|
|
|
|
|
|
|
| Money Doctor James Randolph |
|
Articles and Advice |
|
 |
|
| It still pays to remodel By Dian Hymer The home-sale market has taken a beating in the last few years, which begs the question: Does it makes sense financially to invest in home improvements? Remodeling Magazine's annual “Remodeling Cost vs. Value Report for 2009-10,” published in agreement with the NATIONAL ASSOCIATION OF REALTORS®, indicates that remodeling still pays off, but more so on less expensive projects. Most high-end remodeling projects don't return dollar for dollar on the investment even in a good market. That is, unless homes are appreciating at a fast clip. In this case, you might get your money back due to appreciation. But the profit on the sale might not be as much as it would have been if you hadn't done a high-end renovation. Just as today's homebuyers are making pragmatic decisions, so are today's homeowners when it comes to making improvements. Most of the remodeling projects with the largest return were for such things as replacing exterior siding and windows. On average the cost involved was less than $14,000, according to Remodeling Magazine. These projects returned from 71 to 83 percent nationally depending on the materials used. The project that paid back the highest return was a midrange front-door replacement that cost approximately $1,200 and returned an average 128.9 percent nationally. Sellers may wonder why it would make sense to invest in an improvement just for the sake of selling if it won't repay the amount invested. In today's challenging home-sale market, these improvements may be warranted for the home sell at all if there is a lot of inventory in your neighborhood. Buyers expect more for their money and gravitate to listings that are in the best condition for the price. HOUSE HUNTING TIP: Be judicious about how you spend your money fixing your home up for sale. For example, if your kitchen is a disaster, it makes more sense to do a midrange than an upscale renovation. According to the “Remodeling Cost vs. Value Report,” a midrange minor kitchen upgrade will return an average of 78.3 percent nationally. A major upscale kitchen remodel will pay back only 63.2 percent. The national average returns on remodeling investments do not give an accurate picture of the renovation returns that might be typical in your neighborhood. For instance, the payback for Honolulu homeowners for most of the 18 remodel projects analyzed returned 100 percent of the investment. San Francisco was close behind with 10 projects paying back the full investment. The cost versus value report recommends the following cost-effective improvements you might consider to prepare your home for the market: tidying up the kitchen cabinets using organizers will make your cabinets roomy; add an inexpensive tile backsplash to a tired kitchen, and use inexpensive tile to give an old bathroom a new look; add a breakfast bar by cutting an opening between the kitchen and family room; and install granite tile rather than slab. Other suggestions include: Replacing outdated light fixtures; freshening up the basement; giving the kitchen cabinets a new look by reconditioning and adding new knobs or having cabinet doors and drawers replaced; updating a bathroom without replacing tile by changing the medicine cabinet, light fixtures, vanity, cleaning the grout or replacing it and adding glass shower doors. The findings of this report were based on a survey sent to 150,000 appraisers and real estate agents in the summer of 2009. The survey included information about the cost and description of the remodel projects and median price data for the 80 metropolitan areas surveyed. Some 6,233 survey respondents estimated how much value the improvements would add to the house at resale in the current market. THE CLOSING: Before starting any fix-up-for-sale projects, seek your real estate agent's advice so that you don't waste money on improvements that won't pay back much in your area. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
|
| Six ways to boost curb appeal By Paul Bianchina If you're thinking of listing your home this spring, now is the time to be thinking about one of the most important elements of real estate marketing: Curb appeal. It's your one and only chance to make a first impression on a potential buyer, so make it a good one! Here are some suggestions to make your home stand out from the rest: 1. Get some new eyes: The thing about curb appeal is that you need to look at your house through a stranger's eyes, not through your own. You don't even notice the faded paint on the trim or the missing house numbers, but other people do. So if you can't be honest and objective about the overall condition of the exterior of your home, find someone who can. If you have a friend, relative, or neighbor who you trust to be honest with you (and that you have a good enough relationship with that it will survive their bluntness, then ask them). Ask your real estate agent. If necessary, hire a landscaper or a contractor to act as a consultant. The main thing is to get a comprehensive, written list put together of what needs to be done to the outside of your home to improve the first impression it makes. Concentrate on the front, but don't overlook the sides and back either. 2. Start with basic repairs: The very first thing on your curb appeal list should be basic repairs. Is there a broken window? A torn screen? A loose gutter or downspout? A sagging screen door? It doesn't matter what it is or how small it is, fix it. They may seem like little things, but making sure that everything is in proper working order can make a huge difference in how people perceive your house and the care you have taken with it as a homeowner. Make sure you have big, bright, easily visible house numbers. Oh yeah -- and don't forget to squirt a little oil on those squeaky door and gate hinges. 3. Next, do some cleaning: Break out the broom and clean the outside of your house better than it's ever been cleaned before. Rent a pressure washer, and clean the driveway, walkways and patio. Clean your decks and your siding (a scrub brush is a better choice in these areas than a pressure washer, to avoid damage to the wood). If your wood deck is badly weathered, consider a deck cleaner and brightener made specifically for that purpose -- available at paint stores. Wash all your windows, inside and out, including the window screens. 4. Declutter: Just as you would with the interior, you want to declutter the outside of your house as well. Pick up the kids' toys, and put away the garden tools and hoses (remember, you're going to have people visiting the house, so this is also a liability issue). Remove all that accumulated junk from the sides and back of the house, and haul it to the landfill. 5. Next, tackle the landscaping: As part of the decluttering and general cleaning, do the landscaping areas as well. Prune overgrown plants and trim back overhanging tree limbs. Pull out anything that's dead. Rake up leaves and needles, and pull weeds. If you have an underground sprinkler system, make sure everything is working properly. If you have a lawn, fertilize and water it regularly to green it up, and run an edger along sidewalks and driveway edges. In your planter areas, you can make a huge difference in how your house looks with the simple addition of some fresh bark and colorful flowers. And if you don't have any planter areas, create a few, or add some simple planter boxes to do the same thing. There's nothing like color to really catch the eye and give your home a bright, fresh appeal. 6. Consider a trip to the paint store: Few things help your home show better than a fresh coat of paint. If it's been awhile since the outside of your home's been painted, this might be a worthwhile investment, especially in a tough seller's market. If you're handy with a brush and an airless sprayer, you might just want to undertake the project yourself. A long weekend and a few hundred dollars in paint can make a world of difference in how well the home shows and how quickly it sells. Otherwise, talk with a licensed painting contractor for an estimate. Maybe painting the entire house isn't really necessary. Sometimes just a fresh coat of paint or maybe a new color on the trim, exterior doors, garage door or window shutters can make a big difference as well. A word of caution about paint colors: When painting the house for resale, select colors that complement the house and the neighborhood and that will appeal to the greatest number of buyers, whether they happen to be your favorites or not. You may really have been itching to paint the house purple with black trim, but save that for another day. |
|
| Window trim: from boring to bold By Paul Bianchina If you look closely at homes with beautiful windows, you'll typically find one thing in common: wood trim. No matter what the style of the window is or what material it's made out of, a painted or stained wood surround enhances the beauty of the window far more than the inexpensive "drywall wrap" that's common on a lot of today's homes. Creating wooden surrounds for your windows is enjoyable, fairly inexpensive, and can be done by anyone with a few finish carpentry skills. And you can do one or two windows at a time, which is a lot less invasive to your home life than a lot of remodeling projects. First, a couple of definitions In the world of finish carpentry, there are a couple of terms that are helpful to know: Window surround: A window surround consists of the four pieces that wrap the inside of the window frame, between the face of the window and the face of the wall. Stool and apron: A window stool is the same as a window sill. It's the horizontal board at the bottom of the window surround. The trim board beneath the stool, which covers the joint between the bottom of the stool and the face of the wall, is the apron. Drywall wrap: A type of surround in which all four sides of the surround are done with drywall instead of wood. Three ways to trim the window There are basically three options for how you can trim out a window with wood. The simplest is to wrap the two sides and top of the window surround with drywall, and then install a stool and apron at the bottom. The drywall pieces are installed first and finished, prior to installation of the stool. If you already have drywall-wrapped windows, all you need to do is remove the bottom piece of drywall from the surround, to expose the rough framing underneath. The stool is cut from finish-grade lumber. You can use oak, maple, fir, or other clear grades of wood if the wood is to be stained. If you'll be painting the stool, consider poplar or medium-density fiberboard (MDF), both of which paint out very nicely. The stool is typically ripped to a width that's one inch wider than the distance from the face of the window to the face of the wall, and onr inch longer than the distance between the two side pieces of the surround. The stool is then simply notched on each end to fit into the opening in the window surround. It will overlap the wall face by an inch, and there will be two "ears" that extend past the edge of the surround by one-half inch on each side. The apron, which is a piece of trim of any desired size and style, is cut one-half inch shorter than the overall length of the stool, and is installed below the stool to finish things off. Method No. 2 is to make a wooden surround with no stool, which is done by building a box. You need four pieces of lumber ripped to the same width as the distance from the face of the window to the face of the wall, then cut and assembled into a simple box that's slightly smaller than the inside dimensions of the window frame opening. Slip the box into the opening, shim it until it's centered, then nail it in place. The installation is completed by installing four pieces of matching trim on face of the wall, sized so as to cover most of the edge of the wooden box and mitered at the four corners. The third method is a combination of the first two. In this case, you would construct a three-sided box -- two sides and a top -- then cut a stool as described above and use it as the fourth side (the bottom) of the wooden box. Install the box in the opening and shim it into place. Now install three pieces of trim on the face of the wall -- a top piece and two sides. The trim is mitered at the two top corners, and extends down on the two sides to rest on top of the stool. An apron, installed below the stool as described above, completes the installation. There are dozens upon dozens of variations on these three basic themes. Before you get started, take some time to peruse a few architectural and carpentry magazines and books and you're sure to find a look that's perfect for your home. |
|
| No capital gains tax on home exchange? By Benny Kass DEAR BENNY: My husband and I built a townhouse in 1983 for $33,000. We lived there for a few years and then rented it out for 17 years, taking all the tax advantages such as depreciation, etc. In 2003 we sold it for $90,000, and did a like-kind exchange with a house that my husband built. That house has been rented for the past six years and now has a market value of $190,000. We have no liens on the home and would like to sell it and put the money towards our dream home. If we moved into the home and lived there for two years, would we have to pay capital gains taxes when we sell the home? We've asked our certified public accountant (CPA) and she said we would have to pay capital gains because we took depreciation on the properties. We also asked a friend who worked for the Internal Revenue Service and he said as long as we lived in the home for at least two out of the last five years before we sold the home, we would not have to pay capital gains tax. Who is correct? --Jeanne DEAR JEANNE: I believe your CPA is correct. Any depreciation that you took after May 6, 1997, will be taxed. And based on a new 2008 tax law, the gain must be allocated between the rental and the personal use starting after Dec. 31, 2008. The portion of the gain allocated to the rental period will be taxed. I would always follow the advice of your paid accountant, rather than that of a friend, even if he or she works for the IRS. DEAR BENNY: My husband and I just signed documents to refinance our home. The entire process was long and frustrating. The appraisal was done a month ago, but the lender never notified us that the appraisal value was lower than what we needed to refinance. We found this out almost one month afterwards and only after we called to ask how things were going. The communication with the lender was extremely poor, but that wasn't the biggest problem. The lower appraisal value meant we had to pay down the loan by $20,000 in order to refinance. Our house has three bedrooms, and four of the six sales comps were two-bedroom houses. Adjustments were made only for the overall square footage, not for the number of bedrooms. We felt the amount was inaccurate for our area and asked the lender to have the appraisal reviewed. I gave the lender additional comps and the same appraiser replied with a second report with no change in value. There were numerical discrepancies between both reports. One comp ended up with a higher value, as the first report omitted to make any adjustments. I contacted both the lender and appraiser by e-mail and did not receive a response to these errors. In the past few weeks a house in our neighborhood of similar size and lot has sold for more than $100,000 above what our house was valued at. I looked at the open house and this house had only one bathroom and a single garage compared to our two bathrooms and double garage. In order for that house to sell, it would have had to appraise at the amount offered. I've read all sorts of stories about low appraisals happening, but these appraisals affect homeowners from refinancing and buying a home. Have we been wronged and is there anything we can do? If an appraisal is so important to the loan process, it should at the least be correct and not contain errors. --Maileen DEAR MAILEEN: I can't agree with you more. Although appraisals are not an exact science, they are crucial to the selling, buying and refinancing process. But the appraisal process has been dramatically changed in the past year. As a result of a compromise agreement between the New York Attorney General and the major mortgage secondary lenders such as Fannie Mae and Freddie Mac, mortgage lenders have much less impact on how appraisals should come in. Most lenders are now required to follow what is known as the "Home Valuation Code of Conduct." Perhaps the most significant part of this new code is that mortgage lenders cannot select an appraiser. The lender must contact an appraisal company who will assign an independent appraiser to prepare the valuation report. What do you do if you are not satisfied with the appraisal? Eventually, an Independent Valuation Protection Institute will be established that will have the authority to review all such complaints. However, that entity has yet to be created. So in the meantime, if you get no satisfaction after talking with your lender, you can complain to Freddie or Fannie. The Federal Housing Administration (FHA) has not adopted the code, so if your loan is backed by FHA, complain directly to the local FHA office in your area. These new procedures have created major problems for the lending community and for homebuyers and homeowners. However, the underlying concept is important: Appraisals should be totally independent and not based on what a mortgage lender would like to hear so that he can make any loan -- no matter how bad it may be. DEAR BENNY: We own a commercial condo building that we bought in 1985. If we sell it now, not only do we have to pay capital gains tax, but also recapture all of the depreciation we have taken on it over the years. It is still used in our business, but it is pretty much totally depreciated, so almost all of the sales price would be subject to recapture as far as I understand. Will a 1031 Starker exchange help us in any way if we decide to sell this location? The only reason we would consider selling it is that the parking situation there is getting more and more crowded, but we don't have to sell. What is your advice? --Caleb DEAR CALEB: Yes, a Section 1031 exchange (also known as a Starker exchange) should be considered if you really want to get rid of that property. You would have to carefully follow the rules, because they are strict. For example, when you sell that property, you cannot have any access to the sales proceeds. They have to be put in escrow to be used only to buy the new property. The replacement property must be identified within 45 days from the date you sold the relinquished property, and you must take title to the new property within 180 days from the date of the earlier sale. Keep in mind that a 1031 exchange does not mean that you avoid paying any capital gains tax. Your tax basis from the relinquished property becomes the tax basis of the replacement property. Thus, you only defer, not avoid, paying the tax. This is complicated and you must talk with a tax attorney who understands the process. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. |
|
| No benefit to refi with current lender? By Benny Kass DEAR BENNY: I am shopping for a new mortgage (I will refinance about $160,000 remaining on a condo worth about $300,000) and discovered my mortgage holder wants about $2,200 in closing costs. I just financed with this bank three years ago and have stellar credit. There seems to be no special benefit for refinancing with this lender. Their broker told me as much. I don't understand why they wouldn't want to keep a good customer. Any insight? --Janelle DEAR JANELLE: I am not a defender of banks, but just because the bank performed a title search and a refinance three years ago does not mean that there are no clouds (i.e., impediments) on your title now. The bank must have clear title in order to make you a loan. Accordingly, it must again perform a title search. Additionally, there are administrative costs that have to be paid because the lender will have to look at your financial situation again. There will also be closing (escrow) costs to the settlement attorney or title company. My suggestion is to shop around. Rates are now quite low and mortgage money is becoming more available. Get some quotes from other lenders (including all costs), and then go back to your bank. Tell them you would like to work with them, but their costs are high, and you want them to give you a discount. If that works, go with your current lender. If not, you have the right to refinance with any lender of your choice. DEAR BENNY: In addition to our primary residence, my husband and I own a commercial property that houses our business on the first floor and a residential apartment on the second floor. We currently rent out the apartment. The property is zoned commercial (C-4), dual use. Before selling this property, is there any advantage to selling our primary residence and moving into the second-floor apartment for two years to establish residency? Since each floor is 1,250-square feet, would we then be exempt from paying capital gains taxes on that portion of the profit from the sale that represents the residence? And if so, in determining what portion is considered residential use, would the land that surrounds the building (approximately 4,000 square feet of concrete driveway/parking lot) be considered part of the commercial property although part of this area would be used for parking our personal vehicles as well as customer parking? --Pauline DEAR PAULINE: Excellent suggestion. The law that allows homeowners to exclude up to $500,000 of gain is not a "once-in-a-lifetime" situation. It can be used over and over again. The only conditions are that the property must be owned and lived in two out of the five years before it is sold. So, you can sell your current home and if you have owned and lived there for the requisite period of time, you can exclude up to $500,000 of your profit. In fact, if you have lived in that property for a long time, you can even move into the upstairs apartment now, so as to start the clock running on the second exclusion. However, be careful --if you cannot sell your current house within the next three years, you will lose the right to exclude the profit. And here's another suggestion: When you sell the second property, you have the right to do a 1031 "like-kind" exchange on the first-floor business, and at the same time take the exclusion for the upstairs apartment. This would mean, however, that you will have to be a landlord for at least one or two years on the replacement property that you obtain through the exchange. Talk with your financial advisers about this. As for allocation of the parking area, I really don't know how the IRS would treat this. I suspect, however, that if you carefully allocate the square footage for your personal usage as compared to the business operation, that calculation would be acceptable. DEAR BENNY: Can you tell me what steps a board of directors/management company should take in the event a water-damage claim against the master policy is made by a condo owner? Should the board/management company investigate, take pictures of the damage, and stay actively involved throughout the claims process or merely turn the whole matter over to the insurance company and, in the event of litigation, its attorney? --Paul DEAR PAUL: That's a very good question. On the one hand, the board -- which has a fiduciary duty to the owners -- must make sure that the claim is being processed correctly and honestly. On the other hand, boards of directors are volunteers, and must be able to rely on the professionals who are paid to assist, including management. I think the answer lies somewhere in between doing nothing and being too proactive. Management should monitor the progress of the claim and make sure that the insurance carrier has taken pictures of the water damage. Management should also confirm with outside consultants that the amount of money the carrier is prepared to pay is sufficient to make the repairs. And since insurance companies usually have their own contractors to do the repair work, management should also periodically monitor the work to determine whether it is being done correctly. And management should submit a status report to the board on a monthly basis. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. |
|
| What to look for in a final walk-through inspection Property should be in same condition as day you signed contract By Ilyce R. Glink Most home buyers will have at least two opportunities to inspect their property before closing on the purchase. First, most buyers will include a contingency in the contract that allows them to do a professional home inspection by the home inspector of their choice. This inspection typically happens right after the sales price has been agreed to, usually within a week or 10 days. If the home inspector finds anything wrong in the property or decides further inspections (perhaps for radon, heating and air conditioning systems, or mold) are called for, the home buyer will be able to hire specialists to figure out if there is an insurmountable physical problem with the property. Assuming those inspections go well, the second opportunity to inspect the property is just before the property closes. The preclosing inspection, or final walk-through, as it is often referred to, is a home buyer's last opportunity to walk through the property before closing. What you're looking for here is not at the same level as the initial professional home inspection. In a preclosing inspection, you simply want to make sure that the property is in the same condition as it was on the day you agreed to buy it. To avoid getting burned, you schedule the walk-through as close to the actual closing as possible, certainly within the 24 to 48 hours prior to closing. If possible, the sellers should have already moved out. The whole point of the walk-through is to protect yourself and your future property from sellers who aren't as nice as they seem to be or who are actually as nasty as they appear. By inspecting the premises, you're making sure the seller has lived up to his or her agreements in the sales contract. And if he or she hasn't, you want to know about it in advance of the closing so remedies (both monetary and otherwise) can be agreed upon before money changes hands. What should you look for in a preclosing inspection? To start with, you want to make sure that the condition of the home hasn't changed since you signed the contract several months earlier. Believe it or not, a lot can change in the ensuing weeks. To make sure the home is in the same condition, you'll want to turn on every appliance, open every door, make sure nothing's broken (lights, fixtures, windows, etc.), be certain everything the seller agreed to leave is actually there and in good shape, and be certain that when the sellers moved out, they did no damage to the home. Sometimes movers can accidentally scrape a wall or pull up carpet in the process of packing up the contents of a house. If you do your preclosing inspection while the movers are there, you'll have a harder time getting around them to make sure that the property is in good shape. If you get there before the sellers have packed anything up, you might wind up with some nasty surprises on the day you move into the property. I learned the hard way that sometimes sellers just don't want you to find out certain things until you've closed on the property. Nearly 20 years ago, my husband Sam and I bought our first place. It was a vintage co-op built in the 1920s. Our sellers were seniors, and they were a bit quirky. The property hadn't been touched in years. When we did our final walk-through, we noticed that the water was turned off in the kitchen sink. We wanted to run the dishwasher, which was really old, but didn't want to turn on the water if it was off. Looking back, it's hard to imagine why this wasn't a red flag for us. But we were really happy to be buying our first place, which was taking just about all the money we had in the world. We didn't question it. We just bought it and moved in. The first night we unpacked the dishes and decided to run a load in the dishwasher. At well past midnight, my husband turned on the water and we put in the dish soap and turned on the machine. We went to bed. We were awakened early the next morning with pounding on our front door. Our downstairs neighbors came into their kitchen and noticed that the liquid contents of our dishwasher had dripped down through the ceiling into their kitchen, ruining their window shade. My husband and I looked at each other and we knew why the water had been turned off. Too bad we didn't find that out ahead of time. Still, the damage could have been worse. As I recall, it cost us $600 to fix the damage in our neighbor's apartment. |
|
| Mortgage payoff in a divorce By Benny Kass DEAR BENNY: My wife and I are in the process of getting a divorce. I am prepared to give her the family home so that our children will not be disrupted any more than they already are. I know that our mortgage lender will not relieve me of our joint obligation to make the monthly payments, but hopefully that will not be a financial problem for us. We have been advised that a lender can use the "due on sale" clause in the mortgage documents to block this transaction. Can this happen? --Tom DEAR TOM: The short answer is no. Federal law permits certain real estate transfers even though the loan documents contain the "due on sale" clause. Let's look at this concept. Mortgage lenders are in the business of making money, and obviously they do not like to allow people to assume a low interest rate when rates are much higher. While this scenario sounds unlikely in today's marketplace, many readers will recall the excessively high mortgage interest rates during the past decade. Thus, many years ago, the mortgage industry came up with the concept of "due on sale." Most mortgage loan documents contain language to the effect that if property that is secured by a mortgage is sold or transferred without the lender's prior written consent, the lender has the right to call the entire mortgage due, and insist on payment in full. This is known as the "due on sale" clause. There has been much litigation over this concept throughout the country, and the great majority of the court cases have upheld the lender's right to enforce the due-on-sale concept. In 1982, however, Congress enacted the Garn-St. Germain Act (12 UCA 1701j-3), which imposed certain restrictions on the enforcement of this clause. This law contained nine specific exemptions where a lender was not permitted to exercise its option pursuant to a due-on-sale clause. When there is a real property loan secured by a lien on residential real property containing fewer than five dwelling units -- including a lien on the stock of a cooperative housing corporation or a residential manufactured home -- a lender cannot enforce the due-on-sale clause under the following circumstances: • a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property; • a transfer where the spouse or children of the borrower become an owner of the property; • a transfer to a relative resulting from the death of a borrower; • a transfer by operation of law on the death of a joint tenant or tenant by the entirety; • a transfer into an "inter vivos" trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property (i.e., the so-called "living trust"); • the creation of a purchase-money security interest for household appliances (i.e., where you pledge your house in order to replace your heating and air conditioning system); • the granting of a leasehold interest of three years or less not containing an option to purchase; • a subordinate lien that does not involve a transfer of rights of occupancy in the property, and • any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board. I highlighted your situation by listing it first on the list. Clearly, if you and your spouse enter into a formal, legal separation agreement, or actually have a court order granting a divorce -- which contains language reflecting the house transfer -- you are protected under the law and the lender cannot exercise the due-on-sale clause, which I suspect is contained in your mortgage documents. However, here are some suggestions before you proceed to transfer the property to your wife: First, before the divorce is finalized, arrange to transfer the house. Normally, when real property is sold or transferred, there is a transfer and recordation tax that has to be paid to the local jurisdiction. For example, in the District of Columbia, where I practice law, if the property is appraised at more than $400,000, the local government will want to collect 2.9 percent of the appraised price. Normally, if you sell to a third party, each side will split these costs, paying 1.45 percent. (If the property is worth less than $400,000, the taxes are lowered to 1.1 percent each). However, if you are married and transfer the property to your spouse, you do not have to pay either of these taxes. You pay only a nominal fee to record the deed -- usually less than $30. So discuss this with your attorney and arrange to transfer the property before the divorce decree becomes final. Second, what is your current mortgage interest rate? Rates are quite low today, so you might want to consider refinancing first, so as to take advantage of that lower rate. After that, you can have the property transferred to your wife. You will, of course, have to explain your pending divorce situation to the lender, but if you can qualify, there could be substantial monthly savings. Finally, I strongly recommend that you advise your lender of your plans. Legally, it has no legal right to contest your decision, but it always makes sense to keep lenders informed before you take any steps to change the ownership. |
|
| Tax time over, but many credits still available By Paula Hess If you’re a homeowner, it’s a given that you claim the mortgage interest deduction on your tax returns. If you are a green-minded homeowner, you may be eligible for a federal tax credit if you purchase or have purchased (keep those receipts) an energy-efficient product or a renewable energy system for your home. These credits apply to the following if purchased between Jan. 1, 2009, and Dec. 31, 2010: Biomass stoves; insulation; heating, ventilation, and air conditioning upgrades; windows and doors; roofs; and non-solar water heaters. The credit allows homeowners every two years to claim 30 percent of the cost of the system, for a maximum credit of $1,500. This credit expires Dec. 31, 2010. Please note that some of these tax credits do not apply to installation costs, and not all ENERGY STAR products qualify for the tax credits. Please consult http://www.energystar.gov/index.cfm?c=tax_credits.tx_index for specifics. If you’ve decided to purchase small wind turbines, a geothermal heat pump, or a solar energy system for your principal residence or a new home construction, you have until Dec. 31, 2016, to make the purchase. You also can receive a tax credit of 30 percent of the cost (no upper limit). Check out the following resources: • Database of State and Federal Incentives for Renewables & Efficiency (http://www.dsireusa.org/): Provides a comprehensive list of all local, state, and federal rebates, tax credits, and property tax reductions for green enhancements to homes and new construction. • Better Than a Credit: If you participated in the Cash for Clunkers program and purchased a more fuel-efficient car, remember, your $3,500 or $4,500 rebate is not considered taxable income. If you actually purchased a hybrid, you may qualify for an energy tax credit (http://www.fueleconomy.gov/Feg/tax_hybrid.shtml). Cars purchased after Dec. 31, 2010, are no longer eligible for the energy tax credit. • ENERGY STAR Rebates and Partners: Type in your ZIP Code and find tax exemptions, rebates, or discounts on ENERGY STAR-rated products in your local area--everything from DVD players to water heaters at http://www.energystar.gov/index.cfm?fuseaction=rebate.rebate locator. |
|
| Don't charge up a storm before buying home Credit card debt can derail loan approval at last minute By Ilyce R. Glink Sometimes home buyers think they'll be able to get away with making a large purchase just after they've been approved for a mortgage. But charging up a ton of debt on your credit card before you've closed on your new home isn't a smart move. In fact, all that debt could sink your mortgage application and kill your real estate deal. When home buyers go to get approved for a mortgage, the lender takes a snapshot of their financial life. The lender pulls a copy of the borrower's credit history and credit score, and then looks at bank account statements and tax returns. If the lender approves the borrower for a loan, the lender will expect his or her financial picture to remain roughly the same up until after the loan closes. What many borrowers don't realize is that the lender may take another financial snapshot of their lives just before the closing. The second pull of your credit history and credit score could come any time within a week or two of your scheduled closing date. The lender is just checking to make sure nothing has gone wrong or changed with your credit. What the lender doesn't want to see is a huge run-up of credit card debt or other loans in the days before the loan closes. The lender will generally also require the borrower to sign a statement at closing affirming that there has been no change in the borrower's financial ability to repay the loan and the borrower's employment status remains the same. And yet, many times borrowers will get approved for their mortgage and then run out and buy a new car. If you buy a Corvette two weeks before closing and you get a loan to pay for the car, or even if you lease it, that information will immediately get posted to your credit history and your mortgage lender will see it. The lender will also know how much you're going to pay each month for that loan, and that car payment will have a direct impact on whether the lender feels you'll be able to afford your new home loan. Sometimes home buyers make a list of all the things that need to be bought for the new property, such as appliances, window treatments, furniture, carpeting or other items. Do these items need to be bought before you've closed on the property and moved in? Most of the time, the answer is "no." But, it's easier to buy these things and have the movers move them, and so your credit cards can easily take a beating in the month leading up to the closing. How much debt are we talking about? Often, home buyers spend up to $10,000 buying new stuff for their new home. For many buyers, that's enough to throw your debt-to-income ratios out of whack. When you start changing your debt ratios, lenders get nervous. You don't want your debt-to-income level to be seriously out of whack a few days before the closing. Suddenly, to the lender, it will look as though you've lost your financial mind. The consequences can be fairly severe: If your debt ratios change by too much, the lender may decide that you don't fall within the prescribed limits for your particular loan. The loan could then be canceled, leaving you without financing in the days before your closing. You'll have to start shopping around to find a new mortgage lender who can close in a short period of time. If you can't close, you may default on your contract with the buyer. And since you've probably already arranged to move out of your current residence, you could wind up without a place to live. A less drastic scenario is that the interest rate, fees or payment terms of your loan may change. Your added debt might change your credit score, and your lender may no longer be willing to loan you the money at the rate promised, but, rather, at a higher rate. This could leave you with higher initial or monthly costs in the short term. But you might also have a long-term problem, especially if you can't find replacement financing or you can't afford the new interest-rate charges. The solution to these issues is to stop spending, at least between the time you apply for your mortgage and you close on the property. Once you've closed on your new home, you can start buying stuff. But if you're able to wait a bit before you buy the big stuff, you should. Buying a home is costly enough. But homes have ongoing maintenance issues and need repairs from time to time. If you start spending like mad and don't put any cash aside for needed repairs, you may discover that your new home is unaffordable. If, however, you can make do with your old furniture for a while, bank the savings and avoid increasing your credit card debt, you'll find it easier and more rewarding to be a homeowner. |
|
| Bailing on underwater house By Benny Kass DEAR BENNY: My self-employed son and his new wife built a house several years ago at the top of the market. Last year, they decided to take advantage of slightly depressed real estate values in another state, and contracted to build a house there. The first house was put on the market at substantially less than they paid for it. They got no offers until someone asked to rent it with an option to buy. Under the supervision of a property management agency they signed a one-year lease with the renter, who recently defaulted in December. The house now is vacant, and despite their substantial downpayment, cannot be sold for anywhere near what they owe on the mortgage. After a year of paying two big mortgages, they are desperate and almost ready to sacrifice their credit to a foreclosure. What is the best way of getting rid of the first house under these circumstances? --Kris DEAR KRIS: Because this is really no longer their principal residence, they have more problems than if this were their main home. But here are some possible options. First, they should talk with the lender on the first home. Can they work out a loan modification so that the mortgage payments will be reduced -- at least temporarily? Will the lender accept a short sale, so that the house can be sold at a more realistic price? Will the lender accept a deed in lieu of foreclosure? This means that your son and his wife will deed the house back to the lender so that no foreclosure takes place. This can be a win-win for both sides, because the lender does not have to incur a lot of costs for the foreclosure and your son will get rid of the house. I assume that he is current on his mortgage payments for the first house. Finally, if all else fails, stop paying on the first home's mortgage and let it go to foreclosure. However, your son should discuss the situation with a local lawyer. Most states allow lenders to go after their borrowers for the deficiency, which is the difference between what the lender received at the foreclosure sale and the current outstanding mortgage balance. If state law permits, the lender could sue your son, get a deficiency judgment, and then go to the state where he now lives and try to collect on that judgment. DEAR BENNY: I have a rental property that I had purchased in 2005. I was going to hang onto it and sell it a few years later. Since that time the real estate market has not been good. My property is now worth less than what I owe on it. I have only a first mortgage on the property. In a previous article you stated that with having only a first mortgage the option of asking the lender to take back the deed and cancel the mortgage would be a lot easier. What sort of risk to one's credit rating would this have? I still have excellent credit but am unable to continue pulling out of savings to make the mortgage. Is there something that might be able to help me convince my lender to take back the deed? --Yvonne DEAR YVONNE: I have given up trying to understand what motivates banks. If you have good credit and get the lender to take back the deed (this is called a "deed in lieu of foreclosure"), it will still have an impact on your credit standing -- but not as bad if the property went to foreclosure. By taking back the deed, the lender is giving up a portion of the mortgage that you owe, and that information will no doubt be reported to the various credit-reporting companies. Try to talk with the highest-ranking person in your lender's office. Explain the situation. But keep in mind you are not the only one in trouble; the lender probably hears similar requests on a daily basis. The lender may ask you to try a short sale first, because legitimate lenders do not want to own property. If you give the deed back to the lender, the lender will have to pay the real estate tax and the insurance, and the lender clearly does not want to do that. You may also want to work out a loan modification. But any activity that you take, short of keeping current with your mortgage, will impact your credit scores. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. |
| FHA program funds fixers By Dian Hymer Investors have been taking advantage of low interest rates and discounted prices to buy run-down foreclosure properties, sometimes 10 or so at a time. They fix up the properties enough to be rented until the market turns, which could take years. When the time is right, the investor puts the finishing touches on the improvements and hopefully sells for a profit. This can be a risky strategy for an inexperienced homebuyer. It's hard to compete with investors who make all-cash offers. Investors usually have a team of contractors who can do the fix-up work. If they're working on several properties at once within close proximity of one another, it's more economical than fixing up one property at a time. Financing the improvements to fix up a property in today's market is difficult. Construction financing is virtually nonexistent. Most conventional financing requires a 20 percent cash down payment. Before the subprime mortgage meltdown, fixer buyers often used a home equity line of credit (HELOC) to finance improvements. Today, you would need to have enough equity in the property to tap this kind of money. For instance, if you made a down payment equal to 50 percent of the market value, you might be able to find a lender that would give you a HELOC for up to 30 percent of the value. HOUSE HUNTING TIP: Another option that doesn't require a huge outlay of cash is to use the FHA 203K mortgage program that is designed specifically to provide financing for repairs and renovations to single-family residences. It is available only to owner-occupants, not investors. The maximum mortgage amount varies with location. It's currently $729,750 in high-cost areas like the San Francisco Bay Area. The program works like this: Suppose you buy an $800,000 home using your savings for the cash downpayment and a $729,750 loan from FHA. FHA 203K loans are available with as little at 3 to 5 percent cash down, plus some cash reserves to pay contractors' initial payments. The interest rate is a little higher than it is on a standard FHA loan. When you make your offer, be sure to include a 45-day financing contingency and a 60-day closing. The seller won't be happy with a 45-day financing contingency. However, if the listing has been on the market for some time with no offers, your chance of acceptance is good. After your offer is accepted, you and your real estate agent walk through the property and create a wish list of all the repairs and improvements you'd like to make. Then a contractor and FHA inspector preview the property and either approve or disapprove the items on your wish list. They might even add something to the list that they think needs to be done, like a new roof. Let's say the approved amount for rehab is $40,000. An appraisal is done giving two values: the property in its "as is" condition and the property after the improvements have been done. To get approval, the cost of the improvements ($40,000, in this case) plus the "as is" price can't exceed the appraised value of the property after the renovations are complete. After approval, the $40,000 for improvements is deposited into an escrow or trust account. Up to five releases can be made during the course of renovation. The work must start within 30 days of closing and be completed within six months. THE CLOSING: The FHA 203K program can also be used to refinance and finance renovations. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
| Pros' guide to window screen replacement By Paul Bianchina It's getting to be that time again. The windows are open, and the bugs are clamoring at the window screens, trying to come in and join the party. If a few too many of these uninvited guests are getting in, it's probably time to get that damaged screening replaced. Luckily, this is a great do-it-yourself project that you can take care of in no time. To do your own window screen replacement, all you'll need is some new screening material and a simple re-screening tool, both of which are available at home centers and hardware stores. Screening is available in both fiberglass and aluminum, but the fiberglass is much easier to work with and is the preferred choice for most applications. It's available in different widths, so purchase one that's a minimum of 2 inches wider than the screen frame itself. Remove the window screen frame from the window, and set it on a workbench or work table. You'll notice that one side has a groove running around all the way around it that the screen is tucked into that. Place that side face up. Look closely at the groove. What you'll notice is a gray or black vinyl spline that's tucked down into the groove, holding the screening in place. Look for the end of the spline, which is usually in one corner. With a small screwdriver or a utility knife, carefully pry up the end of the spline until you can get a hold of it. Lift the spline out of the groove all the way around, and then remove the old screening. Clean the groove with a screwdriver tip or some compressed air to remove any dirt and debris. Now examine the spline. If it looks fairly flexible and seems undamaged, you can clean and reuse it. If it's worn, stiff or cracked, you'll want to replace it with a new one. Splines are available at the same place where you purchased the screening -- take the old one into the store with you to be sure you get the same size. With the screen frame lying flat on the workbench, unroll the new screening over it. Make sure that you have minimum of 1 inch of overlap on all sides, and then cut the screening off the roll. You'll be installing the new screen into two adjacent sides of the frame, then stretching it across the frame and installing it into the other two sides. Make sure that the new screening material is lying straight on top of the frame before you start. Begin at one corner, and press about an inch of the spline part way into the groove with your fingers, trapping the screening in the groove. Next, you'll be using the screen roller tool. The roller has a wooden or plastic handle, with a plastic roller at each end. Using the roller with the concave (inward-curving) edge, set the roller on top of the spline. Pressing down with moderate pressure, use the roller to press the spline about halfway down into the groove. Continue across the entire first side of the frame, rolling the screen and the spline into the groove. With the first side in, check again to be sure that the screening material is sitting square on the frame. If it gets off, the screening will appear to run diagonally across the screen frame, rather than vertically and horizontally. Turn the corner with the spline, and use the roller to set the screening into the second side, adjacent to the first. Try not to stretch the spline too much as you set it. With the first two sides set, lightly stretch the screening material across the frame with one hand while continuing to set the spline in place with the roller. Don't worry about stretching the screening too tight or if you have some minor wrinkles – those will come out in the next step. However, if the screening is really loose or is crooked in the frame, simply pull out as much of the spline as necessary, reposition the screening, and try again. When you get to the final corner, you may find that you have more spline then you need, even though you're reusing the original spline. That's the result of stretching the spline as you install it, so simply cut off the excess with a utility knife. You now have all the screening and spline installed, with the spline about halfway down into the groove in the frame. Using the roller tool, carefully work your way around the entire frame again, rolling and pressing the spline the rest of the way into the groove. This will finish stretching the screening, and should leave you with a tight, smooth installation. The final step is to cut off the excess screening. Use a sharp utility knife, and place the tip of the knife between the spline and the outer edge of the groove. Hold the knife relatively flat in relation to the screen, and work your way around the entire frame, slicing off the excess. |
| Buy now, sell later? By Dian Hymer Plan for the worst and hope for the best. This is a reasonable course of action if you're planning to sell your current home and buy another one in the current market. There are good reasons to do so for some homeowners whose homes no longer work for them. Interest rates are lower than they were a year and home prices have dropped in many places. In general, there are more homes to choose from. And, there's less competition from other prospective home buyers. This gives buyers more opportunity to negotiate. Trading homes in a soft market can be particularly advantageous for homeowners who want to trade up to a more expensive home. They may sell their current home for less than they would have a couple of years ago. But, they will probably pay less for the more expensive home. Price declines haven't been uniform across all price ranges. But, if prices in your area have declined approximately 10 percent since last year, and your home would have sold for $500,000 then, it might sell for $450,000 today. The upside of the equation is that the house you want to purchase now for $900,000 might have sold for $1 million a year ago. You would come out $50,000 ahead. Several years ago, it was far less risky to buy a new home before selling the old one. Qualifying for financing was also less rigorous. Many marginally qualified buyers were able to arrange financing to enable them to buy before selling. Some of those buyers who bought first before the August 2007 credit meltdown found themselves in hot water when the housing market slowed and financing became more difficult to obtain. In some cases buyers were left with two houses and multiple mortgage payments that stretched their ability to pay. To help defray the costs of owning two homes, some owners rented out the old house to cover some of the costs of carrying the property. It became difficult for some owners to stay current on mortgage payments if the property was encumbered with a low-interest-rate mortgage that adjusted to a much higher rate. Many of these properties have ended up in foreclosure. HOUSE HUNTING TIP: Most homeowners would prefer to know where they're going to live before selling their current home. However, given current market conditions, you should buy before selling only if you can qualify to buy the new house and keep the older home should it not sell quickly. Most homes sell if they are priced right for the market. But, to be on the safe side, be extremely conservative in estimating the probable sale price of your current home. And, factor in the possibility that it will take longer than you anticipate to sell. An option for some sellers is to keep the current home as an investment. If you plan to take this approach, be sure to consult with your tax advisor regarding the tax consequences of converting a single-family residence to a rental property. To avoid the risk of falling short of what you think your current home will sell for, consider selling it before you buy a new home. This may mean moving to an interim rental. If prices are soft in your area, the risk of losing out on home-price appreciation while you rent rather than own a home is slim. You might even get a better deal on the new home by waiting awhile before buying. THE CLOSING: Selling first and renting for awhile also removes the pressure of buying whatever might be available, which may or may not suit your long-term needs. |
| Roof shingles to rave about By Paul Bianchina When it comes to shingles, there are choices galore. But one of the most attractive from a number of standpoints is the laminated composition shingle. Durable, reasonably priced, and compatible with a wide range of architectural styles, laminated shingles long ago destroyed the notion that composition shingles are suitable only for lower-end housing. "Composition" refers to the fact that the shingle is made up from a composite of different materials. Most are made up of a flexible and durable fiberglass matt that's blended with asphalt. The fiberglass and asphalt layers are then topped with mineral granules, which give the shingle its durability, weather resistance and color. Virtually all composition shingles carry an Underwriter's Laboratories Class A fire rating, which is the highest available. This makes them a great choice for fire-prone areas as well. The term "laminated" comes from the way that the shingles are layered. Originally, composition or the older plain asphalt shingles were a single, flat layer. Laminated shingles stack two or three layers together on the same shingle, sometimes uniformly, sometimes randomly. The result is a shingle with more shadow lines and more three-dimensional depth, which is considerably more attractive. The extra lamination also makes the shingle heavier and denser. This keeps the shingle flatter on the roof, reducing its tendency to curl and making it less likely to be affected by high winds. Each shingle has a strip of adhesive on the back, which is softened by the heat of the sun after installation. This allows the upper shingle to bond to the one below it, sealing it down for additional resistance to wind lifting and ice damming. The combination of heavier weight, fiberglass matting and thicker granule layers also adds to the shingle's life span and to the length of the warranties offered by the manufacturers. Laminated composition shingles typically offer 30- or 40-year warranties, and some are even higher. Installation Laminated composition shingles are installed over a base of plywood or OSB sheathing. A base layer of 15-pound felt is laid over the roof sheathing first. In ice-prone areas, an additional ice protection sheet is installed, extending from the eaves to a point past where the unheated eaves cross over the exterior walls of the house. A starter course is laid first at the edge of the eaves. The first course of laminated shingles is then installed over the top of the starter course. Each subsequent course is staggered over the preceding course, in a pattern that's set by the manufacturer. This staggering -- called "stair-stepping" -- ensures that the butt joints in the shingles will not fall directly over the butt joints in the course below. The shingles are fastened with standard roofing nails, or, more commonly, with wide-crown roofing staples shot from a pneumatic staple gun. Full installation instructions, including instructions for valleys, are included with each package. Accessories and availability For covering a roof's hips and ridges, most manufacturers offer matching ridge shingles. These shingles are the same style and color as the regular shingles, but are precut shorter for fast installation over ridge areas. Ridge shingles can also be cut onsite from regular shingles. Special ridge vents that match the shingles are also available, or there are universal ridge vent materials that can be installed for ventilation and then covered with ridge shingles that match the roofing. To complete the installation, some manufacturers offer accessory paint, which is formulated in colors to match the various shingle colors. The paint can be used for vents, flashings and other rooftop areas to help blend them in with the surrounding shingles. Laminated composition shingles are manufactured by several different companies. You can see samples at roofing material suppliers, home centers, most lumberyards and some discount outlets. Many of the more popular colors and styles are kept in stock, and others are available through special order. |
| Hot Links |
| James Randolph Tax Advocate http://www.jamesrandolph.org/about/index.html Pathway From Boys To Men Inc. http://www.pathwayfromboystomen.com Save Money, Make Money, Create Wealth http://www.financialdestination.com/videoBP.cfm Realtor.com http://www.realtor.com/ Store Coupons http://www.BeFrugal.com |
|
| Your Newsletter is Powered by: |
 |
|
 |
