Mortgages


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With the constant barrage of negative media surrounding real estate these days, it’s no wonder that newlyweds and other first-time home buyers are putting their dreams of buying their first home on hold. But 2008 promises to be as good a time as any to buy your first home and here’s why:

It’s a buyer’s market

With foreclosures adding houses to a market already hungry for buyers and economists predicting that residential housing sales and prices will not pick up until 2009, sellers who need to sell are lowering prices and often throwing in additional incentives.

Perfect timing is rarely achieved

Although you should educate yourself and use caution when buying into a declining market, a buyer waiting for prices to hit absolute bottom, usually waits too long and then pays the cost of buying into a rising market with increased home prices. If you’re planning on staying put for a while, now is a great time to buy your first home because the market will eventually balance itself and turn once again to a seller’s market and when it does, your home’s value will increase too.

Interest rates are low

Recent Federal Reserve decisions have lowered interest rates yet again making the Federal funds rate drop to 2.25% (down from 5.25% a year ago) and the prime rate drop to 5.25%. And today a Bankrate.com index showed that the national overnight average for a 30-year, fixed-rate mortgage is being offered at 5.74% and a 15-year fixed at 5.09%, both of which are buyer-friendly rates.

Labor and materials are readily available

Even if you don’t qualify for enough financing to buy the home of your dreams due to tightening lending practices, it’s easier than ever to fix-up and maintain properties with the number of home improvement stores, tips, do it yourself classes and handymen readily available. And because new construction has slowed down in most markets and all trades that depend on it are eager for employment, buyers are likely to get better work, done faster and maybe a little cheaper in 2008 than at anytime in the future.  

A need to sell makes sellers flexible

Remember, sellers who don’t need to sell right now generally don’t have their properties for sale. And those who do need to sell tend to be more flexible in negotiations, so buyers should consider proposing terms that ask sellers to help make the deal work beyond just lowering their price. Sellers may have the ability to finance part of the purchase price to make it easier on the buyer, they may be able to fix or replace something that needs updating, and they can always pay more than the customary share of closing costs and taxes.

 

Happy House Hunting!! 🙂

Greetings everyone!

I wanted to take a moment and introduce myself. My name is Kelly Carlson, Marketing Manager for the Don Edam Group, and I’m going to be contributing to this blog (and to the real estate industry in general) in the days to come, from a completely new and different perspective than your typical real estate professional.

Hoping to utilize a trifecta of my favorite hobbies (trend hunting, exploring new places, and trying new things), as well as tapping back into the service journalism and editorial voice that my U of M education once afforded me, my intentions are to keep you posted on all the latest news, statistics, tips, and trends in real estate and to scope out and share with you all of the food and dining, shopping and style, arts and entertainment, health, education, and local events that make our Twin Cities neighborhoods unique and fabulous places to live!

Although I am relatively new as a licensed real estate agent, I’m excited to know that the combination my background, work and educational experience, and personal interests can lend something new to the industry. While my expertise (& nearly a decade of experience!) lies primarily in promotions, marketing, and trend research, I also have 2 years experience as a credit analyst for a local mortgage services company and 4 years experience in title insurance research, giving me a range of knowledge and skill that can only add to our clients’ success.

I get a kick out of being a social anthropologist and spotting changes in consumer behavior, scoping out new trendsetting products and services, and just about any super-smart thinking on where our societies are headed at large. I look forward to developing new and innovative ways of marketing your homes and neighborhoods so that others can see why you called it “home” for so long, and I hope you enjoy the information I can share with you about the people, places, and events that form our great Twin Cities communities.

In the meantime, happy house hunting and speedy sales to all! )

Kelly

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U.S foreclosure filings continued their upward climb in December, rising 97% from the previous year and 7% from the month before. Total foreclosures rose 75% in all of 2007.

According to MSN Real Estate’s latest report, hardest-hit markets were along both coasts, which experienced a more severe boom and bust in the latest cycle, as well as areas hard hit by auto-industry layoffs such as Michigan and Indiana.

The surge in foreclosures is expected to continue at this same pace until after the next wave of risky loans resets in the middle of 2008.

2007 foreclosure filings by state

Rate Rank

State Name

Total # of filings

% chng. from 2006

% chng. from 2005

Total # of properties

%Households

1

Nevada

66,316

215.12

758.68

34,417

3.376

2

Florida

279,325

123.96

129.25

165,291

2.002

3

Michigan

136,205

68.32

282.22

87,210

1.947

4

California

481,392

237.99

681.95

249,513

1.921

5

Colorado

71,149

29.96

140.12

39,403

1.919

6

Ohio

153,196

87.93

207.35

89,979

1.797

7

Georgia

99,578

31.07

118.43

59,057

1.566

8

Arizona

69,970

150.91

160.7

38,568

1.516

9

Illinois

90,782

25.29

94.3

64,310

1.25

10

Indiana

52,930

11.31

73.57

27,980

1.027

11

Tennessee

45,834

24.56

65.66

25,914

0.983

12

Texas

149,703

-4.57

9.22

84,469

0.936

13

Missouri

32,022

80.93

176.74

23,492

0.906

14

New Jersey

53,652

34.06

52.75

31,071

0.902

15

Utah

9,668

-25.87

-16.19

7,438

0.852

16

Connecticut

23,470

100.05*

111.38*

11,860

0.833

17

Maryland

25,109

455.26

388.41

18,879

0.83

18

North Carolina

37,426

66.52

135.07

29,101

0.739

19

Mass.

41,487

161.14

751.36

17,737

0.66

20

Idaho

6,032

140.51*

119.83*

3,640

0.611

21

Washington

23,705

27.95

59.47

15,184

0.573

22

Oregon

10,746

12.25

56.76

8,461

0.543

23

Oklahoma

13,594

-12.78

0.71

8,256

0.52

24

Virginia

24,199

456.3

728.73

16,307

0.514

25

Minnesota

13,615

127.11*

506.73*

11,557

0.513

26

Arkansas

14,310

26.44

23.58

6,406

0.513

27

New York

57,350

10.19

54.72

38,688

0.493

28

Alaska

1,650

54.64

17.69

1,332

0.486

29

Wisconsin

17,503

131.15*

241.79*

12,133

0.486

30

Nebraska

3,971

30.88

91.84

3,636

0.474

31

Rhode Island

3,241

153.80*

7804.88*

1,838

0.41

32

New Mexico

3,893

-26.04

-46.55

2,994

0.357

33

Iowa

7,404

114.92*

251.90*

4,103

0.314

34

Pennsylvania

34,089

-11.07

18.98

16,379

0.302

35

Kentucky

8,793

23.45

76.96

5,105

0.274

36

Montana

1,378

29.27

52.6

1,150

0.268

37

Alabama

7,903

81.76

83.07

5,572

0.268

38

Delaware

1,430

225.00*

342.72*

999

0.266

39

South Carolina

5,038

-27.56

-33.76

4,247

0.22

40

New Hampshire

N/A

N/A

N/A

1,238

0.212

41

Louisiana

7,331

151.58*

90.61

3,968

0.204

42

Kansas

4,978

20.85

161.31*

2,434

0.203

43

Hawaii

1,270

88.71

-60.39

966

0.197

44

Wyoming

497

21.52

99.6

356

0.151

45

Mississippi

1,997

91.65

4.55

1,409

0.114

46

North Dakota

308

74.01

86.67

250

0.082

47

West Virginia

1,135

30.31

10.95

460

0.053

48

Maine

N/A

N/A

N/A

286

0.042

49

Vermont

61

35.56

1.67

29

0.009

50

South Dakota

N/A

N/A

N/A

24

0.007

District of Columbia

800

607.96*

393.83*

777

0.28

U.S.

2,203,295

74.99

148.83

1,285,873

1.033

*Actual increase may not be as high due to improved or expanded data coverage in this state.

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Owning a home tops the dream list for most Americans, and for plenty of good reasons. It’s a shelter for your family, a gathering place for your friends and a good long-term investment.

Tax breaks are also frequently cited as motivation for moving from renting to owning, and there are many ways a home can cut your tax bill.

But, as is often the case with the U.S. tax code, homeownership tax benefits are not always clear-cut. That frequently leads to some bad information floating around.

While myths, half-truths and misconceptions may abound, Bankrate.com has narrowed it down to five that, if you buy into them, could cost you.

1. My mortgage interest will reduce my tax bill.
This is true for the majority of homeowners, but not for all. And this tax break won’t work forever.

To take tax advantage of your home loan’s interest, you must itemize and come up with a total that exceeds your standard amount. On 2007 tax returns, the standard deductions are $5,350 for single taxpayers, $7,850 for head of household filers and $10,700 for married couples who file jointly. These amounts increase a bit each year to account for inflation.

“Given home prices these days, most owners are itemizing,” says Mark Luscombe, principal tax analyst with CCH of Riverwoods, Ill. By the time they count mortgage interest, property taxes and other nonhome deductions, such as state taxes and charitable gifts, their itemized totals easily surpass their allowable standard deductions.

But most is not all.

Taxpayers who buy a home late in the year, for instance, might find the standard deduction is more beneficial, at least initially, says Kathy Tollaksen, a CPA at Sikich in Aurora, Ill. In these cases, where you make only a few payments in a tax year, depending on your loan you might not pay much interest, at least not enough to exceed standard amounts.

Timing also could reduce or eliminate other home-related tax breaks.

“Quite a few states have real-estate taxes that are calculated in arrears. That is, they have already been paid or mostly paid (by the seller) by the time you buy,” says Tollaksen. “In the first year, you’re seeing taxes that are someone else’s responsibility so you’re not getting the full tax value of your real-estate taxes.”

The benefit of mortgage interest also could be a myth if you’ve lived in your home for a long time. In this case, you likely are paying more toward your loan’s principal instead of interest. So homeowners at the end of a loan term don’t get much, if any, from this tax break.

Or, as Bob D. Scharin, senior tax analyst and editor of Warren, Gorham & Lamont/RIA’s monthly tax journal “Practical Tax Strategies,” puts it, “Every deductible expense you incur may not produce a deduction.”

2. All costs related to my home are deductible.
There are no two ways about this one. It’s flat-out false.

“Some buyers think, hope, they can write off everything connected with the house,” says Tollaksen. “Not so. Association fees and property-insurance costs are not deductible.”

Neither, in most cases, is private mortgage insurance, which your lender probably required if your down payment was less than 20%. However, a new law changes the deductibility of PMI for mortgages originated or refinanced between Jan. 1, 2007, and Dec. 31, 2009.

If you got your mortgage and policy in that time frame, you might be able to deduct your insurance-premium payments. The law also extends beyond private insurance to others, including FHA, VA and rural housing.

There are some limits, though. The PMI deduction is phased out for taxpayers with adjusted gross incomes exceeding $100,000 and is totally eliminated once adjusted gross income reaches $110,000.

Don’t try to deduct basic maintenance, repair or home-improvement costs either.

Tollaksen says, “I’ve had people say, ‘I put a new roof on my home; can I deduct that?’ No.”

If you try to write off these expenses, expect to hear from the Internal Revenue Service and to pay a higher tax bill (and possible penalties and interest) after you refigure your taxes without the disallowed deductions.

However, you still need to keep track of these expenses.

“If you convert the home to rental property or sell it,” she says, “these costs will affect the property’s tax basis.”

A home’s basis is critical when it comes time to sell. And selling is also a tax area in which many people fall for myth No. 3.

3. I must use money from my home sale to buy another residence.
This used to be the only way to get around a tax bill on a home sale. Even then, you were only able to defer taxes by purchasing a new residence of equal or greater value with the profits from your other house. When you sold your final house, you’d owe those long-deferred taxes you had rolled over throughout the years. Home sellers age 55 or older were allowed a once-in-a-lifetime tax exemption of up to $125,000 in sale profit.

But on May 7, 1997, home-sale tax law changed. Still, a decade later, many homeowners are confused about the tax implications of selling.

“I recently heard some neighbors talking about having to buy another house when they sell to avoid the taxes,” says Scharin. “If the last time you sold the house was before 1997, you’re thinking of those old rules.”

Don’t worry. Most taxpayers still get a nice break. Now, if you live in the house for two of the five years before you sell, the IRS won’t collect tax on sale profit of up to $250,000 if you’re single or $500,000 if you and your spouse file a joint return.

“The law change has really affected people’s behavior,” says Luscombe. “Before, it didn’t really matter much whether you sold frequently or held onto your home for a long term. You basically could roll over the gain into a larger home and people could avoid tax until they sold for the final time without putting it into a replacement home.

“Now the law rewards people who sell frequently. In this current market, people who sell every couple of years can get and keep their gain,” Luscombe says. “But people who buy and hold might find they have reached the point where the gain exceeds the exclusion.”

That means they face unexpectedly high tax bills, even at the lower 15% capital-gains rate. The profit could also push them into a higher overall tax bracket, meaning they would make too much to claim some deductions, credits or exemptions. They also might even end up owing alternative minimum tax.

Another problematic consequence, says Luscombe, is that when the new rules took effect, people basically quit keeping records related to their homes.

“They thought: Since we’re never going to be taxed on the sale, there’s no need to keep track of what we paid and what improvements we made,” he says. The improvements add to your home’s basis, which you subtract from the sale price to determine your profit and whether any of it is taxable.

“Now with inflation in the housing market, a lot of people are selling homes in excess of the gains without any way to show that their tax bill should be less,” says Luscombe.

4. Putting my child on my home’s title is a smart tax move.
Worries about taxes on a residence sometimes lead homeowners to fall for this myth. It’s a particularly tricky one, because it combines confusion about residential taxes with the even more complex estate-tax area.

“Sometimes we’ll hear about taxpayers who, in doing some quick back-of-the-envelope estate planning, decide to put their home in the children’s names,” says Tollaksen. “The thinking is: My son or daughter won’t have to worry about this when I die.”

The goals: Avoid probate, keep the home in the family and get the property out of the parent’s estate for those tax purposes. Such a move, however, could produce other tax problems for your children.

Unless the child moves into the newly deeded house with the parent and lives there long enough (two of the previous five years) to make the house the child’s main residence, too, says Tollaksen, the son or daughter won’t get the $250,000 or $500,000 residential tax break when the child later decides to sell. Without establishing primary residency in the house, either before or after the parent passes away, the child’s ownership is viewed as an investment property.

Other parents opt to simply add a child’s name along with theirs on the title to the house, known legally as a joint tenancy. It doesn’t mean that all the owners live in the home, but simply that two or more people hold title to the property.

This, too, can produce tax complications.

Generally, when someone inherits a property, its value is stepped up. That means when the owner dies, the property becomes worth its fair market value that day.

But if the child co-owns the property with his parent, the child doesn’t get to fully use stepped-up basis. Tax law considers the addition of the child’s name to the title as a gift. And, along with that half of the home, the child receives half the basis that his or her parent has in the property.

This is known as the property’s carry-over basis. And it could be costly.

Consider, for example, that you bought your house many years ago and your basis in the property is $50,000. You add your daughter to the title. When you die, she inherits your half of the home, which by then is worth $250,000. A buyer offers $300,000 for the home.

Pretty good deal, right? From a real-estate perspective, yes. But not when it comes to your daughter’s tax bill on the sale.

Rather than owing taxes on just $50,000 more than the house’s stepped-up market value, your daughter will owe on three times that amount. Here’s the math:

Parent owns home with a basis of: $50,000
Parent adds child to title, “giving” child carry-over basis of: $25,000
At parent’s death, house is worth $250,000, producing on the inherited half a stepped-up basis of: $125,000
Home subsequently sells for: $300,000
Child’s total adjusted basis (line 2 plus line 3) is: $150,000
Taxes due on sale profit (line 4 sale price less line 5 basis) of: $150,000

What had been done with the best parental intention turned out to carry a big price because of this homeownership tax myth.

5. If I take a capital loss when I sell my home, I can write it off.
This myth, like No. 2, was probably started by wishful homeowners. Sorry, it’s just as wrong.

It is true that real estate, like any other asset, has the potential to go down as well as up in value. But unlike most of those other holdings, you cannot write off any loss you suffer if you must sell your main residence for less than what you paid.

That’s because your residence, under tax law, is considered personal property.

“When you sell your home for a loss, it’s not like other capital items,” says Scharin. “You don’t get to deduct personal property that you sell for a loss.”

“It’s the same as any personal property that declines in value,” says Luscombe, “like that old TV you sold to the neighbor kid so he could take it to college. You sold it for much less than you paid, but you can’t take a loss.”

You do, however, have to pay tax on gains you make when selling personal property.

But at least you now know the difference between fact and fiction when it comes to your residential property, which will help you make appropriate real-estate and tax decisions in the future. Full Story

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Does it ever make sense for a homeowner to pay off a mortgage early?

According to Kiplinger.com, the answer depends on the interest rate of the loan and the timing of the payoff.

Paying down a 6% mortgage is the equivalent of earning a 6% taxable return on your money. You should be able to beat that return by investing your money elsewhere, especially when investing for the long term.

“If you have a very low interest rate on your loan and know that you can earn a higher return with additional money you have to invest, it’s OK to keep the mortgage,” says Los Angeles CPA Michael Eisenberg.

Investing outside your mortgage also gives you easier access to your funds because you don’t have to borrow against your home equity to get your money. Paying more toward your mortgage can reduce the total interest paid, and you might pay off your loan earlier. But it doesn’t lower your payments, and if you’re still in the early years of the loan, you might not see the difference for a decade or more.

Your priorities may be different, however, if you’re nearing retirement and your mortgage is close to being paid off. In that case, making extra payments can speed up the payoff, lowering your expenses after you leave your job. In Eisenberg’s experience, “most people don’t want to have debt when they retire.”

Paying off the mortgage early made sense for Myrna Oliver, 64, who worked at the Los Angeles Times for more than 30 years. When Oliver was in her mid-50s, many of her colleagues were getting buyout offers. She wasn’t ready to retire yet, but she wanted to be able to jump at a good offer if one came her way. To do that, she needed to cut her post-retirement expenses — especially the mortgage on her condo in downtown Los Angeles.

“I didn’t want the mortgage payments to figure into my retirement spending,” says Oliver.

So Oliver began making extra payments toward her 7.5% loan whenever she got a raise, a bonus or extra money from some other source. At age 60, she paid off the loan — eight years early — and shifted the money to her 401(k) plan to take advantage of catch-up provisions for contributors who are 50 or older. This year, employees in that age range can kick in an extra $5,000, on top of the $15,500 that all workers may contribute.

When Oliver got a buyout offer last year, she had only three weeks to make a decision, but it was a no-brainer.

“Having the mortgage paid off gave me the freedom to take early retirement,” she says — and to take a year off to travel. Full Story

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How many times have you done your taxes and, three weeks later, learned you had missed the opportunity for a deduction? Too many, I’m sure. How can you not miss these deductions the next time? Start planning now.

I’ve posted previously about What is Deductibe When Buying a Home, but here are two of the most often overlooked tax deductions for current homeowners that can affect your tax bill for 2007 and your tax planning for 2008.

New points on refinancing

With interest rates so low over the past few years — even in 2007 and 2008 — lots of homes have been refinanced, sometimes more than once.

Any points you pay to refinance your home can be deducted on a monthly basis over the life of the new loan. So, if you refinanced your mortgage on June 1, 2007, for a 20-year term, seven out of 240 months will have passed after Dec. 31. If you paid $2,400 in points, you can write off $70 ($10 a month for seven months) for 2007. You can write off $120 for 2007 and each year thereafter until the points have been deducted in full. The amount may not be huge, but every little bit helps.

Old points on refinancing

This is one deduction lots of people miss. All unamortized points on an old refinancing are deducted in the year of a new refinancing.

So, let’s say you refinanced on June 1, 2006, and paid $2,400 in points. You refinanced again on June 1, 2007. You can deduct all the remaining points on the 2006 loan. That’s $2,280 plus the $50 you could deduct for January through May 2007. Likewise, if you refinance the 2007 loan in 2008 (if interest rates stay low), you will be able to write off the remaining balance on your 2008 return. Full Story

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Valentine’s Day is a time for roses, chocolate and sparkly dinners. But according to RISMedia, if you want to ensure your relationship with your partner endures through less-romantic times, be sure to talk about finances. Being on the same page about all of your financial data is a long-lasting way to show each other your commitment.

To help you broach the subject of finances and make sure they are in alignment, they say that we should consider these tips from Marvin Feldman, president and CEO of the nonprofit Life and Health Insurance Foundation for Education (LIFE):

  1. Have ‘the talk.’ If you haven’t done so yet, tell each other where your key financial information (checking, savings and investment accounts, mortgages, and insurance policies), as well as valuables (birth and marriage certificates, jewelry, safe deposit key) are located. It’s important to understand each other’s financial dreams and plans, as well as final wishes, so that you know exactly what to do in an unforeseen situation.
  2. Boost your life insurance. This is of paramount importance if you have dependents. According to the Life Insurance Marketing and Research Association, today’s average married couple has less than half the amount of life insurance coverage experts recommend. For husbands, it’s barely enough to replace their income for 4.2 years, and for wives 4.9 years.
  3. Evaluate disability insurance needs. According to LIFE research, 70% of working adults say they could only afford to take off one month or less of unpaid vacation before everyday expenses would force them to return to work. Yet, nearly one out of every three workers over the age of 30 will suffer a disability lasting at least three months at some point in their career. To ensure that financial strain doesn’t fall on your household and figure out how much disability insurance you need, visit http://www.lifehappens.org/disabilitycalculator.
  4. Where there’s a will, there’s a way. If you are married, now is as good a time as any other to put in place a will that names executors, guardians and trustees. This is especially relevant if you have small children, to ensure their well-being in the rare event that something happens to both you and your spouse. When choosing a guardian for your kids, don’t hesitate to look outside the family; it is more important to find someone with values similar to yours rather than entrusting an aunt or an uncle you’re not comfortable with.
  5. Meld your financial responsibilities. While your chemistry may be great in the beginning of a relationship, make sure it lasts by determining upfront your spending and saving habits, whether you want a joint checking account, and whose responsibility it is to handle the bills.
  6. Rest in peace. This is always a tough topic, but discussing your final wishes and arrangements will ensure neither of you will be burdened with those decisions later on. Write down and tell your spouse, as well as other family members, where you want to be buried, funeral arrangements and even whether or not you wish to be an organ donor. Full Story

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