Home Sweet Home

Simple Ways Your Home Can Make You Money
by Diane Kennedy - Realty Times

Is your house an asset or a liability? Does it put money in your pocket or does it take money out? If you're like most homeowners, you might view your home as your biggest asset. Yet, it doesn't create cash. It takes cash. As time goes on, the value (hopefully) increases and you pay down the mortgage loan, so that your equity increases. That's how your house acts as an asset.

There's more that your home can do for you. In fact, there are three great ways to have your home start paying you, instead of the other way around. We call these "home loopholes;" the tax loopholes that the government wants you to use. A tax loophole is actually a government incentive to promote public policy. Follow the rules, and you'll put more money in your pocket and still be able to sleep at night.

Home Loophole #1: Home office deduction

The home office deduction is one of the most misunderstood tax loopholes. There are three rules to get this deduction:


You must have a business.

You must have a space in your home that is used exclusively for the business.

You must regularly do some kind of business activity in that space.
That's it. You don't need to have a separate entrance or see clients in your home office, but you need to do some sort of regular business activity (phone calls, emails, filing) in the space. You can have another office and still take the deduction for your home office. This space can be a spare room or even the corner of a dining area. Now, let's go through these three requirements in a little more detail.

If you receive a Form 1099 as an independent contractor, you have a business. If you have a part-time activity in which you make money (or in which you plan to someday make money), you have a business. Face it, if you're spending your time working, even if it's part-time, as a real estate agent, you have a business.

The home office deduction is calculated as a percentage of the business square footage of your home applied to the total square footage. In other words, if your home office is 200 square feet and your home is 2000 square feet in total, then 10 percent (200 divided by 2000) of your home expenses are deductible against your business income.

Home Loophole #2: Move

If you live in your home for two of the previous five years, you can take a capital gain exclusion of up to $500,000 if you're married, filing jointly and $250,000 if you're single. Chances are you've heard that strategy before, but had you ever thought about making it your career?

One of my clients will buy a fixer-upper property, fix it up, live in it for two years and then sell it for a gain. Kurt made $110,000 after all expenses on his first home like that, after living in it for 2 years. Remember that's tax free. Now, how hard would you have to work in order to put $110,000 after tax in your pocket after two years? Well, Kurt makes that much simply by moving.

Home Loophole #3:

Combine #1 & #2 for best of all worlds! Maybe you've heard one of the tax myths that states that having a home office is bad because you pay tax when you sell your house. That's completely untrue! In fact, you can have a home office and take a deduction for it every year you own your home. Then, when you sell the home, you can still take advantage of the tax free gain exclusion.

You have a choice with your home -- you can pay for it or it can pay you. Home loopholes make all the difference.

Published: May 10, 2006

No Cost Mortgages

No-Cost Mortgages Are Coming
by Lew Sichelman - Realty Times

At least one major lender has a totally no-cost loan on its radar screen.

"We talk about it quite a bit," Bank of America's Floyd Robinson told a gathering of the country's real estate writers meeting in Charlotte over the weekend. "I know it's a revolutionary change, but I truly believe that's where the market's going."

Robinson, who is president of consumer real estate and insurance services at Bank of America, said the myriad of closing costs and fees now attached to home loans only serve to confuse borrowers, and promised that the bank's no-fee loans would have the same annual percentage rates at those with fees so borrowers could readily see there would be no hidden charges.

He also said the big Charlotte-based bank is considering offering to refinance its customers' mortgages without charge. "All they'll have to do is call the servicing department and it's done," he said at the National Association of Real Estate Editor's annual conference.

Bank of America, which began to waive lender fees on most mortgages a year ago, thinks it has enough economies of scale and clout with service providers to offer no-cost loans, an executive with bank said. But even if the bank has to take a loss to originate such a mortgage, he explained, it will be worth it to get customers in the door so it can start building banking relationships with them.

Last May, the bank introduced its Mortgage Rewards program, which re-engineered the lending process and promised to knock about $2,000 off the cost to close a $200,000 loan. The savings is higher or lower, depending on the amount of the mortgage, the location of the property and other borrower choices.

With Mortgage Rewards, Bank of America waives the origination, application, lender closing, appraisal, flood determination, tax service, credit report and courier fees. Borrowers also receive a $200 credit on their closing statements, and a one-year insurance policy that "cancels" up to six principal and interest payments if the borrower loses his or her job involuntarily and wipes out the balance altogether if the event of accidental death.

The program is available on most conventional and jumbo products offered by the bank, covering the purchase of both primary and vacation homes.

"There are no gimmicks," the bank's Eric Telljohann said at the time. "We encourage customers to shop around and compare (our) APRs (annual percentage rates) with that of other lenders."

Earlier this month in Charlotte, Robinson said national banks like Bank of America are the "most driven" of all lenders to give borrowers the best products. "We're not in the mortgage business to collect an origination fee, or only to generate repeat business," he explained. "We want to serve all of our customers' financial needs."

The executive said that by the end of next year, banks will be offering free refinancing, bundling their products to save borrowers time and money and making "truly no-fee mortgages."

"These will be revolutionary changes," he told the journalists. "The needs of American home buyers are driving us to make these changes. They'll be the winners, just as they should be."

Published: May 10, 2006

First Time Home Buyers

Tips for First-Time Home Buyers

By Salvatore Caputo
Bankrate.com

Buying a home for the first time can be scary, but as with anything else in life, the right preparation brings about good results. Remember, the right home for you is one you want and can afford.

Step 1: Ask yourself if you're ready.

You need to decide whether you're financially ready to buy a home, says Connie Barbosa, vice president and branch manager of Slade's Ferry Bank in Somerset, Mass. She suggests first-time buyers ask themselves some simple questions:

Do you have a steady job and income?
Do you plan on remaining in the same area for a few years?
Do you have enough money set aside for your down payment and closing costs?
Do you have an emergency fund?
Do you live within your means, avoiding credit card debt?
Another consideration is whether you're mentally prepared for the responsibility, says Charles Glass, a real estate agent who sells in the Washington, D.C.-Maryland market.

"A first-time home buyer is probably used to renting," Glass says. "They've got to get used to budgeting a little differently in terms of having a reserve when things go wrong. And whether it's a new home or an old one, things will go wrong. Experienced homeowners know this. First-time buyers don't."

Step 2: Find out what you can afford.

When you're sure you have the right mind set to be a homeowner, it's time to determine how much house you can afford. Probably the best way to do that is to get pre-qualified for a loan. In fact, some real estate agents won't work with someone who is not pre-qualified.

There are three options for pre-qualifying: go to a lender with whom you have already established rapport, find a real estate agent you trust and follow the agent's recommendations for a lender, or research lenders online.

Glass says the first option is the best because "if you've built a relationship with a lender, they will go to extra lengths to make sure they qualify you for the loan."

Your total monthly mortgage payment -- principal, interest, taxes and insurance (or PITI) -- should not exceed 32 percent of your monthly gross income, Barbosa says. The U.S. Department of Housing and Urban Development (HUD) suggests that figure should be 29 percent. So this is not an exact science. You can calculate a ballpark figure from this information, but then talk to your lender to get a better feel for how much flexibility you might have with different lending arrangements.

According to Bank of America's Consumer Real Estate Group, you should find a lender that offers "first-time buyer options and financing ideas that take into consideration your personal situation. For example, many first-time buyer mortgage programs require only a low down payment or even no money down. If a down payment is required, you may be allowed to use 'gift' money from family members and other sources. Some first-time home buyer programs feature no closing costs. There may also be down-payment assistance programs available in your community."

Remember, the bigger the down payment, the less you're borrowing, and the less expensive your mortgage will be in the long run.

HUD offers programs to help first-time buyers, too.

Step 3: Find out what's available

Now it's time to decide where you want to live and research what types of housing are available -- one-story single family, condos, town homes, etc. You can get an idea by looking at ads and driving around the community before you ever call a real estate agent, Glass says. In fact, he prefers clients who have done some research.

In searching for an agent, find one who makes you feel comfortable and, more importantly, one who listens to you, Glass says.

HUD points out that it's traditional for the real estate agent to represent the seller's interests, although most state licensing laws require them to treat the buyer fairly. Laws regarding the relationships between real estate agents and clients vary from state to state and buyers should be aware who your agent is working for.

Step 4: Choose a neighborhood.

Once you know the housing stock, you can look at specific neighborhoods. Cruise by at night time to see whether you get a "vibe" that it's a safe neighborhood. If you have children, you'll want to check out the quality of the schools. You may want to check out what types of large-scale facilities (airports, highways, chemical plants, etc.) are nearby, and whether you're convenient to shopping, work and schools. You can do much of this independently, but you can also ask your agent to help you find sources of information about such things.

Step 5: Define your house and find it.

Now, you can narrow down the features you want in a house. Do you want an energy-efficient model? Do you want two stories, a basement, a bathroom downstairs or a large back yard? You may not find a unit with every feature that you want, but this will help you to define what's most important for you, Glass says.

When you've found a house that has your most important features, is in the right neighborhood and is affordable, you're ready to buy.

Step 6: Do a home inspection.
HUD recommends that an offer should be contingent on a home inspection. As the buyer, you cover the cost of the inspection. If you're unsatisfied with the results, you may ask the seller to pay for certain repairs or to lower the price, or you may decide to walk away from the deal.

Reggie Marston, a home inspector who can be seen regularly on HGTV's "House Detective" program, says home buyers should have an inspection done regardless of the age of the home and should interview several inspectors before hiring one.

"A home inspection should uncover defects that could become very costly to repair after (buyers) assume ownership," he says. "It will also uncover safety issues, water infiltration issues, roof problems, structural issues, etc.

"A first-time home buyer should start interviewing home inspectors before or at the same time they're interviewing real estate agents and mortgage lenders. Normally, real estate contracts only allow three to 10 days for a home inspection after acceptance of the contract and that doesn't allow the purchaser adequate time to find a qualified home inspector."

Step 7: Shop around for homeowners insurance.

Your lender will require you to carry homeowners insurance. Such insurance comes in many flavors, so it's a good idea to search for a policy that meets your needs for protection while being easy on your pocketbook. Access insurance information that is appropriate for your state. Many states provide data on typical rates charged by insurers, as well as information on the frequency of consumer complaints against a company.

Step 8: Negotiate.

Once you've found the house you want, you should make an offer that's lower than the seller's asking price. The seller expects this and will likely make a counter-offer. You have to decide before you start negotiating what your make or break point is, and stick to it. Just be reasonable. Don't expect the seller to give you a 50 percent discount on a good property.

Step 9: Closing.

In a number of states, it is customary for each party to have an attorney review the closing papers and to be present at closing. Whether that's the custom in your state or not, it's a good idea to hire your own attorney to review the documents to be sure that your best interests are represented in the paperwork. You'll foot the bill for your own attorney.

Step 10: Move in.

You've done all the homework and bought a great home. Enjoy it.