Gunning Daily News
January 27, 2012 5:28 pm
Q: What is a hybrid loan?
A: Also called a fixed-period ARM, these crossbreed loans combine features of fixed-rate and adjustable-rate mortgages.
They start out with a fixed interest rate for a number of years—usually 3, 5, 7 or 10 years—and then convert to an ARM.
Initially, the interest rate for the fixed period of the loan is much lower than the rate on a fixed-rate, 30-year mortgage by about 1.5 percentage points. As a result, the hybrid allows borrowers to buy a lot more home than they can afford—but at greater risk.
The terms and fees for these loans vary widely and when the fixed-rate period expires, homeowners could end up paying considerably more than the current rate of interest.
Before considering a hybrid, pay close attention to the terms, fees, and prepayment penalties.
January 27, 2012 5:28 pm
Deciding what kind of home loan is best for your needs is an integral part of the home buying process. But it’s not always easy, according to California mortgage broker Ken Go.
Go notes the eight most important factors to compare when shopping for a mortgage:
• Principal – The principal is the amount you are borrowing—or the price of the home you are buying minus the down payment. Lenders will tell you how much they are prepared to lend you based on your income and credit score. That will help you determine how much house you can afford.
• Mortgage type – Mortgages fall into two categories; fixed rate or adjustable. With a fixed rate mortgage, you pay the same amount each month for as long as you have the loan. The interest rate is slightly higher than some adjustable rate mortgages, but adjustable rates change with the market and will likely rise over time.
• Interest rate – A loan with the lowest posted rate may have higher closing costs. Consider the Annual Percentage Rate (APR), which takes into account the interest rate and the loan’s other costs.
• Monthly payment – A mortgage loan should help you build equity in your home. The best one may or may not be the one that carries the lowest monthly payment. Consult a mortgage broker for details.
• Term – The term is the number of years your loan will remain active. Mortgages with shorter terms generally carry a higher monthly payment but they can save you a lot of interest over the years.
• Discount points - A point is equal to one percent of the principal. Lenders may offer you the chance to pay points in order to lower the interest rate of your mortgage. If you plan to stay in the home a long time, it may make sense to pay points.
• Lock-ins – When you apply for a loan, the lender will quote you the rates. But rates can go up while you shopping for a home, so it’s a good idea to lock in the quoted rates. There may or may not be a fee to do so.
• Closing costs – Origination fees, appraisal fees, and other costs will be added to your loan. Ask your lender for a good faith estimate of the costs, and an explanation of any charges you don’t understand.
January 27, 2012 2:28 pm
Like many consumers today, you may be thinking this is a great time to buy your first home—and you are right. Rock bottom prices, historically low mortgage rates, and a great selection of properties in all price ranges make this an excellent time to buy.
“The problem for many,” noted consumer finance consultant Elizabeth Ray, “is the lack of a down payment. But favorable price and mortgage conditions will likely last for a while. The smart and hopeful first-time buyer will take advantage of the opportunity to save now for that needed down payment.”
For those willing to make a few sacrifices in the short-term, Ray suggests eight possible ways to help consumers watch their savings pile up more quickly:
• Bank the extras – Anytime you get a refund, bonus, commission or birthday check, bank it in a separate savings account.
• Live on one income – Working couples should try to live on one income and bank the other—or half of it.
• Get a roommate – If single and living on your own, think about halving your monthly costs by taking in a roommate.
• Ditch the second car – If possible, use public transportation and bank the sale funds or payments.
• Do without extras – Can you do without cable? Eating out every night? That Starbucks stop every morning?
• Pay off debt – As you pay off high interest debt to better your credit rating, you will also be saving that high interest spend. Try to bank the payments you no longer need to make.
• Ask about a piggyback mortgage – Consult with a mortgage broker. If you can’t quite get the required percentage together for your down payment, but have a high enough monthly income, you may be able to get a piggybank loan to cover what your first mortgage won’t.
• Check out loan assistance programs – Government organizations like Veterans Affairs and FHA offer special programs designed to help people who don’t have large down payments obtain mortgage financing. Also check with state and local housing authorities to find out what assistance they may offer.
January 27, 2012 2:28 pm
Tip 1: In strong markets, where demand outstrips supply, home sellers can hold out for top dollar. In weak markets the reverse is true—there are many homes on the market and unless you price your home very competitively you'll be very unlikely to attract any buyers. Whatever the current market conditions you will be most likely to get the highest possible price if you are willing to take the time to understand each of the components of a successful home sales campaign so you can assure that you, or a real estate service provider who may be assisting you, are doing everything possible to maximize the effectiveness of the home marketing effort.
Tip 2: A good time to sell is during a period of low mortgage interest rates, because with lower interest rates more buyers will be qualified to buy your home. Low rates benefit buyers and sellers alike, and if you plan to purchase another home after selling yours, you will be both a seller and a buyer. A “sellers market”, where there are more buyers than homes available for sale, is also helpful. However, if you plan to purchase another home in the same area after selling yours, this competitive advantage will work against you when you become a buyer. The same principle applies in reverse to buyers markets, so if you plan to purchase another home in the same area after selling yours, it really makes little difference in the end whether it’s a buyers or a sellers market.
Tip 3: Shine Your Apple. Make your home look as nice as it can look. Have a presale yard sale and get rid of as much clutter as possible. Keep only a minimal amount of furniture in each room – it will make the room look bigger. Store any extra furniture. Clean up and repaint with neutral colors if necessary. Open blinds and replace light bulbs with brighter substitutes. If important parts of your home are outdated consider cost effective updates. If your kitchen or bath is old or in bad shape a prudent remodel can often return over 100% of the investment and help you sell the home faster. But don’t over improve. There’s not much point in adding a fourth bathroom to a home that is already worth more than most of the others in the neighborhood.
Tip 4: Study. More money hangs in the balance in the selling of your home than in most financial transactions in your life. It therefore makes sense to learn as much as you can about selling your home. There are many excellent books on the subject in libraries and bookstores. The real estate sections of local newspapers are great sources of information about your local marketplace. The difference between understanding the process as well as your local market, versus not understanding it, can be many thousands of dollars in the eventual selling price.
Courtesy of the American Homeowners Foundation and the American Homeowners Grassroots Alliance, www.AmericanHomeowners
January 27, 2012 2:28 pm
You're longing to replace those dark oak cabinets, avocado appliances and worn countertops in your kitchen, but you want to minimize the costs and time of construction.
Don’t worry. That doesn't mean you have to live with a tired look forever. As long as the layout is good and the cabinets are sturdy, you can transform a kitchen for just $1,000 to $10,000 by dressing up what's already there. "And you'll probably see a dollar for dollar or better return on the investment when you sell," says Baltimore home appraiser Terry Dunkin, who is president of the Appraisal Institute, a professional standards organization.
Keep to neutral colors such as white, cream or beige and natural materials (like wood and stone) so the results won't soon go out of style. You may also want to hire a professional kitchen designer ($250 to $500) to help you choose colors, products and materials that look good together (check nkba.org and asid.org for certified designers who offer hourly rates). Then pick your projects according to your budget and your priorities.
If You Have a Few Hundred Dollars to Spend
Replace the Ceiling Fixture. There's no reason to live with an ugly ceiling light that causes eyestrain. For $25 to $250 you can buy a simple fixture that matches your cabinet hardware. If you aren't confident in your knowledge of electrical wiring, it's worth it to spend $200 to $300 to hire an electrician to do the work.
Put in Laminate Flooring. If your kitchen floor is level with the floors in the adjacent rooms, you can make old linoleum, sheet vinyl and chipped tiles disappear by installing laminate flooring right over them. Laminate costs $1 to $5 a square foot and looks like wood, stone or tile. The pieces snap together without nails or glue and are a cinch for handy homeowners to install.
Give the Cabinets News Life. Spending $3 to $10 or so a cabinet to replace shiny brass knobs and pulls with brushed nickel will instantly modernize their look, says Martha Kerr, a 30-year-veteran kitchen designer in Portland, Ore., "Or have some fun with colored glass, retro 1950s plastic or little metallic vegetables." Just make sure that any hardware you select matches the existing holes.
As long as your cabinets are solid, a new coat of paint will make them appear fresher. While you're at it, you can install doors with wood, leaded glass or punched tin panels ($50 to $150 or so a door) and paint the frames to match them. Or eliminate some doors entirely for an open-display look (free). You can fill unwanted hardware holes (use Bondo, the auto-body filler) before painting.
If You Can Spend a Few Thousand Dollars
Replace the Cabinets. You can get a gorgeous new maple or cherry finish for your old cabinets by hiring a refacing company to replace the doors and drawer fronts and cover the cabinet boxes with a matching veneer ($4,000 to $6,000).
"That's less than half the cost of new cabinets," says Dave Haglund, president of Kitchen-Tune-Up, an Aberdeen, South Dakota, refacing and remodeling company.
Another benefit: While replacing the cabinets will take two to three months, a complete refacing job can be done in three days. Refacers can also install additional cabinets, resize appliance openings and replace the countertops as part of the job (add one day and $3,000 to $6,000).
Update the Backsplash. A four-inch-high band of laminate or tile above the sink makes your kitchen appear outdated, says Richard Gaylord, a Long Beach, California, Realtor and 2008 president of the National Association of REALTORS®. Replace it with a full backsplash that fills the 18-inch space between the counter and the upper cabinets (don't worry, it need not match the countertops). In fact, you can use that space for some do-it-yourself creativity; try using tiles of colored glass or stone ($300 to $750 for the entire backsplash in an average-size kitchen), wallpaper ($50 to $100), beadboard paneling ($100 to $150), or tin ceiling tiles, ($400 to $800), to fashion the look you prefer.
Add New Lighting. If your kitchen has a single ceiling light, it probably casts an annoying shadow over the food whenever you cook. An electrician can add a few recessed ceiling lights ($300 to $500) to brighten the entire room and under-cabinet lights ($200 to $400) to illuminate the work surfaces.
Uncover the Wood Floor. Most houses built before World War II have wood floors hiding under the linoleum, and there is no better floor for a kitchen, says Sandy Gordon, an interior designer in Madison, Wisconsin.
"It's gentler underfoot than tile and more forgiving on dropped dishes, and today's finishes are super-durable."
If you're not comfortable ripping out the old layers of flooring, sanding the wood and applying polyurethane, you can hire a hardwood flooring company to do the job for about $5 to $7 a square foot.
Replace Appliances. New appliances will make your kitchen appear more up-to-date and will also improve its ergonomics and energy efficiency. Buy moderately priced equipment, ($2,000 to $10,000 and up for a refrigerator, range, microwave and dishwasher), in stainless steel for a modern look. If you can't resist that $10,000 stove, consider taking it with you when you move.
Whatever you decide to do, keep in mind that just a week of an all-takeout diet will add hundreds more to your renovation costs. So before you get started, set aside some essential foodstuffs, perhaps a microwave, a mini-fridge and—most important—the coffeemaker.
For more information, visit www.energystar.gov.
January 27, 2012 2:28 pm
There are few things that can make a new house feel lived in like hanging your own personal artwork. Whether you're hanging family photographs, framed artwork, mirrors, or posters, these items give the eye a place to focus and complete the look of a room.
While a properly hung picture adds to a room, a poorly hung picture can draw the eye in a negative way. Follow these instructions to make sure your framed pictures are hung properly and securely.
Hanging a picture is a two-person job, so you'll want to recruit a helper before you get started. Next, you'll want to choose the right hanger for the weight of your framed art.
Once you've got your helper and your hardware, follow these three steps
1. Decide which wall will hold the picture. Balance the size of the art with any furniture that sits against the wall. For example, use a large painting over a large sofa—a small painting would be dwarfed by a big object below it. If you must hang a small item in a large space, consider grouping it with others for greater visual impact.
2. Decide where on the wall the picture will hang. Will you center the picture over a piece of furniture or center it on the wall itself, with furniture pieces spaced around it unevenly? Both ways can be attractive.
3. When hanging a group of pictures, arrange them on the floor first. If you have a grouping of several small pieces, lay them on the floor and experiment with how you will arrange them in relation to each other. You should know how the group will come together before you begin nailing. Measure the dimensions of the group as one unit and use those measurements to figure wall placement.
January 27, 2012 2:28 pm
Useful life. The period of time over which a commercial property can be depreciated for federal income-tax purposes. Also known as economic life.
January 27, 2012 2:28 pm
Q: What is a two-step mortgage?
A: Not to be confused with a biweekly mortgage, this type of home loan is also known as 5/25s and 7/23s. It has one interest rate for part of th
Two steps are 30-year mortgages. They can either be convertible or nonconvertible. The 5/25s have a fixed interest rate for the first five years and either convert to a one-year adjustable rate or a 25-year fixed loan. The 7/23 has a fixed interest rate for the first seven years and then converts to a one-year adjustable rate or a 23-year fixed loan.
The initial rate on the two step is lower than on a 30-year fixed mortgage, but higher than a one-year adjustable. Also, because the adjustment interval is longer, there is less risk initially than with an adjustable rate mortgage, or ARM e life of the mortgage and a different rate for the remainder of the loan.
January 26, 2012 5:26 pm
In the previous segment, we looked at reasons to consider a short sale. But in this segment, we'll hear from Charlotte, N.C. REALTOR® Jon Widdifield about what you need to know if you're considering buying a short sale property in 2012:
1. The list price may not be the sales price; the bank may ask for more than the list price.
2. The bank makes the final decision, not the homeowner.
3. The home will typically be sold as is. If the homeowner does not have enough to pay the mortgage, they probably do not have enough to do repairs.
4. A short sale is not owned by the bank. However the bank must approve the sales price.
5. A short sale is not a short process; it can take several months to get to the closing table.
6. There will be bumps in the road when purchasing a short sale; you must be patient if you plan on purchasing one.
7. You can get really great deals on a short sale; just keep in mind it can be an arduous process.
8. Do not set your hear on a particular short sale until the deal is closed; the deal can fall through at any time.
9. Don't give up. The process is difficult but these homes do get sold. And most importantly, if you're considering transacting a short sale in 2012, Widdefield says...
10. Make sure you have an agent that is experienced in Short Sales. You need someone that knows what to do to get the deal closed.
January 26, 2012 5:26 pm
If you’re just beginning to think about your 2011 income tax return, you’ve got a late start—but it’s still not too late to cash in on some savings.
Jessica James, CPA and author of Justice for None (www.AuthorJessicaJames.com), shares some tips for both 2011 and 2012 savings:
• Contribute to retirement accounts. If you haven’t already put money into your traditional or ROTH IRA account for 2011, you’ve got until April 17 to do it. If you have a Keogh or SEP (Simplified Employee Pension Individual Retirement Arrangement for businesses), and you get a filing extension to Oct. 15, you’ve got until then to make your 2011 deposits. The maximum IRA contribution for 2011 is $5,000, or $6,000 if you’re 50 or older by the end of the year. For self-employed people, the maximum for SEPs and Keoghs for 2011 is $49,000.
• Don't fear the home office deduction. In the past, many tax filers didn’t claim a home office deduction because it was seen as an IRS red flag. But the requirements and forms have been clarified so people can do that properly—and not make mistakes that can lead to an audit. Also, the rules have been expanded so more people can claim the deduction. If you use a home office exclusively for business, even if you don’t meet your clients there, you’re eligible. For instance, a handyman who does his work other people’s houses can claim the deduction if he does his paperwork at his home office. Another change is that, in the past, if you claimed 10 percent of your home as an office, that amount would not be included in the $250,000 tax-free profit from the home’s sale that’s allowed for an individual by the IRS. Be sure to make your claim reasonable, or it will get questioned; a $25,000 home office deduction for a business with $50,000 annual gross revenue is not reasonable.
• Maximize your Flexible Spending Account. The Health Care Act will limit the maximum you can put into these pre-tax medical expense accounts in 2013. So 2012 is the last year to use an FSA to pay for orthodontics and other large medical expenses using pre-tax earnings. A medical expense flexible spending account, or FSA, allows you to use before-tax earnings to pay for medical or health care expenses not covered by your health insurance. Assuming a 25 percent tax rate, you avoid $25 in taxes for every $100 you spend from your FSA.
• Need to sell an investment? Next year may be the time. The Tax Relief Act maintains the tax rate cap on capital gains and dividends at 15 percent through 2012. In 2013, the cap for capital gains will increase to 20 percent and for dividends, 39.6 percent. The Health Care Act also created a 3.8 percent Medicare tax on investment income, effective in 2013. Given those scheduled increases, plan to take advantage of the rates next year.
James is an author pseudonym used because she fears her novel may provoke IRS retaliation. It’s a fictionalized account of her experience as a minor player swept up in an IRS probe that included anyone associated with the primary target, a corporation. She says that, though she was innocent of any wrongdoing, she was coerced into accepting a plea deal by the IRS, which was bent on amassing adjudications of guilt to justify the investigation’s expense. She pled guilty to a count of falsifying a tax return and continues to work as a CPA.
Jessica James is a CPA and the author of a novel, Justice for None, about her experiences as a minor target in a major federal tax fraud case.