If I'd Only Bought

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

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

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

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

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

Gift or Inherit

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

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

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

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

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

Assumption Opportunity

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

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

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

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

Protect Yourself

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

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

Pre-approval Gives Everyone Confidence

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

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

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

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

Just a thought

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

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

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

It’s Worth Checking Out

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

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

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

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

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