment on your calendar like Outlook or Google.
Filters trap dust, mold and bacteria which can directly affect the air quality and play havoc with your allergies. When a filter is dirty, it prevents proper airflow and allows dust, dirt and allergens to blow through your home. Changing your filter regularly helps to avoid maintenance, improves equipment life and produces increased energy savings.
When shopping for filters, it’s understandable to look for the best bargain but the cheapest price may not be the best choice. When purchasing, recognize that HEPA-rated and HEPA-type filters are not the same thing. HEPA stands for high-efficiency particulate air. A HEPA filter meets or exceeds standards for efficiency set by the U.S. Department of Energy. Most HVAC contractors recommend HEPA filters.
Some filters need to be changed monthly and other types have manufacturer recommendations of every three months. An alternative to disposable filters are the permanent, washable types. These will cost more initially but because you can clean them and re-use them, eventually, you’ll recapture the cost and realize savings.

Whose Commission Is It?

One of the most common reasons buyers want to deal directly with the seller is because they feel they can save the commission. It’s a valid consideration but interestingly, it’s the same reason the seller isn’t employing an agent.
Both parties cannot save the commission. The buyer feels they have earned it because they’ve had to find the home, determine its value and negotiate with the seller. They had to arrange their own financing, title and inspections.
The seller equally feels that they have earned the commission because they too have had to research value, financing and title work.  They have incurred all of the marketing expenses and have invested hours upon hours to be available to show the property, hold open houses and answer inquiries. 
There is certainly value in all of the things that buyers and sellers are willing to do.  However, only one person can save the commission assuming the buyer and seller can reach a written agreement.
The Profile of Home Buyers and Sellers survey reports that 14% of sales were For-Sale-by-Owners in 2003 and 2004 compared to just 9% in 2012. The trend shows that agent-assisted sales rose to 88% in 2012 from 82% in 2004.
The three most difficult tasks identified by for-sale-by-owners is attracting potential buyers, getting the price right and understanding and performing the paperwork. When surveyed, sellers most value the home selling in an anticipated time frame and for an expected amount.
Experienced, third-party advocates helping buyers and sellers is a valuable contribution to the transaction which may determine whose commission it is.

"Please take our offer..."

It’s interesting that the housing climate has changed so quickly. Some buyers, who think they’re still in the driver’s seat, find the market is now going up and they’re losing the home that they really want.
Multiple offers are increasingly more common and buyers are frustrated because even full-price offers don’t guarantee that they’re going to get the home. In an effort to personify a contract offer and add emotional appeal, buyers are including a personal letter to the seller.
In most cases, the seller wants to maximize the net proceeds from the sale by getting the highest price with the least expenses and an assurance that the home will actually close on time without surprises. When a seller is faced with multiple offers that may be close to the same net, an emotional appeal might make the difference in them accepting a particular offer. That’s where the letter comes in play.
It should be a relatively short letter that gets to the point. The tone of the letter should be humble while positive and definitely, shouldn’t mention that you may have lost other homes due to multiple offers.

1. Try to identify a common feature or characteristic of the home that is important to the seller and you.
2. Don’t criticize the home or tell them about all of the improvements you need to make to justify your offer.
3. Do verbalize why living in this home is important to you and your family.
4. Assure the seller that you can indeed qualify for the home and that if they accept your offer, the sale will be consummated.

After writing the letter and eliminating the non-essential parts, read the letter a few times to your spouse or friend. Polish the verbiage and check the spelling and grammar. If your handwriting isn’t attractive and easy to read, print it. Use nice paper to appeal to the tactile senses. Attach the letter to the offer so they’re considered simultaneously.
Being pre-approved with good credit, adequate financial resources, good employment, sufficient earnest money and a reasonable offer with minimum contingencies will favorably position you. A personal letter might be the deciding factor in your favor.

Cut Refinancing Expenses

Every single day, homeowners who are excited about lowering their rate have a tendency to ignore the refinancing costs because they’re being rolled back into the new mortgage. If the payment is lower than what they’re currently paying and there’s no money out of pocket, it seems like a good deal.
Refinancing your home because a lower rate is available is one thing but the closing costs associated with that new loan could add several thousand dollars to your mortgage balance. By following some of the suggestions listed below, you may be able to reduce the expense to refinance.

• Tell the lender up-front that you want to have the loan quoted with minimal closing costs. 
• Check with your existing lender to see if the rate and closing costs might be cheaper. 
• If you’re refinancing a FHA or VA loan, consider the streamline refinance. 
• Shop around with other lenders and compare rate and closing costs. 
• Credit unions may have lower closing costs because they are generally loaning deposits and their cost of funds is less. 
• Reducing the loan-to-value so that mortgage insurance is not required will reduce expenses. 
• Ask if the lender can use an AVM, automated valuation model, instead of an appraisal. 
• You may not need a new survey if no changes have been made. 
• There may be a discount on the mortgagee’s title policy available on a refinance. 
• Points on refinancing, unlike purchase, are ratably deductible over the life of the loan. 
• Consider a 15 year loan. If you can afford the higher payments, you can expect a lower interest rate than a 30 year loan and obviously, it will build equity faster and pay off in half the time.

A lender must provide you a list of the fees involved with making the loan within 3 days of making a loan application in the form of a Good Faith Estimate. Every dollar counts and they belong to you.

Shifting Debt to Tax Deductible

The Mortgage Interest Deduction is available to homeowners for up to $1,000,000 of acquisition debt on the combination of their first and second home.  They can also deduct interest on up to an additional $100,000 of Home Equity debt.
While Acquisition Debt is used to buy, build or improve a principal residence, the Home Equity Debt can be used for any purpose.  It can be used for educational or medical expenses, to purchase a personal car or boat, consolidate debts or pay off credit cards.
A homeowner with $15,000 of credit card debt at 19% and sufficient equity in their home could replace it with a home equity loan at much lower interest rate. Not only would the interest rate on the home equity loan be about 1/3 of the rate paid on the credit card, it’s would now be tax deductible.
If the taxpayer was in the 28% bracket, the net interest on a 6.5% loan would be 4.68% after tax benefits are considered.
Shifting personal debt to Home Equity debt can result in an interest deduction and probably, a lower interest rate. For more information see IRS Publication 936 page 10 and consult your tax professional.

When to Sell the Temporary Rental

Some homeowners, who were not able to sell during the recession, chose to rent their homes instead.  In some cases, they didn't need to sell their home at the depressed prices and opted to rent it until the market recovered.
It's a valid strategy but there are time restrictions that could have serious tax implications for some homeowners.
The section 121 exclusion for gain in a principal residence requires that the home is owned and used as a main home for at least two years during the five year period ending on the date of the sale.  This allows a homeowner to rent their home for up to three years and still have some part of the exclusion available.
The sale of a home with a $200,000 gain that qualifies as a principal residence would result in no tax being paid by the owner.  Comparably, a rental property with the same gain could have a $30,000 or higher tax liability depending on the length of ownership and tax brackets of the investor.
The housing market has dramatically improved in the last year.  If you have a gain in a home that has been your principal residence and it has been rented less than three years, you might want to consider selling it while you qualify for the exclusion.
If you are considering a sale on your principal residence that has been rented, consult with your tax professional for advice on your specific situation.  For additional information, see IRS Publication 523.

Boomerang Buyers

It's estimated that 10% of the homes sold in 2013 will be to buyers who lost a home in the past five years.  Approximately 500,000 buyers who may have thought they wouldn't own a home anytime in the near future will be homeowners again.
It's estimated that several million of these previous homeowners will purchase again in the next eight years.  This kind of activity will contribute significantly to the housing recovery.
Some people thought that the housing crisis would cause a shift in values placed on owning a home but the boomerang buyers definitely don't support that theory.  Having a home of your own, where you can raise your family, share with your friends and feel safe and secure is still part of the American Dream.
The rising rents, increasing prices and low, low mortgage rates are also influencing buyers into the market.  In many cases, it is cheaper to own than to rent.
All new buyers, including those who have experienced foreclosures or bankruptcies, must have good credit history and the ability to repay the loan.  It just may not take as long to reestablish the credit as some would-be buyers might have thought.
Read more about Bidding Wars This Spring, Spring's Wild Card and Boomerang Buyers.

Bunch Your Taxes and Save

One of the drawbacks to low mortgage rates is that the total interest and property taxes paid for the year may be lower than the standard deduction.  A little planning might be able to help you at least every other year.
Most homeowners know they can deduct their qualified mortgage interest and property taxes on their Schedule A of their 1040 tax return or to take the standard deduction if it is greater.  See Your Deduction...Your Choice.
Deductions are taken in the year that they're actually paid.  If a homeowner paid their 2012 property taxes in 2013, they would not be deductible on their 2012 tax return.  Then, if the 2013 property taxes were paid in 2013, both the 2012 and 2013 taxes could be deducted on the 2013 Schedule A.
By delaying the payment of the 2012 taxes until 2013, the combination of the 2012 and 2013 taxes might exceed the 2013 standard deduction and provide a higher deduction. 
Other Schedule A expenses such as charitable contributions and medical expenses may be bunched also.  From a practical standpoint, since most mortgage payments are due monthly, the mortgage interest would not be bunched.
This information should be discussed with your tax advisor to see how it might apply to your individual situation.  The key is you must be aware of the strategy early to be able to use it.

Eliminate the Mortgage Insurance

Pre-paying your mortgage can save thousands in interest and build equity in your home. As cheap as mortgage rates are currently, they're higher than you can earn on your savings. If you don't need the money any time soon, pre-paying the mortgage can be the better investment.
If you have a FHA loan, pre-paying the mortgage can also benefit you by eliminating the annual mortgage insurance premium early. For example, if a person bought a home for $175,000 with a 3.5% down payment on a 4% FHA loan, the monthly mortgage insurance would be $178.99.
It would take 116 months or over 9.5 years to reduce the principal enough to cancel the MIP. If the borrower would make additional principal contributions of $285.32 per month, the MIP would not be required after five years. Beginning June 3, 2013, mortgage insurance on FHA loans will be required for the life of the mortgage.
The elimination of MIP would lower payments or a buyer could continue making the higher payments to reduce the principal and retire the loan sooner.
FHA mortgages with terms longer than 15 years, the MIP can be cancelled when the loan-to-value reaches 78% after a minimum of five years. With normal amortization, that would take about 10-12 years.
Another alternative to eliminate the MIP is to refinance the home with a conventional loan. If the loan-to-value is less than 80%, the MIP would no longer be required and a lower interest rate may be available.

Maintaining Comfort

Some people refer to the heating and air conditioning systems as the "comfort systems."  If you've ever had to be without one in the dead of winter or the heat of summer, lack of comfort may be an understatement.  Simple maintenance with a HVAC checklist is something that every homeowner can perform.

Periodically

• Change your filter every 90 days; every 30 days if you have shedding pets.
• Maintain at least two feet of clearance around outdoor air conditioning units and heat pumps.
• Don't allow leaves, grass clippings, lint or other things to block circulation of coils.
• Inspect insulation on refrigerant lines leading into house monthly and replace if missing or damaged.

Annual, in spring

•  Confirm that outdoor air conditioning units and heat pumps are on level pads.
• Pour bleach in the air conditioner's condensation drain to clear mold and algae which can cause a clog.
• Avoid closing more than 20% of a home's registers to keep from overworking the system.
• Replace the battery in the home's carbon monoxide detector.

Even with the attention that performing this list will provide, it is recommended that you have your units serviced annually by a licensed contractor.  Furnaces can be inspected for carbon monoxide leaks and preventative maintenance may help avoid costly repairs.  Click Here if you'd like a recommendation.

Refinancing Again

We're constantly bombarded by lenders to refinance our mortgage under a variety of programs. The volume of offers can almost make you numb to the rational consideration.
There are common rules of thumbs that homeowners and agents use such as not refinancing more often than every two years or there must be at least 2% savings from your previous mortgage rate may not always be accurate.
The reality is that if you can refinance for a lower rate and you'll be in the home long enough to recapture the cost of refinancing, it should be considered. The costs of previous refinancing that haven't been recaptured by monthly savings may need to be added to the costs of the new refinance.
Take a look at the chart that shows the average rates according to Freddie Mac for 2012. They are lower today than they were in January of 2012 and for the ten years before that.
Refinancing may save you a substantial amount of money, especially if you're going to be in your home for a long time. It is definitely worth investigating. To get a quick idea of what your savings could be, use this refinancing calculator.

If It Shows Better...

If it shows better, it will probably sell faster and maybe for more money. Once your home is on the market, it's time to look at it like a commodity and through the eyes of potential buyers. In all likelihood, you'll need to take care of these items eventually, so do them now to help it sell sooner.

1. Make repairs - it doesn't matter if it's been that way since you bought it. You need to fix it so that the buyer doesn't think that the rest of the house is about to fall apart.
2. Not too personal - you may have bought your home to express yourself but if the buyer can't see themselves in the home for all of your things, it's going to take longer to sell than you want.
3. Drive-up appeal - the old saying "you never get a second chance at a first impression" applies to your home too. They may never even get out of the car to come inside.
4. The nose knows - it may not smell like home but it shouldn't smell like a place they would never consider living.
5. Neutral colors, decor, etc. - these are not decorating tips you'll see in magazines but the truth is that bold colors and designs are difficult for most people to see beyond. They'll imagine their things better in neutral surroundings.
6. Less looks like more - removing some of the non-essential things from your home will eliminate clutter and make the home feel larger. The same suggestion applies to cabinets and closets.

A confused mind will not make a decision. Identify and eliminate items that could derail a potential sale. The preparation you make in the beginning will help the presentation to your buyers.

More Expensive Than Expected

The 3.5% down payment on FHA loans could be more expensive for buyers than expected. Beginning April 1, 2013, the mortgage insurance premium will go up by .1% to 1.35% which may not even be noticeable to most would-be homeowners.
The staggering increase will occur on 6/3/2013 when FHA's policy on the duration of the required mortgage insurance will be increased for the life of the mortgage. It basically doubles the amount of total MIP if the loan is paid to term.

Example: Purchase Price $175,000 with 3.5% down payment at 4% mortgage rate on 30 year term
	Current	After 6/3/13
MIP duration	78% of original loan	Life of mortgage
Cumulative premium	$20,838.24	$42,447.93

Currently, the MIP is required for approximately 9 years 9 months with normal amortization. The new program would require the MIP for the life of the loan. In this example, the initial monthly MIP is $196.88 which decreases based on amortization.
There are buyers that qualify on income and credit who may not have the necessary additional down payment required for 80% and 90% conventional loans. The 3.5% FHA program has provided a great vehicle to get into a home with a minimum amount of cash.
For homeowners that expect to stay in their home for ten years or less, the new changes might not have much financial impact. Homeowners who expect to be in their home long term can refinance with a conventional loan without mortgage insurance once the equity has increased due to amortization and appreciation.
For buyers to avoid these increases, they will need to act now to get the FHA commitment issued prior to these change dates.

Before You Leave Home...

The last thing you want to do while you're on a trip is to worry about someone burglarizing your home. Use this checklist to add some peace of mind to your travel plans.

• Ask a trusted friend - to pick up your mail and newspaper and keep the yard free of trash and advertisements.
• Stop your mail but maybe not your newspaper - you can easily handle this online by going to the US Postal Service's Hold Mail Service. A recent story implicated an employee from a major newspaper who was passing customer hold requests to burglars.
• Don't post about your trip on Facebook and Twitter until you return - some burglars actually look for this type of announcement to schedule their activities.
• Do notify police and/or neighborhood watch - especially if you're going to be gone for more than just a few days. Let your monitoring service know when you'll be gone and if someone will be checking on your home for you.
• Light timers make it look like someone is home - use several set for different times to better simulate someone at home.
• Do unplug certain appliances - TVs, computers, toaster ovens that use electricity even when they're off and to protect them from power surges.
• Don't hide a key - burglars know exactly where to look for your key and it only takes them a moment to check under the mat, above the door, in the flower pot or in a fake rock.

These easy-to-handle suggestions may protect your belongings while you’re gone while adding a level of serenity to your trip.

What's It Going to Take?

How much evidence is needed to make a decision to get out of the rent race and become a homeowner?
Compare your rent with a mortgage payment on a similar size property. If you want a larger home than your current one, use the rent that property would require instead of what you're currently paying. If it's considerably cheaper, you may not need any further encouragement.
By the time you consider the principal reduction, appreciation and tax savings, your monthly cost of housing could be much less than the rent you're paying.
The principal reduction included in each payment is like a forced savings account that increases as your mortgage balance decreases. Your equity in the property will also grow due to appreciation. The equity is part of your net worth and an investment in your family's future.
The income tax savings can be an additional financial consideration if the combined interest and property taxes exceed the allowable standard deduction.
Trends are showing that both tenants and homeowners are staying in their homes longer. It's been said that whether you rent or own, you're paying for the home. Do you really want to buy the home for your landlord? Check out your numbers on a Rent vs. Own.

Sooner is Better than Later

Buyers who have delayed purchasing a home due to concerns about what might happen to the tax laws affecting home ownership should feel comfortable about getting back in the market. The recent legislation passed by Congress and signed by the President continues to value homes as a favored investment.

For a summary of specific real estate provisions in the "Fiscal Cliff" bill, click here.
Whether the delayed purchase is for a home to live in as your principal residence or to use as rental property, taking action sooner is better than later.
Reasons to buy now:

1. The house payment with taxes and insurance is probably cheaper than the rent.
2. Rents will continue to rise making the difference even greater in the future.
3. Lock-in the principal & interest payment with a fixed-rate mortgage.
4. 30 year mortgage terms are available to most borrowers.
5. The mortgage interest deduction is intact for the majority of taxpayers.
6. The capital gain exclusion for principal residences up to $500,000 remains in place.
7. Prices are going up due to lower inventories and several years of low housing starts.

Contact me about any specific questions you have or information you need.

Get Your Offer Accepted

As the market shifts from a buyer's market, it's good to know how to improve your chances to have the seller accept your offer.
Once you decide on a home, don't waste time; write an offer and submit it as soon as possible. Competing with another buyer happens more frequently than you'd expect. Multiple offers are a seller's advantage but here are some tips to level the playing field:

• Realistic offer - don't give the impression you're trying to "steal" the property. Submit comparable sales that justify your offer.
• Pre-approval letter - this satisfies seller's biggest concern that an unqualified buyer will unnecessarily take the home off the market and the seller will lose other opportunities.
• More earnest money - it shows you're serious and makes the seller feel like the contract will actually close.
• Minimize contingencies - from a seller's standpoint, each contingency is one more reason why the sale won't go through. They feel the home is "off the market" and they're in limbo.
• Shorten inspection period - your agent can help you set a reasonable date but let the seller know you're willing to close prior to that if possible.
• Write a personal letter to the seller telling them why you want their home - this can be the emotional connection to the seller that makes the difference in you getting the home.

A seller wants to feel confident that the offer they accept will actually close so they can plan for their next move. Following tips like these can definitely affect negotiations and help put together an offer that is more likely to be accepted.

Avoiding Unexpected Expenses

It's common for sellers to consider offering and buyers might find it an incentive, but a growing number of homeowners are purchasing the home warranties themselves to limit the unexpected expenses of repairs and replacements.

A home protection plan is a renewable service contract that covers the repair or replacement of many of the components in a home. Some homeowners especially like the convenience that it organizes a qualified service provider as well as the cost of the items.
There are a variety of companies that offer home warranties and the coverage may differ but the majority of things will include heating, air conditioning most built-in and some free-standing appliances, as well as other specific items. Additional specific coverage may be available for other things like pool and spa equipment.
Some investors are even placing this coverage on their rental properties to limit the amount of maintenance repairs during the year. It is a viable alternative to managing the financial risk and the stress dealing with unexpected expenses.
If you're interested in home warranties, I'll be happy to send you more information.

FHA to Cost Borrowers More

FHA has announced a major change to its loan program which allows borrowers to cancel the mortgage insurance premium (MIP) when their unpaid balance reaches 78% of the original purchase price. While no specific date has been set for the change, sometime in 2013, new FHA loans will require the mortgage insurance for the life of the loan.

At existing rates, the monthly MIP on a $168,875 mortgage is $178.99 per month. Under the current rule with normal amortization, the MIP would no longer be required in 9 years and 9 months. However, under the new rule, it would last for the entire 30 year term.
They also announced that the annual MIP will also be increased from 1.25% to 1.35% at some point in the near future. HUD, the parent agency for FHA, is making the changes to restore the capital reserves of the program that are needed to fund failed loans.
People that can close a FHA loan before the change takes place will fall under the old rules for canceling MIP and the lower rates. Since no date was announced, it is not known exactly when the changes will take effect.
While this information will probably not make the evening news, it will have a big impact on borrowers planning to use an FHA loan. Please pass it on to anyone you know who might be considering purchasing or refinancing with a FHA loan.

Dripping Dollars -

Conserving water to be green while lowering your monthly bill to save green is a beneficial combination. Little things can contribute significantly to a large water bill.

• Leaky faucets can waste over 1,000 gallons a year
• Leaky toilets can waste 7,000 gallons a month
• A five-minute shower saves more water than a tub bath
• Water running while you brush your teeth or shave
• Sprinkler heads need to be adjusted to spray on the yard only
• Install a rain sensor on sprinkler system
• Pool equipment can be a hidden source of wasted water

A larger than normal water bill can be your first indication you have a leak. Then, you'll need to track it down.

1. Turn off all the water faucets and appliances; don't forget the ice maker.
2. Open the water meter, usually located near the sidewalk in the front of the house. You may need a water key that can be purchased from a home improvement store or possibly borrowed from a neighbor.
3. Locate the dial indicating water usage. It should not be moving since all of the water is off. If it is still moving, verify that you have turned off anything that might be using water.
4. If it appears to be still, make a mark with a Sharpie and wait 15 minutes. If the flow indicator has moved, you probably have a leak.
5. Now that you've confirmed that you have a leak, you may need help in locating it. A plumber or leak specialist may be able to help you track it down and repair it.

What's the Point?

Pre-paid 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 pro-rata over the life of the mortgage.

For instance, if $3,000 in points were paid on refinancing a 30 year mortgage, 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 can accurately reflect the deduction in your return. Currently, the most common situation is where 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.

Water Damage - Covered or Not?

A number of things can cause water damage to a home and it's important to know whether they're covered by your insurance policy. Some water damage may be covered and other may not be. Generally, you need an incident to invoke coverage rather than something gradual due to lack of maintenance.

However, some incidents are specifically exempt from homeowner policies such as floods. A flood can be described as rising water due to overflow of inland or tidal waters or unusual and rapid accumulation or runoff of surface water from any source.
Homes in designated high-risk flood areas with mortgages from federally regulated or insured lenders are required to have flood insurance.
Even if you don't live in a dedicated flood zone, you could be affected by flood damage. Review your policy about water damage and call your insurance agent to get a better understanding. Ask if you need to purchase additional coverage or separate flood insurance along with other questions.
Flood insurance can be purchased for the building and the contents. The average flood insurance policy costs about $600 per year. For more information, see the National Flood Insurance Program.

What a Deal! - 10/29/2012

A 30 year fixed-rate mortgage hasn't always been the standard. As part of FDR's New Deal in 1934, the Federal Housing Administration was created to help Americans purchase homes with affordable terms.

Prior to then, many loans had an amount due at the end of the term called a balloon. Most mortgages had adjustable interest rates even though some might be fixed for a short time. While banks would loan money on a home, they retained the right to call the note due at any time which could exert considerable stress on borrowers.
FHA, during this time, introduced mortgages that offered a fixed rate of interest to the borrower for a 30 year term. This fully amortized loan provided borrowers a financial vehicle that would help them achieve the American Dream while minimizing the risk of having a loan called without the resources to pay it off. It brought long-term stability to the housing market and helped stimulate the economic recovery at a very difficult time in our nation's history.
Roughly, a third of the mortgages created in 2011 were less than 30 year terms. Many homeowners, similar to those after the Great Depression, would like to get their home paid for as soon as possible. Shorter term mortgages typically have a lower interest rate but higher payments due to fewer years to amortize the mortgage.