Info Graphic - Aging Gracefully

The really bad money decision millennial homeowners are making

Millennials are often described as prioritizing leisure and entertainment, but many are going into debt to fund them.

Most financial planners caution homeowners against using home-equity loans to fund short-term expenses, including vacations. Yet that is the most popular use of the money for the more than half of U.S. homeowners between the ages of 30 and 34 who have owned a home for three years or more and have taken out a home-equity loan, according to results of a recent Discover Home Equity Loans survey.

“It mystifies me that they’re taking out additional debt,” said Jackson Mueller, deputy director of the FinTech Program for the Center for Financial Markets at the Milken Institute, a nonpartisan think tank that aims to increase global prosperity. “But it doesn’t really surprise me that they’re using alternative financing to fund certain things.”

Many millennials are shunning credit cards, looking for less expensive ways to borrow, he said.

Borrowing against a home can be a less expensive way to attain funds than credit cards. The average interest rate on a home-equity loan was 4.88% for the week ending Aug. 17, according to Bankrate.com; the average rate on a home-equity line of credit was 4.75%. The average credit-card rate was 16.1%. Interest on home-equity loans also may be tax deductible, said TJ Freeborn, spokeswoman for Discover Home Equity Loans.

The survey findings show that for many borrowers, “the home not only is the place they live and create memories, but also a financial asset,” Freeborn said. The results of the survey showed that 30 to 34 year-olds were also more likely than other age groups to view their home as an investment property.

But borrowing against your home comes with risks. “It’s because people took money out of their homes that they went underwater,” said Deidre Campbell, global chair of the financial services sector for Edelman, a communications marketing firm that has done research on millennials and money. When housing prices fell during the last housing crash, some who took money out of their homes ended up owing more than the homes were worth — leading to a rise in foreclosures and short sales.

Edelman research paints millennials as a group that is very traditional, and one that worries about money, which Campbell said may run counter to the Discover findings. This is a generation that is concerned about its financial stability, and having equity build up in a house creates more stability, she said.

The Discover report found that 51.3% of those homeowners between 30 and 34 (who have owned for three years of more) have taken a home-equity loan out against their home. Only 29.4% of those between 35 and 44, 19.9% of those between 45 and 54, 25.7% of those between 55 and 64, and 22.3% of those 65 and older also said they took out a home-equity loan against their home. The results come from a survey of 1,428 consumers, conducted earlier this year. The survey didn’t cover the dollar amount of the loans.

The most popular reasons the youngest group took the loans were vacations (43.3%) and emergency cash (41.8%), followed by home remodels (41.1%), medical expenses (36.2%) and weddings (31.2%). For the other age groups, debt consolidation and home remodels were the top responses.

“Home-equity loans should never be used for something like a vacation or other short-term wants,” wrote Ryan Fuchs, a financial planner with Ifrah Financial Services in Little Rock, Ark., in an email interview. Using a home-equity loan for emergency cash can be wise in some cases, he added. “For example, if your home or car is damaged in a storm, and you need to get something fixed before the insurance check will be received, then that can make sense.” Once the insurance money is in hand, that loan can be paid off.

Home remodels that add value to the property, such as redoing a kitchen or a master bath, can be a good use of home equity, Fuchs said. He also prefers home-equity lines of credit over closed-end home-equity loans. A HELOC only accrues interest if and when you draw money from the line; when you take out a chunk of money via a home equity loan, “it starts accruing interest immediately no matter when you actually spend the money from the loan.”

Source: Market Watch, Amy Hoak
http://www.marketwatch.com/story/millennials-are-tapping-home-equity-for-vacations-and-emergency-cash-2016-08-24?dist=realestate

INFO GRAPHIC - The Middle-Class Squeeze

Should I Use the Value of My House as My Emergency Fund?

Q. I don’t have an emergency fund, but I have always felt very secure knowing I have a zero-balance, low-interest home equity line of credit that would allow me to get, on an emergency basis, close to three times my annual salary. Is this a legitimate substitute for a separate emergency fund? — Curious

A. A home equity line of credit (HELOC) is one kind of backup plan, but it’s not a foolproof kind of backup plan.

A traditional emergency fund covers anywhere from three months to a year’s worth of expenses, depending on your personal needs. The money is usually kept in a safe and liquid account.

Chip Wieczorek, a certified financial planner with Tradition Capital Management in Summit, NJ, said it’s not advisable or realistic to keep two or three years of living expenses in a savings account with a near 0% yield.

However, he said, home equity lines have pitfalls.

“I advise clients to maintain three to six months of living expenses in a savings account in addition to establishing a home equity line of credit for large unexpected expenses,” he said.

Wieczorek said when using a line of credit as an emergency fund, you must be aware that lines have a draw period and a principal pay down period.

A typical HELOC has a seven- to 10-year draw period during which the client can access funds and make interest-only payments based on a 20- to 30-year amortization schedule. After the draw period expires, funds can no longer be drawn from the line of credit and both principal and interest payments are required.

“You may think you have two to three years of salary accessible from your line of credit, but if the draw period expires, your emergency fund has dried up,” Wieczorek said. “Most people do not realize this and should review their HELOC terms on an annual basis.”

Also keep in mind that home equity lines are variable and can be frozen by a bank. The interest rate for the line is generally based on an index such as the prime rate, Wieczorek said.

“This means that the interest rate can increase over time, which would increase your monthly payment as well,” he said.

Also, in 2008, major home equity lenders began informing borrowers that their home equity lines of credit had been frozen or restricted.

“Falling housing prices led to reduced equity for borrowers, which was perceived as an increased risk of foreclosure in the eyes of lenders,” he said. “Courts have held that a bank may freeze a HELOC in instances where a home’s value decreases substantially.”

Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton, also referenced 2008 as a problem for many home equity line borrowers.

“It is very possible that the condition that requires you to tap into that credit line—you lost your job or got hurt—may make the bank close the credit line,” he said.

Lynch said a mortgage and a home equity line is not a loan on a home, but instead is a loan on your income.

“If that can be shut down, and that was your plan, you need a better plan,” he said. “Plan A never works. What’s your Plan B and C?”

Consider going a more traditional route over time and build the kind of emergency fund you can always count on.

[Editor’s Note: If you plan on opening a home equity line of credit, make sure your credit score is in good shape, as it will be a major factor in determining the interest rate you’ll pay. You can check your credit scores for free on Credit.com.]

Source: Realtor.com, Karin Price Mueller
http://www.realtor.com/advice/finance/should-i-use-the-value-of-my-house-as-my-emergency-fund/?iid=rdc_news_hp_carousel_theLatest

‘Help, a McMansion Is Going Up Next Door!’

I can think of one neighborhood right here in Cupertino, not far from my office that has a number of McMansions. 



Janet Per Lee has lived in the same house in Mountain View, CA, for over 40 years. Built in the 1950s, her 1,000-square-foot ranch house is situated on a secluded quarter-acre with trees whose branches hang heavy with apricots, plums, pears, and figs, which she shares with her neighbors. Her three kids grew up playing in that yard, attending top-notch local schools. Although the kids are no longer living at home, Per Lee loves her community and, in a normal world, would never consider moving.

But this is no normal world. In fact, the Google headquarters is located less than a ten-minute drive away.

As this tech titan has grown exponentially, so has the neighborhood’s popularity. As houses in the area have gone up for sale, developers have bought them, bulldozed them, erected 4,000-square-foot mansions that are selling for over $3 million. In fact, eight years ago, it happened right next door to Per Lee, who learned the new house would fill the entire lot from front to back and tower over her own.

“It’s built so much higher than my house, virtually every window looks out into my backyard,” she says. Desperate to protect her privacy, she planted Italian cypress trees as a natural barrier. She tried to reason with the builder, whose unsympathetic response was: “Shouldn’t everyone be able to build their dream home?”

Big homes = big problem

What’s going on in Mountain View is an extreme version of a problem cropping up all over the country: Huge houses are being built on plots of land originally meant to accommodate smaller dwellings, sparking a heated debate over what’s best for the community. Some argue that owners of larger homes pay more taxes, which can benefit all. But if your home happens to have its air and light blocked by a behemoth next door, you would likely be very, very upset—and can most likely kiss the idea of cashing out on your home sale goodbye.

Those against the lenient building codes that allow for “mansionization” also argue that it negatively affects a community’s vibe.

“These houses are often akin to fortress walls on city streets,” contends Greg Goldin, curator at the A+D Architecture and Design Museum. “People in big houses tend to lead noncommunitarian, noncivic lives. These homes are the embodiment of their desire to turn their backs on the shared experience and common spaces of real city life. They are anti-city.”

That might sound extreme, but it’s exactly what Per Lee has experienced as her once-secluded pocket of Mountain View has evolved. Realtors® and developers advertise the vibrant community and shady tree-lined streets as a draw, but then chop down those trees to maximize building space on the lots—and once new owners move in she barely sees them out and about mingling with their neighbors.

Another factor: Homeowners believe they have the right to do as they please with their properties—especially when they’ve paid big money for their land.

“If people are paying millions for the dirt on which a teardown sits, they want to be able to make their own decisions regarding the housing,” explains Arthur Jeppe, a partner at Read & Jeppe in Newport Beach, CA.

Which is understandable, but shouldn’t they at least consider the impact on their immediate neighbors?

‘Neighborhoods need to evolve’

In Renton, WA, Robert Walker’s 1,000-square-foot bungalow came with a view of downtown Seattle’s skyline and Lake Washington. But in 2005, buyers purchased the home across the street from him and built a three-story, 4,000-square-foot house that blocked his whole view. Despite collecting signatures for a petition and arguing his case before Renton’s City Council, Walker got nowhere.

“The feeling definitely seemed to be that being a place that’s attractive to stable homeowners was more important than regulating what’s being built,” says Walker.

A similar drama is playing out in Arcadia, CA, where more than 30 homes larger than 5,000 square feet (some as large as 8,000–9,000) have been proposed in the 850-home community over the past six years. In response, a group of longtime residents formed Saving Arcadia, which is currently battling the municipal government and City Council. Its argument: Overly lenient rules for developers have led to the proliferation of McMansions on lots that were zoned back in the 1950s for smaller homes. Plus, these oversize dwellings overburden the city’s water, gas, electricity, and other utility services.

Yet not everyone is against mansionization. According to Benjamin Reznik, a Los Angeles–based lawyer who often represents large-scale developers, neighborhoods evolve—and need to be allowed to do so. So while he agrees that neighborhoods’ historic character needs to be preserved, he thinks NIMBYism (for “not in my back yard”)—where locals oppose almost all new, larger residences simply because they don’t want them nearby—is a mistake.

“City councils need to take a refined, surgical approach to proposed projects rather than just enacting zoning restrictions that don’t actually make sense for some of the plots of land being discussed,” Reznik contends. In fact he believes the most effective way forward when disputes arise is compromise that includes allowances such as reasonable increases in a residential structure’s height if it’s set back from the property line.

Another option is finding a creative solution. One example is building downward (if a property is set on a hill) in order to increase square footage while preserving neighboring views, which is increasingly happening in various areas near Newport Beach. So maybe there’s hope that we can all play nice after all?

‘The neighborhood I loved is gone’

For Per Lee, however, things have already gone too far. She’s recently decided to sell her home, even though she knows it will most likely be replaced by the very kind of McMansion she hates. The silver lining: She frequently receives unsolicited offers from builders who want to buy her property, and the prices keep going up.

Per Lee says she’ll miss the neighborhood where she’s lived for decades, and her fruit trees, but that she’s looking forward to relocating to a quieter area that’s more in line with her values. After all, she points out, “Bigger isn’t always better.”

Source: Realtor.com, Audrey Brashich
http://www.realtor.com/news/trends/mcmansion-next-door/


RELATED: McMansion Definition 

April Fools - Home ownership is never foolish

The Do's and Don'ts of Home Equity Loans

With home values rising, homeowners who have equity, a much-valued resource, might be tempted to tap some of that wealth and use it for other purposes. But depending on your personal situation and how you’d like to use the equity, it may not necessarily be the right thing to do.

Here’s when a home equity loan, which allows you to use the equity of your home as collateral, makes sense — and when it doesn’t.

DON’T: Fund a lifestyle

Remember a decade ago when homeowners yanked cash out of their homes as if they were bottomless piggy banks to fund affluent lifestyles they couldn’t really afford? These reckless borrowers, with their boats, fancy cars, lavish vacations, and other luxury items, paid the price when the housing bubble burst. Property values plunged, and they lost their homes.

Lesson learned: Don’t squander your equity! A home equity loan should be looked at as an “investment,” and not as “extra cash” when making spending decisions.

DO: Make home improvements

The safest use of home equity funds is for home improvements that will add to the home’s value. If you have a one-time project (for example, you need a new roof), then a home equity loan might make sense.

Need access to money over a period of time to fund ongoing home improvement projects? Then a home equity line of credit (HELOC) would make more sense. HELOCs let you pay as you go, and usually have a variable rate that’s tied to the prime rate, plus or minus some percentage.

DON’T: Pay for basic expenses/bills

This is a no-brainer, but it’s always worth reiterating: basic expenses like groceries, clothing, utilities, and phone bills should be a part of your household budget.

If your budget doesn’t cover these and you’re thinking of borrowing money to afford them, it’s time to rework your budget and cut some of the excess.

DO: Consolidate debt

Consolidating multiple balances, including your high-interest credit card debts, will make perfect sense when you run the numbers — who doesn’t want to save potentially thousands of dollars in interest?

Debt consolidation will simplify your life, too, but beware: It only works if you have discipline. If you don’t, you’ll likely run all your balances back up again, and end up in even worse shape.

DON’T: Finance college

This may seem like an attractive use of home equity for those with college-age children. However, the potential consequences down the road could be significant. And risky.

Remember, tapping into your home equity may mean it takes you longer to pay off the loan. It also may delay your retirement, or put you even deeper in debt. Furthermore, as you get older, it will likely be more difficult to earn the money to pay back the loan. Don’t jeopardize your financial security.

Source: Zillow Blog, Vera Gibbons
http://www.zillow.com/blog/dos-donts-of-home-equity-loans-192836/

Hey, Homeowners! These Little-Known Tax Deductions Can Save You Thousands

Sawayasu Tsuji/Getty Images

You probably already know that owning a home comes with some sweet tax benefits, like the mortgage-interest and property-tax deductions. But did you know there’s a whole list of other homeowner-related tax breaks that you might be leaving on the table?

We’re not talking chump change, either. Homeowners already save an average of $3,000 a year in taxes from mortgage-interest and property-tax deductions, according to the National Association of Realtors. When you add in some of the lesser-known homeowner tax breaks, you could really be amping up the savings—and beating the IRS at its own game.

Back in December, Congress passed the Protecting Americans From Tax Hikes Act of 2015, which extended many exemptions that were about to expire and made others permanent. But to reap the benefits, you first have to know about them.

So, here we go! Check out these common—and not-so-common—homeowner deductions that you should take advantage of this year:

1. Mortgage interest deduction

If you’ve taken out a loan to buy a house, you can deduct the interest you pay on a mortgage, with a balance of up to $1 million. To access this deduction, you will have to itemize rather than take the standard deduction. The savings here can add up in a big way. For example, if you’re in the 25% tax bracket and deduct $10,000 of mortgage interest, you can save $2,500.

Of course, there are some limitations. For example, if you’re helping a family member pay his or her mortgage, you can’t deduct that interest on your tax return.

2. Private mortgage insurance

Qualified homeowners can deduct payments for private mortgage insurance, or PMI, for a primary home. Sometimes you can take the deduction for a second property as well, as long as it isn’t a rental unit. Here’s the catch: This only applies if you got your loan in 2007 or later.

Another restriction: This deduction only applies if your adjusted gross income is no more than $109,000 if married filing jointly or $54,500 if married filing separately.

3. Property taxes

You can include state and local property taxes as itemized deductions. An interesting note: The amount of the deduction depends on when you pay the tax, not when the tax is due. As a result, paying property taxes earlier could have a positive impact on your return.

4. Capital gains on a home sale

The dreaded capital gains tax can be avoided when the gain from selling your personal residence is less than $250,000 if you are a single taxpayer or $500,000 if you are a joint filer. To qualify, you must have owned and used the home as a primary residence for at least two years out of the five years leading up to the sale.

5. Medical improvements

If you’ve made improvements to your home to help meet medical needs, such as installing a ramp or a lift, you could deduct the expenses—but only the amount by which the cost of the improvements exceed the increase in your home’s value. (In other words, you can’t deduct the entire cost of the equipment or improvements.)

“A lot of this comes down to fact and circumstance,” says Gil Charney, director of The Tax Institute at H&R Block. “For example, if you’ve recently installed a heated therapy spa or hot tub in your home, you may be able to deduct the expense if there’s also evidence that, say, a physical therapist visits your home three times a week and you’re over a certain age.”

6. Home office

If you have a dedicated space in your home for work and it’s not used for anything else, you could deduct it as a home office expense.

“It doesn’t have to be an entire room,” Charney says. “It can just be a dedicated space.”

7. Renting out your home on occasion

If you rented out your home for, say, a major sports event like the Super Bowl or the World Series, or a cultural event such as Mardi Gras, the income on the rental could be totally tax free—as long as it was for only 14 days or fewer throughout the course of a year.

8. Discount points

Discount points, which are paid to lower the interest rate on a loan, can be deducted in full for the year in which they were paid. In addition, if you’re buying a home and the seller pays the points as an incentive to get you to buy the house, you can deduct those points, Charney explains.

9. Energy-efficiency tax credit

You can take advantage of an energy-efficiency tax credit of 10% of the amount paid (up to $500) for any green improvements, such as storm doors, energy-efficient windows, and air-conditioning and heating systems.

10. Loan forgiveness deduction

If you’re the owner of a foreclosed or short-sale home, you can take advantage of mortgage-debt forgiveness. For example, if you make a short sale of your primary home at $250,000 but owe $300,000 on your mortgage, the lender will forgive the extra $50,000 owed—and you don’t have to pay taxes on that amount.

For more tax tips, check out IRS Publication 530 for a list of what homeowners can (and cannot) deduct.

Source: Realtor.com, Renee Morad
http://www.realtor.com/advice/finance/these-little-known-tax-deductions-can-save-you-thousands/?iid=rdc_news_hp_carousel_theLatest

Renovation Realities

The Nightmare Next Door: What To Do When Your Neighbor Is a Nuisance

The animals that live in the house across the street bark incessantly. The people two doors down play their music so loud you now know all the lyrics to every Kendrick Lamar song ever written. And something, presumably a dog (you hope) keeps leaving presents on your lawn. Annoyances like these can make it unpleasant to live in your neighborhood. And, they can quickly escalate, becoming dangerous or even in need of legal intervention.

So how do you know how to handle a nuisance neighbor, and what should you do when the situation gets out of control? Knowing who you're dealing with is step one.

Annoying but (probably) not dangerous

The situation: Your neighbor is a busybody, always in everyone's business and clearly enjoys spreading it around. The animosity she creates is making it hard to enjoy social outings in the neighborhood.

The strategy: Have a talk with her. Perhaps the simple act of honest discourse is enough to get her to curtail her behavior. After all, no one wants a "Desperate Housewives" scenario.

Multiple people may need to be in on this act to get the point across that her behavior won't be tolerated. As a worst case scenario, disinviting her from social events may be necessary. Uncomfortable, but necessary.

Could go off the rails if provoked

The situation: Your neighbor complains about EVERYTHING. The way your kids' friends park on the street in front of your house. Your dog that barks exactly one time a day, for a 30-second period, when the mail is delivered. Even the way your trash can faces on trash pickup day.

And it's not just you. He's been terrorizing the neighborhood since the day he moved in, and everyone's too scared to confront him.

The solution: Kill him with kindness - but only if it seems safe. Could be the neighbor is a lonely man who doesn't know how to reach out and is channeling his sadness/lack of social interaction in a negative manner. Taking over some cookies, bringing in his newspaper, or offering to water his flowers might be the icebreaker you need to start breaking down those walls.

But, being able to judge a situation is key to knowing how to handle it. If you're not sure if your neighbor is just sad and lonely or if he's going to turn into a psychopath and burn your bunny, you probably want to keep your distance.

You should definitely watch your back

The situation: There has been a rash of vandalism in the neighborhood, with cars being keyed and landscaping being ruined. Or perhaps you've experienced hostile behavior from a neighbor yelling profanity at you or your kids.

The solution: There are some situations that can't be resolved any other way but getting the police involved. If you feel unsafe or if anybody is being threatened, don't be afraid to get the police involved. It could be that the scare is enough to alleviate the situation.

Involving the police could also be necessary if a neighbor is breaking the law.

"When only one person or a small number of people are disturbed by a nuisance, it is a private nuisance," said the Chicago Tribune. "Examples include a noisy neighbor, a barking dog, a trash-filled vacant lot and trespassers attracted to a vacant building. If a state or federal law or a local ordinance is being violated, the police or other officials should be notified to abate the nuisance."

Sometimes, a neighbor's antics affect more than your daily enjoyment of your home. If money or land are involved, things can get beyond testy. If keeping things calm and out of the hands of professionals isn't working, it may be time to take legal action.

"Consider having the property surveyed, which should resolve any questions about property lines. (And a survey could nip the problem in the bud, since the person who wants something to happen usually pays, said Emily Doskow, an attorney in Berkeley, California, and the editor of Neighbor Law: Fences, Trees, Boundaries & Noise on CNN. "The cost can vary anywhere from $300 to $1,500, depending on where you live and how complicated the survey is."

Be aware that there are several defenses that could derail your plight (knowing about the private nuisance when you moved to the neighborhood or tolerating it over a period of time are a few of them). Your attorney should be able to advise you of whether or not you have a legitimate case.

Source: RealtyTimes, Jaymi Naciri
http://realtytimes.com/consumeradvice/homeownersadvice1/item/42105-20160204-the-nightmare-next-door-what-to-do-when-your-neighbor-is-a-nuisance

4 Renovation Blunders That Can Hamper Value

Renovations are mostly done not only for a home owner’s comfort but to add value to their home. However, in some cases, home owners may end up making their home worth less depending on what they choose to do.

MarketWatch recently featured some of the most common renovations for home owners that potentially could decrease the value of their home, including:

1. Eliminating a bedroom: Even if the home owner plans to remove a bedroom in order to expand another one or make a living space larger, this renovation project likely could burn them at resale. The more bedrooms a home has, the higher the price it usually can get. “When you start eliminating bedroom space, you’ve completely changed the comparable value of your home in the neighborhood,” says David Pekel, president of Pekel Construction and Remodeling in Wauwatosa, Wis.

2. Renovating the garage into living space: Getting rid of the garage space in favor of an extra office, family room, or bedroom can be a turnoff to many potential buyers at resale, real estate professionals say. Seventy-four percent of recent buyers said that having a garage is extremely or very important, according to a survey of 7,500 people by Crescent Communities. For home owners who do choose to renovate the garage into living space, they may find leaving the garage doors on the outside a good move so that buyers could more easily convert the space back into a garage if preferable.

3. Removing closets: Michele Silverman Bedell, chief executive of Silversons in Westchester, N.Y., recalls a client who removed a closet out of the master bedroom in order to make a bigger master bath. But the renovation made the home much more difficult to sell, Silverman says. “People need closets,” she told MarketWatch. “They’ll walk in and count the number of closets per room.”

4. Too much wallpaper: While wallpaper can be removed, it has the reputation of being a lot of work to get it off.

Source: Realtor Mag Online > MarketWatch
http://realtormag.realtor.org/daily-news/2015/11/20/4-renovation-blunders-can-hamper-value?om_rid=AAFmZk&om_mid=_BWT2owB9II1pk0&om_ntype=RMODaily

Are you ready for homeownership?

According to combined data from the National Association of REALTORS® and the U.S. Census Bureau, more than 6 million homes will be sold in 2015 -- the most in nearly a decade.

And, of those 6 million homes, nearly one-third will be sold to first-time buyers.

It's not hard to understand why.

Nationwide, rents have been rising at a rate of more than four percent per year, and a survey from Rent.com of property managers nationwide suggests that rents could rise 8% or more in 2016.

Meanwhile, as rental rates rise, mortgage rates fall.

For nearly all of 2015, 30-year mortgage rates have averaged less than four percent, which helps to keep the costs of homeownership low. And, unlike rents, which can increase every 12 months, the payment on a fixed-rate mortgage never changes.

Renters know this.

They also know that mortgage lenders are making it easier to get mortgage-approved, with more access to low- and no-downpayment mortgages than during any period this decade.

Lenders are approving and closing more than 70% of all purchase applications, according to Ellie Mae, whose mortgage-processing software handles more than 3.7 million loan applications annually.

That's a huge number.

If you're a renter looking to buy your first home, today's housing market is working in your favor. It's an excellent time to consider the purchase of a home.

WHAT'S DIFFERENT ABOUT BEING A HOMEOWNER

Nationwide, renters become first-time homeowners every day -- more than a million times per year. It's not a rare occurrence and you can do it, too.

Generally, for renters, the decision to buy a home focuses on three big questions, each of which are financial in nature :

1. "Should I rent or should I buy?"
2. "How do I know which mortgage to choose?"
3. "How big of a downpayment should I make?"

And, while the answers to these 3 financial questions remain important, there are other considerations a renter should make before deciding to purchase a home.

Every homeowner will tell you -- there are certain "lessons" you learn in the game of homeownership. You can learn them on your own, the hard way. Or, you can take the advice of somebody who's been there before.

Among the most important lessons first-time homeowners learn is that homeownership costs only begin with monthly payment on your mortgage. There is plenty more which costs money.

For example, when you own your own home and something breaks, repairs and fixes are your responsibility to fix.

Sometimes, repairs will be large and will necessitate an insurance claim, such as with a damaged roof or windows. Most other times, though, repairs will be small and paid via cash.

It's good to budget 1.5% of your home's value for its annual maintenance costs.

First-time homeowners will also tell you that -- no matter what -- the mortgage has to get paid.

Unlike renting, when you get some leeway from a landlord, lenders require on-time payments month-after-month until the mortgage is paid-in-full. No matter what.

Missed payments not only put you at risk of eviction via foreclosure, but can damage your credit score and limit your ability to refinance to lower mortgage rates in the future.

Then, there's the matter of real estate taxes.

Real estate taxes are taxes paid to local governments, linked to the value of your property. As your property value rises, then, so does your annual tax bill. Taxes can also be increased via levies, which are often included (and approved) on Election Day ballots.

All of this means that -- even with a fixed-rate mortgage -- your cost of homeownership can increase over time.

The good news, though, is that homeownership provides stability and security for families, and can be a terrific means to build wealth -- two other lessons first-time homeowners will share.

By living in a community, you establish "roots" which has been shown to elevate psychological well-being among adults and children; and you also put yourself in position to rapidly expand your net worth.

Remember: You own your home and it's your asset -- regardless of whether or not the home is mortgaged. As the asset's value increases, so does your balance sheet.

Home values are up nearly 6% from 12 months ago. If you bought a home for $200,000 last year, then, your net worth has increased $12,000.

As a renter, you can't leverage a $200,000 home to build wealth. You can only do that as a homeowner. But, are you absolutely ready to become a homeowner?

There are a few ways you can know for sure.

YOU'RE READY TO BE A HOMEOWNER WHEN...

There are lot of reasons why renters choose to remain renters. For some, it's the flexibility that comes with having a landlord and being free to move "with 30 day's notice".

For others, renting may provide less expensive access to homes in a desirable school district, or for renters living in cities such as New York, San Francisco, or Chicago, access to apartments buildings and condos which offer unique amenities.

However, as a renter looking at homeownership, it's important that you're not deterred by the unpredictable nature of life.

For example, for a newly-married couple beginning a family, it can be tempting to wait to purchase until a child is "old enough for school"; or, for a longtime renter, to delay a home purchase because a job promotion may be on the horizon.

Life happens. It always will. And, no matter how much you plan, plans change.

Therefore, before buying a home, think past "life events" -- especially the unexpected ones -- and be secure in your choices and finances.

Here are three signals that you're ready to buy a home.

1. You have a 6-month reserve fund established

As the owner of a home, you will incur unexpected costs. The heating and cooling unit will break before its time; a tree will fall in the yard; a pipe will develop a leak -- the list of potential problems is endless.

Additionally, you may lose your job; or, become ill; or, add children or parents to your home.

Each of these events adds costs to your budget, but when you have a reserve fund equal to at least six months of living expenses, you can manage the unexpectedly nature of life.

Note that your 6 months of reserves should include all elements of your spending -- not just the PITI of your loan. A good way to determine how much you'll need is to average your last 18 months of credit card statements, insurance payments, and doctors' bills, along with your mortgage costs.

Multiply that average by 6 and consider it your minimum savings in reserves.

2. You have a reasonable idea that you won't need to move within the next two years

Buying a home is cheap. Selling one, however, is not.

This is because it's U.S. custom for the home seller to pay the real estate commissions due upon the sale of a home, the amount of which is split among the agents.

Real estate commissions range near five percent, but can be higher or lower depending on your home and market. This also happens to be about the same percentage that home values have climbed in the past 12 months.

Therefore, if you purchased a home last year and sold it today, the gains on your home -- $5,000 per $100,000 in price -- will be paid to the real estate agents who handled your transaction.

This is not a bad thing, necessarily. It can be argued that real estate agents will help you sell your home for more money than you could have sold it yourself, but it's still something about which to be aware.

Selling your home in fewer than two years can negate your real estate profits.

There can be tax implications of selling too quickly, too.

The IRS allows up to $500,000 in profit from the sale of a home to be exempted from capital gains on a jointly-filed tax return, or $250,000 on a single-person filing.

However, in order to claim the capital gains exemption from the sale of real estate, you must show that you lived in the home as your primary residence for at least 2 of the prior five years.

If you sell your home in fewer than two years, you subject yourself to additional federal income taxes. However, be sure to consult with a tax professional before making tax-related decisions.

3. You can forecast your household income for the next few years

Before purchasing a home, you should have a reasonable idea of what your household income will look like for the next few years.

This doesn't mean that you should know to the dollar how much you'll earn, but you should have a fair idea of the range into which your income will fall.

It's part of the financial planning required for homeownership.

For example, if you know that you're likely to take a pay cut in the coming years because you plan to switch from full-time employment to self-employment; or, if you know that your family may shift to a one-income household with the birth of a child, you'll want to account for that in your planning.

Remember: Mortgage payments are due monthly and real estate tax bills are prone to increase. Understanding your income can help plan for that.

Now, there's always the chance that you get lucky and current mortgage rates move lower in the future, giving you the ability to refinance your home to lower payments; or, to cash-out your home equity for personal reasons.

You can't plan for that, however.

A good refinance can offset the effects of a reduction in household income and a mounting of consumer debt. But getting to refinance is a bonus. You do it when you can, and feel grateful for it later.

Source: The Mortgage Reports - Dan Green Blogs on Mortgages, Dan Green
http://themortgagereports.com/18429/signs-ready-to-buy-home-renters

Hispanics & Housing: Demand Over The Next Decade

The Mortgage Bankers’ Association (MBA) recently released a report: ‘Housing Demand: Demographics And The Numbers Behind The Coming Multi-Million Increase In Households’. In this study, the MBA “utilized a comprehensive analysis of data from 1976 to 2014, a period encompassing several market and housing cycles, to provide a projection of much stronger housing demand over the next decade.”

According to the report:

“by 2024, demographic and economic changes will bring what could be one of the largest expansions in the history of the U.S housing market with 13.9 million additional households.”

But, what did they say about the Impact of the Hispanic community?

The Impact of Demographics on Housing Demand

• Over the next decade, Hispanic household growth will increase by 5.7 million households.
• New "minority-owned" households will be more than one-third higher than the number of new "non-Hispanic/White" households.
• The homeownership rate among Hispanics ages 40 and over is greater than the current average rate of 46% for all Americans.
• Millennials will be a key component of growth raising the ranks of households age 18 to 44 by 4.1 million. (21% of Millennials in the U.S. are Hispanic.)

Bottom Line

The Hispanic community will be a major driver of housing over the next decade.

9 hidden costs that come with buying a home

Buying a home isn't just a 20% down payment and a monthly check for the mortgage.

There are a mountain of hidden costs — from closing fees to taxes — that can add up to more than $9,000 each year, real estate marketplace Zillow estimates — and that number will only jump if you live in a major US city.

Business Insider spoke to Zillow's chief economist, Svenja Gudell, about the three big unavoidable costs — homeowners' insurance, property taxes, and utilities — and other common costs that are often overlooked.

If you're considering buying a home, be mindful of these expenses when establishing your budget, Gudell says:

Source: Business Insider, Dylan Roach and Kathleen Elkins

http://www.businessinsider.com/hidden-costs-of-buying-a-home-2015-10 

Why Halloween Scares Insurance Providers (and Should Scare You)

See the leaves change color and fall almost before your eyes. Taste the pumpkin spices featured in nearly every treat. Watch the horror movies dominating television. Yep, it’s October, with Halloween hype ratcheted up to full throttle.

Kids and adults alike dream — hopefully with no appearances from Freddy Krueger — about how they will dress on the one night of the year where anything goes. Spiderwebs and carved pumpkins decorate doorsteps, and grownups splurge for bowls full of fun-size candies for trick or treaters.

Before you get too carried away with thoughts of a thriller night, understand how real Halloween horrors can affect your home insurance.

Be cautious when carving

Carving pumpkins is one of the most fun Halloween activities, and allowing a child to carve one on his or her own for the first time is a noteworthy rite of passage. Still, children with knives should always be supervised. If you’re not dead-set on carving, a fun alternative is to paint pumpkins — brushes aren’t sharp.

Sinister flames

Pumpkin danger doesn’t end with a scary face. It’s customary, after all, to light a candle inside your jack-o’-lantern to give it an ominous flicker night after night. But the threat is real: Pumpkins can easily be knocked over and cause nearby decorations, loose-fitting costumes, plants and more to ignite.

About 33,900 fires were reported between 2009 and 2011 during the three-day span surrounding Halloween, according to the U.S. Fire Administration. Halloween fires caused 30 deaths, 175 injuries and $96 million in property damage per year during that time.

While fire damage typically is covered by standard homeowners policies, it’s vital to take steps to lower your home’s risk. Instead of placing candles inside your pumpkins, opt for battery-powered tealights.

Keep the beasts at bay

If you have dogs or other pets that may react poorly to trick or treaters, put them in a room that’s gated so you don’t have to worry about any biting scenarios.

More than one-third of all home insurance liability claims in 2014 involved dog bites, which cost insurance companies about $530 million, according to the Insurance Information Institute (III). Do yourself a favor and confine your pets.

Devious decorations

If Halloween is your favorite holiday and you like to transform your home into a haunted house, or fill your yard with spooky scarecrows, spiderwebs, and skeletons to greet trick or treaters, reviewing your home insurance policy is a must.

The common theme: liability.

If over-excited children sprint to your door in search of candy, trip on your porch step, and break a limb, you could be liable, since the injury happened on your property. Make sure your home is well-lit, and survey the yard for decorations or other items that could cause trick or treaters to slip and fall.

If you put on a haunted house — especially for children — you’re testing your guests’ fight-or-flight responses. When kids get scared, they run, and they could fall and hurt themselves. Don’t make your haunted house too scary for children to handle, and be sure you have plenty of liability coverage. The average bodily injury claim between 2009 and 2013 cost $19,466, according to the III.

The other issue with haunted houses applies to those who charge admission. Collecting a fee could transform your harmless haunted house into a business, and if you don’t have a business policy, your home insurance likely won’t cover costs in the event of an injury.

Villainous vandals

In many areas, the night before Halloween is known as “Mischief Night,” when teens and young adults often engage in pranks and minor vandalism such as playing ‘ding-dong ditch’ or toilet-papering yards. The fun can escalate to serious vandalism, such as smashing windows or dabbling in arson.

To avoid falling victim to vandalism around Halloween, keep porch lights on and consider adding motion-sensor lights around the exterior of your home. Park your car in a garage, if possible; test smoke alarms; and remind all members of your family about your emergency evacuation plan in case of fire.

Though standard home insurance policies typically cover vandalism, think twice about filing small claims — say for damaged decorations. For one thing, you’ll have to pay a deductible, which could be more than the claim. Plus, filing a lot of small claims could cause your premiums to rise when it comes time to renew your policy.

Spooky soirees

With Halloween falling on a weekend, a party featuring scary snacks and fun cocktails might be part of your plans. Whether you’re hosting the festivities or just attending someone else’s, consider the following factors.

The last time Halloween fell on a Saturday was in 2008, and the III reported that 58 percent of highway fatalities that night involved drivers with blood alcohol contents at or above the legal limit. Wrecks involving impaired or drunken drivers on Halloween kill three times more people as on New Year’s Eve, according to the National Highway Traffic Safety Administration.

If an impaired guest leaves your party and causes a crash that hurts or kills someone, you could be on the hook. A wise host collects guests’ keys as they arrive, and monitors their alcohol intake.

If you don’t feel comfortable cutting off friends or family, hire a professional to tend bar and shoulder that responsibility. Above all, make sure impaired guests have a designated driver or let them spend the night.

You can follow these steps and still have Halloween fun — plus you’ll minimize your chance of needing to invite a really scary guest: your insurance provider.

Source: Zillow Blog, homeinsurance.com
http://www.zillow.com/blog/halloween-scare-insurance-providers-185696/

Renting or Owning? Which costs more?

There’s more to comparing the costs of renting and owning than the dollar cost of payments.

Even with numbers like these, some still say renting is better:

“Investing in a home is riskier than renting.”
No risk, no reward. Besides, even studies conducted by the Federal Reserve show that owning can provide a net worth that is from several to hundreds of times higher than that of renters.

“Home values have dropped in recent years.”
Which is one reason why ownership may now be less expensive than renting. As well, recent price trends in many areas have reversed, and values are once again on the rise.

“The tax deductions aren’t worth it.”
Some people benefit from claiming deductions for mortgage interest and real estate taxes. Others find a standard deduction more valuable. Even if you exclude the tax benefit, the real cost of owning can still be less than renting.

Equity for you or equity for your landlord?
With more or less equal payments, owning will always have an advantage in that you’re paying down principal and earning equity in your own home rather than the landlord’s.

Still renting and want to explore the path to ownership? Reach out, and we'll be happy to help.

Factors used: $500,000 purchase price, 20% down, $400,000 30-yr. fixed loan at 4%/4.25% APR. Principal & Interest payment = $1909.66, taxes = $520.83/Mo. (1.25% of value), insurance = $120.83/Mo. ($2.90 per $1000 of loan amount) & maintenance = $208.33/Mo. (0.5% of value). Tax deductibility at 28%. Tax savings, principal paid and appreciation averaged over a 5-year period. Always consult with your tax advisor for tax advice specific to your situation. This is not a Good Faith Estimate nor an offer to lend. Rates, prices, taxes, insurance, etc., are subject to change at any time. APR calculations are based on closing costs of 3% of the loan amount. Actual fees can be less.

How Do Homeowners Accumulate Wealth?

How Do Homeowners Accumulate Wealth?

Lawrence Yun Contributor

Opinions expressed by Forbes Contributors are their own.


The differences between buying and renting are massive.  According to the Federal Reserve, a typical homeowner’s net worth was $195,400, while that of renter’s was $5,400.  The data reflects 2013 and the next survey of household finances, which is conducted every three years, will be out in 2016.

Based on what has happened since 2013 and projecting a conservative assumption of what could happen next year to home prices if we see only 3% price growth, the wealth gap between homeowners and renters will widen even further. The Fed is likely to show a figure of $225,000 to $230,000 in median net worth for homeowners in 2016 and around $5,000 for renters. That is, a typical homeowner will be ahead of a typical renter by a multiple of 45 on a lifetime financial achievement scale.

Though there will always be discussion about whether to buy or rent, or whether the stock market offers a bigger return than real estate, the reality is that homeowners steadily build wealth.  The simplest math shouldn’t be overlooked. A vast majority of homebuyers take out a 30-year fixed rate mortgage to make a home purchase. After 30 years, there is no mortgage payment (nor rent payment). So the home price growth over that time period would be the equity that the homebuyer would have accumulated. For example, the median home price of a single-family dwelling in the U.S. thirty years ago in 1985 was $75,500. This year, it will be at least $220,000. That figure of $220,000 is the housing component of the person’s wealth. Even had home prices not risen, the person would still have $75,500 in wealth today – on top of not paying any further monthly mortgage after 30 years.

This simple example does not play out nearly as neatly in the real world, since people do not stay in one residence over the 30 year period. Almost all homeowners trade up, change neighborhoods, or move to a better school district at some point. However, they are able to make those residential relocations due to the housing equity accumulated, even over a shorter period, and can immediately apply that equity to the next home as a downpayment. Therefore the conditions of steadily building housing wealth still hold.

We also know that not everyone can or should be homeowners. The memories of easily accessible subprime mortgages and subsequent harsh foreclosure pains are still fresh, and remind us of the devastating impact on the families involved, local communities, and to the broad economy. In addition most young adults have not developed the financial standing or have found a stable, desirable career and, therefore, choose not be homeowners until later.  The homeownership rate among households under the age of 35 is 35% currently and rarely rises above 40% historically. For those under the age of 25, the current ownership rate is 23% and rarely rises above 25%. But the time will eventually come when people want to convert to ownership. By the time people are in their prime-earning years of 45-to-55, nearly three-fourths do eventually become homeowners. By retirement, nearly 80% are homeowners.

A recent survey of consumers commissioned by my organization revealed that 80% believe that purchasing a home is a good financial decision (2015 National Housing Pulse Survey). Most consumers appear to already understand the simple math and the benefits of homeownership. So don’t overthink the matter of whether now is a good time to buy, or whether stock market returns will be better. The exact timing of a home purchase will have little financial impact in the big scheme of things. Just know that homeowners generally do come out ahead of renters in the long run.

Does your homeowner's insurance cover water damage?

Many a distraught homeowner has had to deal with water damage only to find out that their home insurance policy does not cover the damage. Here's how to make certain that you are not caught in that position.

Avoid water damage

Proper home and appliance maintenance is the best prevention to water damage. Have your heating, cooling and water heater serviced regularly. Don't leave an appliance such as a dishwasher or washing machine running while you're out of the house for a long period. Check occasionally under the sinks for leaks and that the pipes are dry. Stay in the room while filling a bathtub, it fills faster than you think.

Get regular inspections of plumbing and drain systems. Whenever the plumber is at your home, ask him or her to check on all the plumbing. Turn off the water supply to outdoor spigots before the first freeze of winter. Make certain all drains are clear and operating.

Repair any leak promptly. Even minor drips can grow into bigger problems, possibly hiding pipe leaks or worse, plumbing issues behind a wall. Mold and mildew issues usually stem from undiscovered and unrepaired leaks because it needs moisture to grow.

Carefully monitor your water bill for unusual spikes. You could have an underground pipe leak that will cost you thousands of dollars to repair. If the leak occurs on your property, it's your obligation to fix, not the city's water supplier. And don't expect the city to reduce your water bill because you unintentionally used too much water.

Get enough insurance

Don't be satisfied with basic or minimum coverage insurance contracts. Your idea of basic protection may differ broadly from your insurer. Many insurance providers charge extra for more complete coverage, and it can be surprising what is and isn't covered.

Read your policy carefully to make certain that your home has the coverage necessary for all kinds of situations, from a child flushing a toy down the toilet to a tree falling on your roof during a storm. Severe problems such as a sewer backup may not be covered and may require extra coverage.

Source: RealtyTimes, Blanche Evans
http://realtytimes.com/consumeradvice/homeownersadvice1/item/39419-20151022-does-your-homeowners-insurance-cover-water-damage

How to Make Sure Your Dream Home Is a Good Investment, Too

You’ve probably heard real estate can be safer than the stock market, while still yielding decent returns. This can be true, but adding real estate to your portfolio is very different from investing in stocks, bonds, and certificates of deposit. Finding success in the housing market often requires being able to find good deals and ripe opportunities. Check out some tips below to help you launch your housing market investment career.

1. Assess your goals

It’s important to check your credit and have your finances in order before you get into the housing market. (You can get a free credit report summary from Credit.com to see where you stand.) If you are struggling to make your own mortgage payments, real estate investment might not be the right move. But if you are willing to put the time in to research a good location and deal, crunch numbers to test a property’s financial potential, and can manage the maintenance needed, then it might be a good fit for you. Just be sure you know what you are looking to gain from the experience and understand what it will take to get there.

2. Know the market

It’s a good idea to spend some time learning about the process of real estate investing. Real estate rules vary by state, so it’s important to know about the state you are looking at. You can read books or ask a local real estate expert.

3. Consider multiple buying sources

You can look beyond the local multiple listing service to find homes available for purchase. With your criteria set you can check the newspaper, Craigslist, and real estate auction sites for properties that match what you are looking for. You can also find good opportunities through word of mouth.

4. Find a good real estate agent

Not all real estate agents have experience or know how to help investors find the right type of properties. Before the real estate crash, only a small percentage of real estate professionals would even work with housing investors. As the market slowed, more became open to the idea and some have even taken courses to understand the ins and outs. It’s a good idea to choose a real estate agent who has sold several investment properties and understand your goals as well as the ideal return on investment.

5. Play by the numbers

If you are investing in real estate to increase your net worth, it’s a good idea to make sure it’s part of a balanced financial plan. Whether you are trying to build up a retirement fund or eventually replace income from a traditional job, it’s important to make sure the choices you’re making continue to fit into that plan.

You may find you need to hold on to a home you intended to flip, if repair or closing costs were more than expected. In this case, you can consider renting it out until you are able to sell it for the profit you are aiming for. Likewise, if you were planning to rent out the property, but someone offers you more than expected to buy it, you may want to sell and move onto the next property. It can be a good idea to let your goals and the numbers be your guide.

Source: Credit.com, AJ Smith
http://www.realtor.com/advice/finance/how-to-make-sure-your-dream-home-is-a-good-investment-too/

Five home improvement projects to give you the most return on investments

Not all home improvement projects will give you the best return on investment. Here are 5 that will give you the most money.