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Rarely, does one size fit everyone and the same goes for advice. The following suggestion is not right for everyone. However, for people with job security and who don't own a home; for people with good credit and enough savings for a down payment, there may never be a better time to buy a home.
Homes have had a significant price correction but in many markets, they have started to rise again. The lower prices combined with historically low interest rates make this an opportune time to buy a home if you can afford it.
One of the reasons homes are an attractive investment is that fact that you can use a small down payment and finance the balance for 30 years. The principle, called leverage, allows you to earn a return on the value of the home rather than the actual cash investment. Small appreciation can create a large rate of return on the initial investment of the down payment and closing costs.
The following example is a projection at the end of five years for a $175,000 home with 3% closing costs and a 5% interest rate for a 30 year term. The rate you see in each column is an annual rate of return based on the equity of the home at the end of the five year period due to both appreciation and amortization of the loan.
The nature of positive leverage will cause the returns to be higher with a smaller down payment. As you see in the table, the return is higher on the 3.5% down payment than with the 10% or 20% down payment.
If you're curious to see if this advice might fit your situation, you really need to sit down with a knowledgeable real estate professional who can help you assess your position. It's worth the time because there may never be a better opportunity than now.
It all seems perfectly reasonable: one person is not satisfied with what he can earn currently in the market and another wants to find the most attractive mortgage to purchase their home. It can be a good match but the IRS has specific rules that govern the transaction.
The loan must be done in a business-like manner with a written note specifying the loan amount, interest rate, term and collateral. IRS requires that the mortgage be a recorded lien in order to allow the interest deduction.
Sometimes, these friends and family situations have a less than normal interest rate on the mortgage. However, the rate charged in the note is regulated by the minimum applicable federal rate which is published monthly by IRS according to current Treasury securities. For October 2011, the rate is 2.95% for terms over nine years.
The seller must report the interest paid to them along with the name, address and Social Security number on schedule B when the buyer uses the property as their principal residence.
A mortgage between family and friends can be good for both parties. It may allow the borrower a slightly lower rate without the expenses of a traditional lender while giving the note holder a higher rate than they can earn in available investments. Your tax professional can guide the transaction whether you're a buyer or seller and your real estate professional can help arrange to have the documents drawn and filed.
Two notes before jumping in:
Applebee’s – free meal, Friday, Nov. 11:Last year, Applebee’s served 1,024,000 million free meals to military veterans and active servicemembers. Applebee’s is again offering a free meal to military veterans and active-duty service members on Veteran’s Day, Friday, Nov. 11, 2011. There will be 7 entrées to choose from. Military ID or proof of service required. Find locations at http://applebees.com/.
Chili’s – free meal, Friday, Nov. 11. Chili’s is offering all military veterans past and present their choice of one of 6 meals. This offer is available during business hours on November 11, 2011 at participating Chili’s in the U.S. only. Dine-in from limited menu only; beverages and gratuity not included. Veterans and active duty military simply show proof of military service. Visit their website to find locations.
Golden Corral – Free meal, Monday Nov. 14: The 10th annual Golden Corral Military Appreciation dinner will be held on Monday, November 14, 2011 from 5 pm to 9 pm in all Golden Corral Restaurants nationwide. The free “thank you” dinner is available to any person who has ever served in the United States Military. If you are a veteran, retired, currently serving, in the National Guard or Reserves, you are invited to participate in Golden Corral’s Military Appreciation Monday dinner. For more information visit http://www.goldencorral.com/military/.
Special thanks to Golden Corral: To date, Golden Corral restaurants have provided over 2.5 million free meals and contributed over $4.3 million to the Disabled American Veterans organization.
Hooters – Free Meal, Friday, Nov. 11. Hooter’s is serving up a free meal to military veterans all day on Veterans Day. Offer good for all veterans and active duty military personnel. Choose one of the new specialty items on the Hooter’s menu. Offer valid at participating Hooters only; open to all active duty and military veterans with valid military ID or proof of military service. Drink purchase required. For more information, visit, www.HootersVeteransDay.com.
Krispy Kreme – Free doughnut. Available only at participating Krispy Kreme stores. Offer available to all active-duty, retirees & veterans on Friday November 11th. Be sure to call ahead to verify your local Krispy Kreme is participating.
McCormick & Schmick’s Seafood Restaurants – free lunch or dinner, Sunday Nov 13, 2011: McCormick & Schmick’s is celebrating their 13th annual Veteran’s Appreciation Event on Sunday, November 13th. Veterans will be able to choose a complimentary lunch or dinner entrée. Veterans must provide proof of military service. Be sure to contact your local McCormick & Schmick’s as this is valid at participating restaurants only. Also, Space is limited and reservations are highly recommended. For more information visit: M&S Veterans Appreciation Event.
Outback Steakhouse – A week of Free Bloomin’ Onions and Cokes Monday Nov. 7 – Friday Nov. 11. Outback Steakhouse is honoring America’s military veterans by offering active duty military and veterans a free Bloomin’ Onion and a Coca-Cola product during the week leading up to Veteran’s Day. This offer is available to Military Personnel who have one of the following forms of identifications: U.S Uniform Services Identification Card, U.S Uniform Services Retired Identification Card, Current Leave and Earnings Statement (LES), DD form 214 Veterans Organization Card (i.e., American Legion and VFW), Photograph in Uniform, Wearing Uniform. For more information, visit,http://outback.com/companyinfo/veteransday.aspx.
The Outback understands commitment. For the past two years, The Outback, with the help of their patrons, has donated $2 Million to Operation Homefront, a non-profit organization providing everyday and emergency support for active troops, wounded warriors and their families.
Subway – Free Six Inch Sub. Select Subway locations offer a FREE six inch sub to military veterans on Veteran’s Day. However, Subway restaurants are franchises, so this offer may not be available everywhere. Please call ahead.
Texas Roadhouse – free meal, Friday, Nov. 11. Offer varies by location; our local Texas Roadhouse is offering a free meal from opening until 4pm. Other locations may vary in offer, hours, or availability. Call ahead to your local restaurant for more information.
T.G.I. Friday’s – Buy one get one free Nov 11-14. At participating locations for anyone with an old or current military ID. November 11-14.
Uno Chicago Grill, Friday, Nov. 11. Uno’s is offering a free entree or individual pizza with a purchase of an entree or pizza of equal or greater value. Offer good for all military for veterans and active duty military. ID or proof of service required: Show up in uniform (if your service permits), provide military ID, show a picture of yourself in uniform, or have other ID showing proof of service. More info here.
Update: Home Depot and Lowes 10% Military Discount Available Everyday.
Home Depot: The Home Depot(R) is offering all active duty personnel, reservists, retired military, veterans and their families a 10 percent discount off their purchases in honor of Veteran’s Day. The offer is valid on purchases of up to $2,000 for a maximum of $200 and is available at The Home Depot stores, The Home Depot Design Center locations, Yardbirds and EXPO Design Center(R) locations. The 10% discount is available everyday for active duty and retirees, but not all veterans. Home Depot makes this offer available to all veterans on most military holidays. You can also find Home Depot discounts online.
Lowes: Lowe’s Companies, Inc. will offer all active, reserve, honorably discharged, retired military personnel and their immediate family members a 10 percent discount on in-store U.S. purchases made during the Veterans Day holiday. The discount is available Nov. 7 – Nov. 11. The discount is available on in-stock and special order purchases up to $5,000. To qualify, individuals must present a valid military ID or other proof of service. Excluded from the discount are sales via Lowes.com, previous sales, and purchases of services or gift cards. Like Home Depot, Lowes offers this discount daily to active duty military members, but not to veterans. However, they extend the offer to military veterans on military holidays. You can also find exclusive discounts at Lowe’s.com.
Fee Free Day at National Parks. To honor America’s service men and women, Secretary of the Interior Ken Salazar announced that areas managed by the National Park Service would not charge entrance fees for Veteran’s Day weekend – November 11-13, 2011.Over 100 national Parks will be participating in this event.
Bed and Breakfast for Vets
In the third year of the program, B&Bs for Vets has organized over 485 (and counting) participating Bed and Breakfasts and Inns across the US and Canada which will be offering veterans a free night’s stay on November 10th, the night before Veterans Day. This offer is available to both active duty military members and veterans with ID, but space is limited. Each Inn and B&B has at least one room available for this promotion and reservations must be made directly through the participating Inns and B&Bs. For more information visit B&Bs for Vets.
Sam’s Club® locations nationwide will distribute 36,000 Hugo® canes free of charge on November 9th, 10th, 11th, 2011 to U.S. military veterans in need of mobility assistance. Limited quantities available, while supplies last. Sam’s Club® Membership is not required, but proof of military service may be required. For more information, visit HugoSalutes.com.
Jos. A. Bank Veteran’s Day coupons:
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It takes money to buy a home: yours or theirs. If you're not going to pay cash for a home, you need to find out exactly what you can borrow and what it will cost before you start looking at homes.
The mortgage process is not as clear cut a path as it was a few years ago. It is certainly more complex, takes longer and assumes that you're credit worthy. If you have less than stellar credit, a trusted mortgage professional can advise you how to improve your individual situation.
You are entitled to a free credit report from each of the three major credit bureaus each year. Go to AnnualCreditReport.com to get a copy of each from TransUnion, Experian and Equifax. Read the reports to determine if they're accurate. Surprisingly, about 90% of all reports have errors.
You can try to correct them directly with the credit bureau, but a trusted mortgage professional can help you with this process too. They have tools that are not available to individuals. Some errors may not be serious but others will keep a person from qualifying.
Housing affordability is at a near record height due to the incredibly low interest rates and low home prices. Some areas are experiencing absorption of the inventories which could impact price. If you're going to use "their" money to buy a home, the first step is to talk to a trusted mortgage professional. Call me for the name of a trusted mortgage professional.
The IRS has given special consideration regarding the sale of their jointly-owned principal residence after the death of a spouse. If the surviving spouse does not remarry prior to the sale of the home, they may qualify to exclude up to $500,000 of gain instead of the $250,000 exclusion for single people.
If you have been widowed in the last two years and have gain in your principal residence, it would be worth investigating the possibilities. Contact your tax professional for advice about your specific situation. Contact me to find out what your home is worth in today's market. See IRS Publication 523 - surviving spouse.
Do you remember going to the State Fair or Six Flags as a child? There was a terrific ride your older siblings were going on but there, at the entrance gate, was a sign that read "You must be this tall to ride."
After standing in line and thinking you had just about made it, you found out that you weren't tall enough. Not only was it disappointing, it was slightly embarrassing. You never want to go through that again.
It's remarkably similar when buying a home. You can go through the entire property search process to find the right home and negotiate the contract only to find out that you don't measure up "financially." It's something that no one wants to go through if they have a choice.
Regardless of what you think you know, if you're buying a home, you need to physically visit with a trusted mortgage professional before you get serious. You'll find out your credit score which will directly affect the mortgage rate you'll pay. You'll discover possible blemishes on your credit that may be able to be corrected. You'll even get a pre-approval letter that you can submit with an offer which could dramatically affect your negotiations.
Remember how some rides didn't turn out to be as good as you thought they were going to be? You certainly don't want that disappointment with a lender involving one of the biggest decisions of your life. Contact me for a list of trusted mortgage professionals.
People are staying longer in their homes according to the National Association of Realtors and the U.S. Census. Over time, even a modest appreciation could result in a significant gain and homeowners should have a strategy to minimize possible taxes.
Maintenance on a principal residence is not deductible but improvements can add to the basis which can reduce the gain in the sale. Improvements are easily identified if they add to the value of a home, prolong its useful life or adapt it to new uses.
Receipts and other proof, such as pictures, should be kept during ownership and for several years after the sale of the home. They can include the closing statements from the purchase and sale of the home and all receipts for improvements, additions or other items that affect the home's adjusted basis or cost.
For a principal residence, basis includes the price paid, plus certain acquisition costs and capital improvements made. When the property is sold for more than the basis, there is a gain. Currently, homeowners that meet the requirements can exclude up to $250,000 of gain if single or up to $500,000 if married filing jointly.
A simple strategy is to put documents that affect the basis of the home in one envelope. Any receipt for money spent on the home that isn't the house payment or utilities, goes into the envelope. Your tax advisor will be able to sort through them to determine the capital improvements.
For more information on determining basis or capital improvements, see IRS publication 523, Selling Your Home.
With the exception of a mortgage payment, the largest homeowner expense is utilities; and energy is the major component. There are lots of contributing factors such as air leaks, insulation, heating and cooling equipment, water heaters and lighting.
It's estimated that 75% of the electricity to power home electronics is consumed when the products are turned off. Computers, monitors, TVs, cable and satellite boxes, DVRs and power adaptors are spinning your electric meter even when they're not being used.
Unplugging devices can actually make a difference in the size of your electric bill. Plugging several of these offenders into a power strip with a single on/off switch may make the task easier. Most computers have options to put them into sleep mode or even turn off when not in use.
Take 3 1/2 minutes and watch Energy 101. Consider hiring a professional home energy auditor or do-it-yourself. The Department of Energy has a checklist with some valuable suggestions.
Subject: Print this and keep in your car for emergencies 4 Things you might not have known about your Cell Phone For all the folks with cell phones. (This should be printed and kept in your car, purse, and wallet. Good information to have with you.) There are a few things that can be done in times of grave emergencies.
Your mobile phone can actually be a life saver or an emergency tool for survival. Check out the things that you can do with it:
FIRST (Emergency)
The Emergency Number worldwide for Mobile is 112. If you find yourself out of the coverage area of your mobile network and there is an Emergency, dial 112 and the mobile will search any existing network to establish the emergency number for you, and interestingly, this number 112 can be dialed even if the keypad is locked. Try it out.
SECOND (Hidden Battery Power)
Imagine your cell battery is very low. To activate, press the keys *3370#. Your cell phone will restart with this reserve and the instrument will show a 50% increase in battery. This reserve will get charged when you charge your cell phone next time.
THIRD (How to disable a STOLEN mobile phone? ) To check your Mobile phone's serial number, key in the following Digits on your phone: *#06# . A 15-digit code will appear on the screen. This number is unique to your handset. Write it down and keep it somewhere safe.
If your phone is stolen, you can phone your service provider and give them this code. They will then be able to block your handset so even if the thief changes the SIM card, your phone will be totally useless. You probably won't get your phone back, but at least you know that whoever stole it can't use/sell it either. If everybody does this, there would be no point in people stealing mobile phones.
And Finally....
FOURTH (Free Directory Service for Cells)
Cell phone companies are charging us $1.00 to $1.75 or more for 411 information calls when they don't have to. Most of us do not carry a telephone directory in our vehicle, which makes this situation even more of a problem. When you need to use the 411 information option, simply dial: (800) FREE411 or (800) 373-3411 without incurring any charge at all. Program this into your cell phone now. This is sponsored by McDonalds.
What's keeping you from taking advantage of the low prices and mortgage rates available today? Concerned that you may need to sell in a few years and won't be able to get your equity out of your home?
Suppose a buyer purchases a home and finds out that they need to move in two years. Instead of selling the home, they could convert it to a rental. It's possible that it could have a positive cash flow even with the small down payment. In most cases, the conversion would not accelerate the mortgage.
The price of homes and low interest rates combined with a very strong rental market in most areas has attracted a lot of investors. Non-owner occupied mortgages generally require 20-30% down payment compared to a 3.5% down payment for a FHA owner occupant.
The following example looks at a home that might have been purchased as a principal residence and then converted to a rental at the end of two years. There are certainly lots of variables to consider but the high indicated rate of return merits closer examination of the possibilities.
For the buyer who has good credit and ample funds for down payment and acquisition costs, there may never be as good a time to buy a home as now. For the buyer who is concerned that they might have to move in the near future, converting it to a rental might make a great investment opportunity.
