Resolutions

After spending the holidays with family and friends, this is a time of the year to start thinking about changes to make in our lives, both personal and in business.  We wanted to share one of ours with you.

Our goal is to become your REALTOR® for life.  We want you to think of us first when you need to buy or sell and that you’ll recommend us to your friends too.  That kind of trust has to be earned and we’re committed to helping you be a better homeowner even when you’re not buying or selling.

The strategy is simple.  A well-informed homeowner will make better decisions.  We’ll periodically offer information through articles and social media on a wide variety of home-related topics like maintenance tips, tax law changes, financing suggestions, insurance, equity building strategies, and rental property investments. 

Please contact us if you need a recommendation on a service provider.  Our experience has built a list of reputable and reasonable contractors that you can rely upon.  When you have any kind of home-related questions, I hope you’ll have the confidence to call us.

Happy New Year.  We sincerely look forward to helping you or your friends.

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.

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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.

Let Your Tenants Send Your Kids to College

Most people have lots of things to save for but not always enough discretionary income after the family essentials have been met.

A relatively small investment in a rental home can control a good home that will easily rent, generate positive cash flows and pay for itself. The borrowed funds create leverage that earn a return on the total value of the home and not just the amount of cash you have invested.

The strategy is simple. Find a slightly below average priced home that will rent well. It will appeal to a larger group of people while it's rented and when it's ready to be sold.

Rent the home and maintain its condition over the years. As the loan amortizes and the value increases, the equity will grow. When your student is ready to start college, you'll actually have several options.

You can sell the property; pay the tax on the gain at the reduced capital gains rate and fund the education. Another option would be to refinance and take the proceeds to pay for the tuition. This would allow you to continue to own the asset but would free your equity and under current tax laws is a non-taxable event.

Regardless of whether you're trying to plan for your children's education or your own retirement, rental property offers many solid investment opportunities. Contact me if you want 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.

Changing the Lock is Key

There are times when you need to change the locks on your home to protect your family and possessions. It should always be considered when you move into a new home; when keys are lost, stolen or unreturned; or a cleaning or other service provider hasn't returned the key.

Replacing the lockset would give you a totally new mechanism that should work better and if you go back with the same manufacturer, you'll probably avoid any carpentry. You can order the locks online and have them work with the same key at no extra charge.

Another alternative is to have a locksmith rekey them. The locksmith can easily make all of the locks work with the same key. Compare the cost and decide which would be a better expenditure.

While you're considering your security, a key safe might be a very convenient addition. Most makers say that it is much easier to break into a home than a key safe. The cost is reasonable and you can attach it to your exterior wall. Generally, they're combination locks that would allow you access if you or another family member forgot their key. It's also convenient to give a house keeper the combination and can be easily changed if necessary.

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!

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.

Rent or Buy?

The question plaguing every tenant who wants a home of their own is whether they should continue to rent or is it the right time to buy?

The combination of good prices and low mortgage rates make it considerably cheaper to own than rent in most markets. Assuming a person is qualified with a down payment and won't be moving for several years, there may not be a better time to buy a home.

In the example below, the total house payment is $1,281.01 compared to $1,500 to rent the same home. Before you consider any of the financial benefits attached to home ownership, it's cheaper to own than to rent.

The net cost of housing falls to $764 or just more than half the house payment when you consider the principal reduction due to normal amortization, a modest appreciation and the tax savings along with a reasonable maintenance expense that a tenant would not have to pay.

One of the biggest benefits is the growing equity. As the value goes up, the unpaid balance goes down. A favorable leverage causes their low down payment to grow to $40,609 in a short seven years based on a modest 1% appreciation.

There's an expression often heard in real estate circles: "Whether you rent or buy, you pay for the house you occupy." You're either buying it for yourself or you're helping the landlord buy it.

Check out a Rent vs. Own to see how your numbers will compare to this example or call me to do it for you.

Contributing Factors

Rental properties have four primary factors that contribute to a return on investment. Based on market conditions and investor strategies, the individual motivating factor can change for property owners.

There was a time when the benefit of tax savings to offset income from other sources was considered important to some investors. However, in today's environment, they are more likely valued as incidental benefits.

Some investors expect appreciation to deliver the satisfactory results which can be reasonable over time if a reliable appreciation rate is used. Savvy investors today are using conservative estimates for long-term holding periods.

Leverage occurs when borrowed funds are used to control a larger asset. Positive leverage can actually increase the yield on an investment.

The fourth component that contributes to a property's yield is the cash flow. When the rents are greater than the expenses of operating the property and servicing the debt, there is a positive cash flow. A property with a good cash flow doesn't have to go up in value to justify the investment.

The combination of lower prices, incredibly low mortgage rates and rising rents are attracting investors to rental properties that include single-family homes in predominantly owner-occupied neighborhoods.

Even if you were to ignore the benefits of tax savings, potential appreciation and leverage, the attractive cash flows make rental property a very smart investment alternative. If you're curious, contact me for more information.

Who Do You Call?

While the Internet is a great resource to locate information about food, travel and a number of other things, it isn't necessarily the best place to find a local service provider.

Sure, you can run the search, get quick results and may even see some fairly impressive websites. The problem is that sometimes, those sites are run by companies that sell the leads to providers who may not be as experienced as you're expecting.

Instead of taking a chance on a total stranger, a personal recommendation could yield you more satisfactory results. Most real estate transactions require some work to be done to the house either in preparation prior to the sale or to meet requirements from the buyer or inspector after the sale is made.

Looking for a service provider on the Internet is easy. Contact me for a recommendation is easier still and you can trust that they'll be reputable and reasonable. I want to be your personal source of real estate information.

Refinancing Too Soon?

Some people believe they shouldn't refinance more often than once every two years. The determining factors are if you'll lower your payments and plan to stay in the home long enough to recapture the cost of refinancing. If so, you should consider refinancing.

Interest rates have actually come down significantly in the past 12 months and even more in the past 24 months. According to the Freddie Mac Primary Mortgage Market Survey®, rates on a 30 year fixed rate mortgage are down to 3.6% in August, 2012 compared to 4.27% one year earlier.

Refinancing in the example below would save the homeowner $67.04 per month and they would recapture the cost of refinancing in 3 years and 9 months based on approximately $3,000 of closing costs.

Click Here to make your own projection on a Refinance Analysis calculator.

FHA MIP Release

FHA loans require mortgage insurance premium to cover a possible loss to the lender if the property has to be foreclosed and sold. The premium is substantial and eliminating the MIP would reduce the payment considerably.

The MIP must remain in effect for five years but after that, when the balance is 78% of the original purchase price, FHA will release the requirement and your monthly payment will go down. Since amortization is affected by interest rates, the normal time to reach this 78% point could be from 9 to 12 years at today's interest rates.

In the example below, the MIP would be released in 9 years 6 months with normal payments. An extra $100 a month would allow the borrower to reach the release point in 7 years 1 month. To reach the release point in the minimum five years, the borrower would have to make an extra $268.04 per month principal contribution.

Releasing the MIP in this example would save the borrower $177.67 per month. The borrower would also save interest, build equity and shorten the term of their mortgage. Once the MIP is released, the borrower could continue the same payment schedule to further accelerate the debt reduction.

To make some projections on your mortgage, click here.

Home Safety & Security Tips

A quick once-over of the items on this list may improve the safety and security of your home and could protect your family and friends. It is important to periodically pay attention to these things because things change over time.

Security

• Does each exterior door have a deadbolt?
• Does the lock on each window work?
• Have you added pins or clips to your windows for additional security?
• Do you have dowels or broom sticks in the track of windows and sliding glass doors?
• Do you have security company labels or signs displayed prominently?
• Do you have an alarm system? Is the system monitored?
• Do you have a dog that barks when strangers approach the home?
• Are emergency numbers posted near the telephones?

Fire

• Do you have smoke detectors near all sleeping areas?
• Do you check the batteries monthly and change them annually?
• Do you have two carbon monoxide detectors?
• Do you have an escape ladder for upper floors?
• Do you have fire extinguishers near exits and in the kitchen?
• Do you have an emergency escape plan and is the family familiar with it?
• Are any outlets or switches warm to the touch?
• Are kitchen ventilation systems working properly?
• Is the dryer ventilated to the outside and is the exhaust free of lint?
• Is the furnace cleaned and serviced yearly?
• Is the space around the hot water heater clear of combustible materials?

Falls

• Are all electrical and phone cords out of the flow of traffic?
• Are rugs and runners slip resistant?
• Is your step-stool sturdy and in good condition?
• Are stairs clear of objects that could cause a fall?
• Are all entrance ways, exits, halls and walks well lighted?
• Do bath tubs and showers have non-skid strips or suction mats in them?

Other

• Do you keep drugs and medicines out of reach and sight of small children?
• Are interior doors designed so small children cannot lock themselves in rooms?
• Are pool and play areas fenced to keep small children in and uninvited guests out?
• Are firearms kept out of reach and sight of children?
• Is a well-stocked first aid kit available for emergencies?
• Is there one member of your family trained in first aid, CPR and the Heimlich maneuver?

Rates Are Down But It Costs More?

The latest Housing Affordability Index from the National Association of REALTORS® shows an interesting trend taking place this year that needs buyers' attention. Most people know that the mortgage rates are still at incredibly low rates but don't feel there is much sense of urgency.

This report shows that mortgage rates have fallen from 4.37% in January to 3.81% for June. However, the report shows that the payment as a percentage of income has gone from 12.1% to 13.9% which simply means that buyers have to spend more of their income on a home.

The reason is that the median price of homes nationally has gone from $154,600 in January to $190,100 in June which is a 23% increase. The two major components of housing affordability are the price of the homes and the mortgage rates a buyer must pay.

Even if one of those components is going down, the other could have a significant affect as is shown in this year's trend in housing affordability. In the past few weeks, the effects of which are not show in this report, mortgage rates have been moving up.

Home buyers and investors who have been taking a wait and see approach need to make a decision if now is the time to act.

Handling the Eyesore

It can be unsightly and upsetting when a home in a neighborhood isn't being maintained like the others. It might be an overgrown yard, a fence in need of repair, paint peeling on the home or even a car parked in front of the home that hasn't moved in weeks.

I believe most people want to be good neighbors and may be willing to correct the issue once it is brought to their attention. In some cases, they may not agree with the same urgency and it might be necessary to seek other remedies.

The most expedient solution may be to contact the responsible person and describe your perception of the problem. An owner-occupant may be sympathetic to the neighbors and more than willing to correct the issue.

However, if you suspect that it is a rental property, check with the county tax records to identify the owner. They may be unaware of the situation and would actually welcome the "heads-up" to protect their investment.

The next step might be to notify the homeowner's association if there is one. The covenants or bylaws will specify how properties must be maintained and the association can enforce them.

The final step would be to notify the city for a possible code violation. Most cities have a separate code and neighborhood services division and some cities have 311 for non-emergency assistance.

Handling the Eyesore

It can be unsightly and upsetting when a home in a neighborhood isn't being maintained like the others. It might be an overgrown yard, a fence in need of repair, paint peeling on the home or even a car parked in front of the home that hasn't moved in weeks.

I believe most people want to be good neighbors and may be willing to correct the issue once it is brought to their attention. In some cases, they may not agree with the same urgency and it might be necessary to seek other remedies.

The most expedient solution may be to contact the responsible person and describe your perception of the problem. An owner-occupant may be sympathetic to the neighbors and more than willing to correct the issue.

However, if you suspect that it is a rental property, check with the county tax records to identify the owner. They may be unaware of the situation and would actually welcome the "heads-up" to protect their investment.

The next step might be to notify the homeowner's association if there is one. The covenants or bylaws will specify how properties must be maintained and the association can enforce them.

The final step would be to notify the city for a possible code violation. Most cities have a separate code and neighborhood services division and some cities have 311 for non-emergency assistance.

Determining Value

Knowing the current value of your home is important when you're considering a move, refinancing or getting a home equity loan. Prices are determined by recent sales and the supply and demand of current inventory.

The process of selecting comparable properties involves matching similar features like bedrooms, baths, square footage and updates. In addition to price, there are other factors that affect the value and ultimately, the sale of a home.

Location plays a significant role because by the unique combination of improvements and land. Beneficial considerations would be convenience to schools, shopping, transportation and proximity to freeways. Undesirable concerns could include being in the vicinity of busy streets, high-tension lines, commercial property and other things.

To receive a computerized estimate on the value of your home that includes prices of comparable homes that have sold recently and homes currently for sale, click here.

Value is not totally objective and does require a certain amount of subjective considerations. If you have questions after you receive your report by email, contact us and we'll be happy to talk to you about your concerns.

American Dream

The American Dream of owning a home is still alive. People still want a place of their own; where they can raise their family; share with their friends; feel safe and secure. Homeownership creates emotional and financial benefits.

The government supports that dream by allowing deductions for mortgage and home equity interest as well as property taxes. The capital gains exclusion on profits from a home is incredibly generous and a low long-term capital gains tax rate applies to excess profits.

It's reported that some of the social benefits of owning a home include higher voter participation, better physical health, higher student test scores, lower teen delinquency, neighborhood stability and pride in the community.

If for no other reason, the decision to buy a home should be considered when it costs much less to own a home than it does to rent. With the unusually low available mortgage rates, the payment is generally less than comparable rent. However, the decision becomes more obvious when the other benefits are considered like amortization, appreciation and tax savings.

It's not uncommon for the net cost of housing to be half of the actual mortgage payment. In most cases, it is significantly more to rent than to own which could amount to more than the down payment in the first year alone.  Calculate your cost of Renting vs. Owning.

 

How Long Do I Have to Wait?

The question concerning people who’ve had a foreclosure, short sale or bankruptcy is when they will be able to qualify for a mortgage loan.  It takes different amounts of time to heal credit scores based on the event.

The following chart is meant to be a general guide for how long a person might have to wait.  During this waiting period, it’s important that the person be current on all payments and maintains a history of good credit.

	FHA	VA	USDA	FNMA/Freddie Mac			Jumbo
Foreclosure	3 years	2 years	3 years	7 years			7 years
Deed-in-Lieu of Foreclosure	3 years	2 years	3 years	2 years <80%	4 years 81-90%	7 years > 90%	7 years
Short Sale	3 years	2 years	3 years	2 years <80%	7 years 81-90%	7 years > 90%	7 years
Chapter 7 Bankruptcy	2 years	2 years	3 years	4 years			7 years
Chapter 13 Bankruptcy	1 year	1 year	1 year	2 years			7 years

A recommended lender can give you specific information regarding your individual situation and can make suggestions that will improve your ability to qualify for a mortgage.  We want to be your personal source of real estate information and we're committed to helping from purchase to sale and all the years in between.

Homeownership Rules

Most people agree that homeownership rules! When asked, people say they want a home they can call their own, to raise their family, share with their friends and to feel safe and secure. It also accounts for the majority of most people's net worth.

These rules can help protect your investment and make homeownership more enjoyable.

1. Don't overpay for your home
2. Maintain your home's condition
3. Minimize your assessed value to lower property taxes
4. Make extra principal contributions to save interest and build equity
5. Validate the insured value of improvements and contents
6. Stay current on surrounding property values
7. Make mortgage interest payments deductible
8. Invest in capital improvements that increase market value
9. Don't over-improve the neighborhood
10. Keep records of capital improvements and other maintenance

We want to be your personal source of real estate information and we're committed to helping from purchase to sale and all the years in between.

Retirement Home Now?

Maybe you're not ready to move into it but that doesn't mean that you shouldn't take advantage of the present opportunities to acquire the home you want to live in during retirement. The combination of the low interest rates, reduced prices and lower competition may never be this good again in our lifetimes.

The rental market is strong and a tenant could pay for your retirement home. The cash flows are attractive and the yield is bound to be stronger than what you're currently earning. Even if you don't retire to this home, it could be a placeholder to control the costs of the home you do move into.

One thought would be to finance it with a 15 year loan that will have a lower rate than that of a 30 year loan and it will obviously amortize in half the time. Even if you don't have the home paid for by the time you retire, your equity will be larger.

Ideally, if you sell your current home when your move into this retirement home, you may be able to take up to $500,000 of tax-free gain for a married couple. That profit could be used to fund your retirement.

With home prices and mortgage rates certain to rise, this may be one of the best decisions you can make. We want to be your personal source of real estate information and we're committed to helping from purchase to sale and all the years in between.

Managing Deductibles

The purpose of insurance is to shift the risk of loss to a company in exchange for a premium. Most policies have a deductible which is an amount the insured pays out of pocket before the insurance starts covering the cost of the loss.

In the process of managing insurance premiums, policy holders often consider adjusting their deductibles. Lower deductibles mean less money out of pocket if a loss occurs but obviously, results in higher premiums. Higher deductibles result in lower premiums but require that the insured bear a larger amount of the first part of the loss.

A small fire in a $300,000 home that resulted in $2,500 of damage might not be covered because it is less than the 1% deductible. If the homeowner can afford to handle the cost of repairs in exchange for cheaper premiums, it might be worth it. On the other hand, if that loss would be difficult for the homeowner, a change in the deductible could be considered.

It is a good idea to review your deductible with your property insurance agent so that you're familiar with the amount and make any changes that would be appropriate.

Single-Family Homes for Rentals

Single-family homes used for rental property have distinct advantages over other types of investments.

An investor can borrow 75-80% at fixed interest rates on appreciating assets with definite tax advantages and reasonable control. The financing alone is attractive compared to some investments that require 50% cash and have floating rates at prime plus for one or two years.

Home prices have adjusted 30-40% around the country, mortgage rates are incredibly low and rents have risen in the past two years due to more demand and shorter supply. Indicators like these point to a strong and sustained rental market.

Consider you bought a $125,000 home for cash that would rent for $1,250 per month. With $15,000 income and allowing for property taxes, insurance and maintenance, it is still reasonable to expect $10,000 net income. You'd have an 8% return on investment without considering tax savings or future appreciation compared with 5-year CDs paying less than 1.5% and a 10-year Treasury yield at 1.65%.

The reasonable control has a lot of appeal to many investors who find the volatility of the stock market unacceptable and don't want the risk associated with some of the alternative investments. Please contact me if you'd like to know more about available opportunities.

Which Value Do You Use?

What your home is worth depends on why you ask the question. It could be one value based on a purchase or sale and an entirely different value for insurance purposes.

Fair market value is the price a buyer and seller can agree upon assuming both are knowledgeable, willing and unpressured by extraordinary events. This value is generally indicated by the comparable market analysis done by real estate professionals.

Insured value is determined for the proper insurance coverage. Replacement cost could actually exceed the cost of new construction when additional expenses are incurred for demolition and the added complexities of matching existing construction.

Homeowners are generally more familiar with their home's market value. Since it can be lower than the replacement cost, owners should review the insured value with their property insurance agents periodically. Under-insuring could invoke a co-insurance clause that may limit the settlement and increase your out of pocket expenses.

Star Spangled Banner

Our American flag is obviously the symbol of our country but it has come to remind us of every man and woman who has fought for the freedom that we enjoy. The emotions that are stirred by images of our flag can run from happiness to sadness to even anger and everything in between.

Most of us learned basic flag etiquette when we were young but occasionally, it is a good idea to review the procedures so that we treat the flag with the respect that it deserves.

• The U.S. flag should not be flown at night unless a light is shown on it.
• The flag should never touch the ground.
• The U.S. flag should not be flown upside down except as a distress signal.
• A U.S. flag should be displayed at the peak of the staff unless the flag is at half-staff.
• When displaying multiple flags of a state, community or society on the same flagpole, the U.S. flag must always be on top.
• When flown with flags of states, communities or societies on separate flag poles which are of the same height and in a straight line, the flag of the United States is always placed in the position of honor - to its own right. No flag should be higher or larger that the U.S. flag. The U.S. flag is always the first flag raised and the last to be lowered.
• When the U.S. flag is flown with those of other countries, each flag should be the same size and must be on separate poles of the same height. Ideally, the flags should be raised and lowered simultaneously.

Second Homes Treated Differently

While a principal residence and a second home have some similar benefits, they have some major differences. A principal residence is the primary home where you live and a second home is used for personal enjoyment while limiting possible rental activity to a maximum of 14 days per year.

The Mortgage Interest Deduction allows a taxpayer to deduct the qualified interest and property taxes on a principal residence and a second home. The interest is limited to a maximum of $1,000,000 combined acquisition debt and a combined $100,000 home equity debt for both the first and second homes.

The gain on a principal residence has a significant exclusion for taxpayers meeting the requirements. The gains on second homes must be recognized when sold. Even if you sell a smaller second home and invest all of the proceeds into a larger second home, you'll need to pay tax on the gain.

Tax-deferred exchanges are not allowed for properties having personal use including second homes.

If the home is owned for more than 12 months, the gain is taxed at the long-term capital gains rate. If the home is owned for less than 12 months, the gain is taxed as ordinary income which would be a considerably higher rate.

The article is intended for informational purposes. Advice from a tax professional for your specific situation should be obtained prior to making a decision that can have tax implications.

If I'd Only Bought

We've probably all said or at least thought "if I knew then, what I know now, I would have done things differently." We should have stayed in school longer. We should have listened to our parents. We should have bought Apple stock in 2002 for $8.50 or gold in 2000 for $300.

Years from now, if we look back at 2012, it may be clear that this was the best buyer's market ever. The prices are down nationwide 35-40% from four years ago, mortgage rates have never been this low and rents are rising. Few homes have been built in recent years to keep up with a growing population. There may never be a better time to buy homes than now.

The housing affordability index which is considered to be good at 100 has increased to over 200 for several months. Shrinking inventories and rising prices in some markets are causing the index to fall for the first time in years.

This 'buying" opportunity applies equally to acquiring a home to live in or to rent as income property. It is estimated that about one-third of the homes purchased last year were done by investors. It is reasonalbe because the positive cash flows far exceed most other investment alternatives.

The question we're all faced with this year is whether we'll be saying we seized or missed an opportunity of a lifetime.

Gift or Inherit

Transferring the title of a home from one person to another may seem simple but it could have a significant tax implication.

When a person inherits property, the basis is "stepped-up" to fair market value at the time of the decedent's death. On the other hand, a gift has a carry-over basis which means that the recipient receives the unrealized gain also.

As an example, let's say an elderly parent, in an attempt to get their affairs in order, gives their home to their adult child. The rationale might be that they are the sole beneficiary and will get the property eventually. In an effort to settle things early, unnecessary income tax may be incurred.

If the home was purchased for $20,000 and worth $100,000 at the time of transfer, there is a possible gain of $80,000. However, if the adult child inherited the property at the time of the parent's death, their new basis would be $100,000 or the fair market value at the time of death and the possible gain would be zero.

This is meant to be an example and many other variables could be involved. If you're concerned about a situation, you should seek specific advice from a tax professional. As always, I'm here to help you I can as your real estate professional.

Assumption Opportunity

The low interest rates secured by borrowers recently on FHA mortgages may become valuable in a different way in the future. FHA and VA mortgage are assumable at the existing interest rates subject to buyer qualification.

Buyers wanting to assume an existing FHA mortgage must be owner-occupants and meet the current FHA guidelines. Applicants should have a minimum 600 credit score, total debt with house payment to be assumed not to exceed 41% of their monthly gross income and meet other standard income, credit and qualifying requirements.

The benefits are not only assuming a lower interest rate resulting in lower payments but the closing costs on an assumption are much less than originating a new loan. The fact that the mortgage is already into an amortization schedule and that lower interest rate loans amortize faster than higher interest rate loans make it build equity faster than a new mortgage.

When interest rates eventually rise, assumptions will provide an opportunity for buyers to lower their cost of housing significantly while improving their wealth positions.

Protect Yourself

Home is a place you should feel safe and secure. Sometimes, we take it for granted and unfortunately, we do need to remain vigilant about things we do that could compromise our well-being. Here are a few tips you might want to consider.

1. Everyone loves an inviting home including burglars. Make sure it looks occupied and is difficult to break in.
   • Always lock outside doors and windows even if you're gone only a short time.
   • Leave lights on when you leave. Consider timers to automatically control the lights.
   • Keep your garage door closed even when you’re home; don’t tempt thieves with what you have in your garage.
   • Suspend your mail and newspaper delivery when you're out of town or get a neighbor to pick it up for you.
2. Posting that you're out of town or away from home on social networks is like advertising your home is unprotected.
3. Equally dangerous could be allowing certain social network sites to track your location.
4. Don't leave keys under doormats, in flowerpots or the plastic rocks; thieves know about those hiding places and even more than you can think.
5. Trim the shrubs from around your home; don’t give criminals a place to hide.

Pre-approval Gives Everyone Confidence

The benefits of buyer's pre-approval are without question; it is good for the buyers, the sellers and the agents. It saves time, money and removes the uncertainty of knowing whether the buyer is qualified. The direct benefits include:

• Amount the buyer can borrow decreases as interest rates rise
• Looking at "Right" homes - price, size, amenities, location
• Find the best loan - rate, term, type
• Uncover credit issues early - time to cure possible problems
• Bargaining power - price, terms, & timing
• Close quicker - verifications have been made

There a big difference in sitting down with a trusted mortgage professional compared to going through calculators on a website. The cost of being pre-approved is a bargain and generally, limited to the cost of the credit report.

Even if you have been pre-approved, a suggestion that can't hurt but may help is to get a second opinion from a different lender. It will either verify that you have a good deal or you’ll discover that you can improve it. Either way, it works to your advantage. Contact me if you'd like a recommendation.

Just a thought

Whether you're refinancing your current home or buying a new one, something worth considering is a 15 year loan rather than a 30 year term. The payments will be a little higher but you'll get a lower interest rate and you'll build equity much faster.

Let's look at an example of a $200,000 mortgage with the choice of a 30 year term with a 3.75% rate compared to a 15 year term with a 2.875% rate. The payments would be $442.94 higher on the shorter term but the equity would be considerably higher even after you adjust for the higher payments.

Another benefit is that the shorter term loan creates a forced savings situation where the savings on a longer term loan might end up being spent rather than being saved and invested. Contact me if you'd like a recommendation of a trusted lender.

It’s Worth Checking Out

"Anyone may arrange his affairs so that his taxes shall be as low as possible...for nobody owes any public duty to pay more than the law demands." 
Judge Learned Hand

This opinion refers to federal income tax but the logic and spirit can easily be applied to any tax including property tax. Most property tax is based on a valuation called an assessment placed on the property by a government taxing authority.

When property values rise due to appreciation, the assessments usually rise. However, when values decline as they have done in many areas in the past few years, the assessments should follow accordingly.

If you don’t believe your assessment reflects market value, put together proof to support your position. Recent comparable sales, similar in size, condition and location are very persuasive. Check to see if the square footage on the assessment is accurate. If the home is not in good condition, take pictures to show that.

As your real estate professional, I can supply the comparables, filing deadlines and other pertinent information needed to make a challenge. Lowering your assessment will result in lower property taxes and more money in your pocket.

Tax-Free Income

Some residents of Augusta, Georgia have purchased tickets to the Master's for years but have never attended the famous golf tournament. It's because they include the tickets as a bonus to the people who rent their home during the event.

Each year, owners rent their home for a big premium during the Masters and make tax-free income. Homeowners benefit from a little known provision in the tax code that does not require taxpayers to recognize the income derived from renting their home for less than 15 days per year. See Rental of property also used as home on IRS.gov.

Large sporting events like golf and tennis tournaments, championship games and other high attendance events increase the demand for a temporary rental of a private residence. Obviously, there are challenges with personal belongings and damage but getting a premium rental rate with a substantial deposit and not having to recognize the income could be worth it.

You'll certainly want to discuss this with your tax professional prior to making this decision. You'll probably also want to get some help from an experienced real estate professional.

Save Money...Be Comfortable

Automatic thermostats can lower your monthly utility costs while conveniently regulating your comfort by adjusting temperatures on your heating and cooling systems. These can be particularly effective in homes with zoned systems where you live in one area during the day but sleep in a different zone.

There are programmable thermostats available at home improvement stores that can make the adjustments for specific times during the day and specific days of the week. They'll allow you to override the setting when needed without tampering with the programming. They'll even remind you to change your filter.

An exciting development is the Wi-Fi enabled thermostat that allows adjustments from any Internet connection such as computer or Smartphone. Imagine how convenient it can be to change your temperature from the car before you get home.

Reasonably priced under $100 for most models, it makes it easy to recapture the cost of the thermostat quickly. Most of the thermostats are designed for do-it-yourselfers; however, you can always have a heating and cooling professional install it for you.

Have You Backed Up Your Home?

Personal computers have been around long enough that everyone has experienced or knows someone who has lost their data due to a hard drive crash, accident or burglary. If they had a backup, the loss was inconvenient but not critical.

Do you have a backup for your personal belongings? Not that you need duplicates of all the items but do you have a journal listing of all the items with a description and their approximate values? That record becomes the backup that supports the claim for your insurance.

If a building sustains a total loss, the insurance company will usually pay the face amount of the policy. When it comes to personal property which might be 40% to 50% of the insured value of the dwelling, the insurance company is going to expect an accounting with receipts or at least, a relatively recent inventory.

The better your inventory, the less likely you'll have difficulty with the claim. Almost everyone has a digital camera that can take stills and probably even videos. The combination of the images as well as a written description will help you replace the belongings and serve as proof to the insurance company.

Once you've made the inventory, store it off site for safe keeping. Online storage in the "cloud" might be the best place to insure you'll always know where it is. Contact me for a free Home Inventory form; it's my way of helping you be a better homeowner.

MID Limited per Residence

A recent U.S. Tax Court ruling clarified the IRS position that the $1.1 million limit for mortgage interest deduction applies per residence and not per taxpayer as some high-priced homeowners were hoping.

A married homeowner filing jointly can have fullly deductible interest on a mortgage of up to $1,000,000 of acquisition debt and up to an additional $100,000 of home equity debt. If the married couple files separately, each party is limited to deducting the interest on half of those maximum amounts.

The court case came about when two unmarried individuals who owned a home together as joint tenants felt that they were entitled to deduct the interest on $1.1 million of debt each. IRS did not agree with their understanding and neither did the Tax Court. The Court ruled that the limits apply per residence, not per taxpayer even if a home is co-owned by unmarried taxpayers.

The result for the taxpayers in this case was that their deduction was cut in half resulting in much more income tax due. While this situation only affects a few taxpayers, homeowners in this position should have a discussion with their tax professional.

Before You Call the Repairman

Have you ever had a service company to your home to repair something and find out that it really wasn't "broken"? It probably conjured up ambivalent feelings of joy that it wasn't something serious and frustration that you had to pay a service call for something so simple.

Before you call the repairman next time, keep these things in mind to see if it is something simple:

• Disposer not working - check to see if the reset button has been thrown. It is usually on the bottom of the disposer. If the disposer is making a humming sound, the blades may be stuck. While the disposer is turned off, use a wooden broom handle as a lever to gently rotate the blades. Remove the broom handle and turn on the disposer to see if it works properly.
• Air conditioner not working - check to see if a breaker has thrown on your electric panel. You might need to flip the breaker completely off and flip it back on.
• Electrical outlets not working - Electrical plugs in bathrooms or outside, especially on a porch or patio, are many times connected to a ground fault interrupter. The GFI will be a wall outlet and it may be located in the garage. Locate the outlet and reset the button that may have tripped.
• Clogged drain - a simple way to correct a slow or clogged drain is to use the water pressure from a garden hose. You'll need a helper to turn on the water full-blast once you have safely placed the hose in the drain and are holding a hand-towel around the hose to direct the water to the drain. Be prepared to tell your helper to turn off the water when needed.

Whether it's preparing a home to market or arranging repairs required by the sale, REALTORS® know reputable, reasonable and reliable service contractors. We're here to share our contacts with you to help make home ownership better.

Don't Miss the Recall

Occasionally, you hear about an important recall on a product you have and you take care of it immediately. However, if you were to miss such a notice, it could put you or your family in jeopardy.

You can subscribe to the U.S. government's service to notify the public when recalls are made on vehicles, tires and child restraints through the National Highway Traffic Safety Administration on their site called SaferCar.gov.

You'll receive a notification by email when there is a new recall based on the type you selected. You can change your selections or unsubscribe at any time by going back to their website in the "Manage Your Notifications" section.

We're committed to helping you be a better homeowner by providing information on items that can protect your home's value, reduce expenses, improve maintenance and increase the enjoyment of your home.

When Mortgage Debt is Cancelled

The Mortgage Forgiveness Relief Act of 2007 was passed by Congress to avoid additional financial hardship that some homeowners might experience due to a foreclosure or short sale. The law affects mortgage relief that occurs from January 1, 2007 to December 31, 2012.

Normally, IRS considers partial or total debt forgiven by a lender to be treated as ordinary income. This not only affects foreclosures but even short sales where only part of the debt is forgiven would trigger additional taxes for the homeowner. There are exceptions that apply such as bankruptcy and insolvency.

The forgiveness is only applicable to taxpayers' principal residence and only acquisition debt used to buy, build or improve the home. The additional cash taken out when refinancing a home will not be eligible for the relief unless it is used for capital improvements.

The lender is required to submit a 1099 form to IRS and provide the homeowner a copy who will file the forgiven amount on Form 982 as part of their 1040 tax return. How this affects your individual situation may differ due to other circumstances and advice from a tax professional is recommended.

Another Indication

The Housing Affordability Index was developed over thirty years ago to help consumers determine when it is a good time to buy a home. It's considered advantageous to the buyer when the index is over 100 because a median income family can qualify for a median price home.

Recent figures released by the National Association of REALTORS' economic department show that the 2011 index of 184.5 is the highest annual average since it has been calculated. The most recent month released, December 2011, was 194.9. The index is also broken down into four regions of the country.

The two major components that contribute to the index are home prices and mortgage interest rates which are lower than they've been in the last five years which account for the dramatic rise in the index since 2006.

The Housing Affordability Index is another indication that this is a good time to buy a home for people who have good credit, a down payment and want a home. It may be the best time we'll see in our lifetimes.

FHA Fees Going Up April 1st

FHA has raised the annual Mortgage Insurance Premium to 1.25% beginning April 1st.  MIP is required on all FHA loans and used to fund losses by lenders for borrowers who default on their mortgages.  As of June 1st, FHA loans in excess of the standard maximum of $625,500, in high-cost areas, will have a premium of 1.5% of the loan amount.

In addition to the increase in the annual MIP, FHA also announced it plans to raise the fee on the up-front MIP from 1.00% to 1.75%.  No date was reported for its implementation.

The bottom line will result in a borrower’s payments going up.  However, it might not be restricted to the MIP.  Freddie Mac’sPrimary Mortgage Market Survey showed that both 30 year and 15 year mortgages have gone up too.

One way to avoid the increase is to have a completed sales contract and have your lender order the FHA commitment prior to April 1, 2012.  If you plan on buying a home this spring, there is a reason to do it earlier rather than later.