Why Own A Home? — It’s the Key to Wealth-Building!

You should know the facts about homeownership.  Right now, interest rates are still at historic lows, conventional financing IS available, the current mortgage crisis is creating a boom in FHA-insured mortgage applications. Marginal buyers have been pushed out of the market and they were an enormous influence in recent housing price increases. Owning a home provides a sense of security and allows families to build wealth. A home is the largest financial investment most American families will ever make, and it allows families to build financial security as the equity in its home increases. Moreover, a home is a tangible asset that provides a family with borrowing power to finance important needs, such as the education of children and retirement.

Home ownership has many advantages – both financial and personal. Home ownership creates external benefits for individual homeowners, neighborhoods and society as a whole.  The benefits of home ownership accrue on every level of society as well as the individual homeowner, the homeowner’s neighborhood and the national economy.  The more you know, the more you’ll realize it’s a decision you shouldn’t postpone any longer.

Homes are a great investment today. On average, the value of a home or investment property nearly doubles every 10 years. That’s a return most other investments can’t match. During the past thirty years, home values have increased an average of 6.6% per year, year in and year out. And because more home buyers invest only a fractional part of their homes total value in a down payment, their return on that initial investment is much greater, thanks to the power of leverage.

The biggest advantage of home ownership is equity. The average homeowner has 36 times the wealth of the average renter!  First, you build equity by paying down your mortgage. A certain percentage of each mortgage payment goes towards a reduction in the total amount owed. Typically, payments in the first few years of the mortgage are primarily applied to interest on the loans. As time passes, however, more and more of each payment is applied to the outstanding loan amount.

Appreciation is the second wealth-building advantage to homeownership. Each year, the value of your home will increase or decrease slightly based on market prices. Over time, real estate has always appreciated in value. In the current market, homes in some parts of the country are appreciating at rates as high as 15 to 20%.

Another financial benefit is the significant tax savings realized from deducting the mortgage interest and property taxes from the federal income tax and many states’ income tax.  You will want to take advantage of this significant benefit that allows you to legally reduce your tax burden for federal and state taxes.

For homeowners who have built up equity and want to diversify their portfolios with real estate, purchasing a second home is a smart investment opportunity. Since it’s an investment, the objective is for the value of the property to increase. In fact, according to the Federal Home Loan Mortgage Corporation (Freddie Mac), nationwide home values increased 11.8 percent from the first quarter of 2004 through the first quarter of 2005. "The first quarter of 2005 was the 39th consecutive quarter in which all nine regions of the United States had positive annual home price growth," noted Amy Crews Cutts, Freddie Mac deputy chief economist.

Historically, home ownership is one the best ways for families to build wealth. With potential tax-deductible interest and flexible terms and payment options, home equity financing helps all homeowners gain more control over their finances and enables families to build wealth. If you don’t currently own a home, you should start looking for one.  And if you are in the position to purchase a second home, it’s a smart investment opportunity that will diversify your portfolio.

Top Real Estate Blunders for Buyers & Sellers

Excerpted from Forbes.com

1.  Not Using an Agent—Both Buyers & Sellers

Both selling and purchasing a home could be the most important and complex financial transaction of your life, and going it alone is risky. Indeed, a real estate agent can save you time, hassle and thousands of dollars. Take time and care when selecting a real estate agent; find someone you can trust and with whom you have a good rapport.

2. Being Ill-Informed—Seller Blunder

It is critical that you are well informed of the details of your real estate contract. Real estate contracts are legally binding documents, and they can often be complex and confusing. Not being aware of the terms in your contract could cost you thousands for repairs and inspections. Know what you are responsible for before signing any contract. Can the property be sold "as is"? How will deed restrictions and local zoning laws affect your transaction? A real estate professional should answer all these questions, which can save you a considerable amount of money.

3. Offering Repair Credits—Seller Blunder

Would you buy a Ferrari with bent rims, stained rugs and cigarette burns on the seats, even if the seller was offering a "repair credit"? Doubtful, as you would have an understandably poor impression of how the vehicle was treated and assume the worst. When selling a home, eliminate any need for such credits in advance. Even before you list it for sale, hire professionals to inspect the roof, pool and other structural elements for termites and other important buyer considerations. Make all repairs before you list the house on the market to thwart anticipated objections in advance.

4. Failing To Stage—Seller Blunder

Do not forget to make your home look as pleasant and fresh as possible. Plant flowers, wash the windows and screens, put on a coat of new paint, lay new carpet, add furnishings and décor items, eliminate clutter and remove personal photographs from around the house. It’s time to show off your property and make someone else feel completely at home in it. First impressions are critical, so pack up your junk and put it in storage rather than the garage. That way, the prospective buyer can properly evaluate and appreciate that part of the house too. Clean out the closets so they look bigger.

5. Limiting Showings-Seller Blunder

Are you serious about selling your home? Then you need an open door policy, ensuring the home is ready to be shown at the drop of a hat–even if you’re not around. Pack up your valuables and provide an outdoor lockbox that real estate agents may access at their discretion. Most showings are fairly spur of the moment, and you don’t want to miss out on any qualified prospect.

6. Overpricing—Seller Blunder

Every seller naturally wants to get the most money for his or her product. The most common mistake that causes sellers to get less than they had hoped, however, is listing too high. Listings reach the greatest proportion of potential buyers shortly after they reach the market. If a property is dismissed as being overpriced early on, it can result in later price reductions, which reflect poorly on the listing. Overpriced properties tend to take an unusually long time to sell, and they end up being sold at a lower price than they probably would have had they been priced properly in the first place.

7. Not Shopping Mortgages—Buyer Blunder

A difference of even half a percentage point can mean considerable savings over the life of a loan. For example, the difference between a monthly payment on a $100,000 mortgage at 8% vs. 7.5% is about $35 per month. Over 30 years, that’s $12,600. Be a smart consumer and comparison-shop for the most favorable mortgage rates and terms.

8. Foregoing Home Inspections—Buyer Blunder

After your offer is accepted, set up a home inspection. It’s not uncommon to find problems, including leaky roofs, cracked walls, insect infestations and foundation problems. Hire a reputable inspector and negotiate to get the most for your money once the inspector’s report is final. If you negotiate repairs as part of the purchase, ask for a walk-through before finalizing the paperwork to make sure all issues are resolved to your satisfaction. Also, inquire about home protection plans as part of the purchase, which may save you money in the short and long term.

9. Having Unclear Goals—Buyer Blunder

Create a realistic idea of the property you’d like to buy. What features are most important to you? Make two lists: one of the items you can’t live without and one of the features you would enjoy. Refine the lists as the house hunt progresses, but remember that no place is going to be 100% perfect. It will be up to you to put the finishing touches and call it home.

10. Not Getting Loan Pre-Approval—Buyer Blunder

Many buyers want to find the "perfect" home before having their credit approved, which can backfire when an offer is on the table and time is of the essence. It’s wise to get pre-approved for a loan even before you view your first home. Your credit report may contain inaccurate information you were not aware of, which can be a time-consuming process to rectify; you might not like the loan program for which you qualify; or you might qualify for a higher loan value than you thought. Ultimately, you will need a pre-approval letter with your offer, so do yourself a favor and do this in advance. It’s free, after all.

This is an article I thought you would enjoy! – Judy

Fannie: That Pricey Ski Chalet Can Now Be Yours!

March 07, 2008 11:03 AM ET | Alex Markels

Excerpted from Blog Article on “The Home Front” Blog by Alex Markels

www.usnews.com/homefront

To everyone in well-to-do America putting off buying a new house because jumbo mortgage rates are way too high, take heart!

Thanks to the recent passage of the economic stimulus package—which includes a provision raising the limits on loans backed by mortgage giants Fannie Mae and Freddie Mac—folks in places like Vail, Colo., Washington, D.C., and Hawaii can look forward to interest rates that match those for cheaper houses.

Amid the credit crunch, rates on jumbo loans (which until today were defined as any mortgage over $417,000) jumped as high as a full percentage point above those that conformed to Fannie and Freddie’s standards. That is, if you could secure one at all. Without a ready market for big-dollar mortgages, the jumbo market seized up last August as secondary-market buyers of such mortgages all but disappeared.

With the higher limits, Fannie will now guarantee loans up to $729,750 in about 60 counties around the country, and up to $793,730 in Honolulu, Hawaii, which with a 20-plus percent down payment would get you pretty close to a million-dollar house.

The question, of course, is whether raising the limit on conforming mortgages is actually going to make much difference in the big picture of things.

It certainly won’t in the vast majority of the country, where the $417,000 loan limit remains intact. Hard-hit places like Florida’s Sarasota County (where the median home price has fallen by nearly 13 percent over the past year) will see the limit rise by only about 6 percent, to $442,500, while California’s San Joaquin County (where prices are down more than 15 percent) will see a 17 percent increase, to $488,750.

Yet in the latest installment of his weekly Mortgage Credit News column, mortgage banker Lou Barnes argues that "housing is sinking because of credit starvation, not the other way around." Ipso facto: The raising of the Fannie-Freddie limits can only mean more available credit and more people willing to plunk down more money to buy their dream house.

By itself, raising the limit isn’t going to mean a thing unless the house is selling for no more than it’s been appraised for—something that is far from assured in these post-boom days of massive foreclosures, which are driving down the comps appraisers use to judge what a home is worth.

Indeed, two days before announcing the higher limits, the mortgage giants agreed to abide by stricter rules that would prohibit lenders from trying to influence appraisals.

Such influence—even outright collusion—has been blamed for much of the house price inflation that went on during the boom years. (I, for one, remember feeling deeply suspicious upon learning that the appraisal for the house I’d bid on to buy in Washington three years ago exactly matched the selling price. What a coincidence!)

If, in fact, the improved appraisal standards ensure that homeowners won’t get into high-priced houses that aren’t actually worth what they’re paying for them, then I suppose the higher limits will at least improve the chance that those who can afford such homes are actually able to buy them.

Thing is, I suspect that’s a relatively small (read: well-to-do) portion of the folks now being hurt by the mortgage credit crunch.

Case in point: Will the new loan limit increase actually help you?

Excerpted from MSN Money

By Scott Burns
3/5/2008 12:01 AM ET

Sure, there are pockets of pain around the US, but it’s not as if most Americans are losing their homes. More than 99% of homes aren’t in foreclosure. A recent list of year-end mortgage foreclosure rates in 100 top metropolitan areas drew a lot of attention. Released by RealtyTrac, a company that compiles data on home foreclosures, the list showed the number of foreclosure filings in each metro area, the percentage of homes being foreclosed and the percentage change from the previous year.

Though the report had some dismal news — such as the nearly 4.9% foreclosure rate in the Stockton, Calif., area — a close look at the data also provides some reassuring information. It tells me, for instance, that the foreclosure crisis is a regional problem, not a systemic one. It could become a systemic problem, of course, but we’re a long way from that now.

This news will disappoint the gloom-and-doom crew and all those seeking the excitement of financial upheaval. But it may be time to temper our worry and take a closer look at some of the year-over-year foreclosure statistics:

• Though the national rate of foreclosure increased by a whopping 79% between December 2006 and December 2007, the rate was still only 1.033%. Because about 30% of all homes are owned mortgage-free, this means that for all the noise about a crisis, only seven-tenths of 1% of all homes were in foreclosure.

• In the top 100 housing markets, the average foreclosure rate was somewhat higher — 1.38% — and it was up 78% over the previous year. But if you rank-ordered the list of the top 100 areas, only 34 had foreclosure rates above the group average. Fifty-one areas had rates of 1% or less.

• Foreclosure rates actually fell in 14 of the 100 areas. More important, many of the areas with the highest increases in foreclosure rates were rising off rates that were tiny. The Bethesda, Md., area, to offer the most extreme case, saw foreclosures rise 1,288% — to a rate of 0.682%. In other words, foreclosures there were virtually nonexistent the year before. Today they are still well below the national average. The same can be said for the Albany, N.Y., area (up 638% to 0.25%), the Baltimore area (up 544% to 0.73%) and the Providence, R.I., area (up 354% to 0.41%).

Another pattern emerges if you cross the foreclosure rates with the Office of Federal Housing Enterprise Oversight (OFHEO) index of home prices. It shows that the top 10 foreclosure areas in America are areas of extreme price change — changes far from the national average of 46.92% over the past five years. (See the table below.)

Seven of the top 10 foreclosure areas had experienced major price spikes in the past five years. Three of the top 10 foreclosure areas had experienced price increases that were dramatically lower than the national average. That pattern continues when you examine the top 25 foreclosure areas.

The seven areas with the top price appreciation for the past five years averaged a stunning 91.6% increase, nearly double the national average. The national average, in turn, was about triple the inflation rate for the period.

Small wonder the foreclosure rate is booming as well. Anyone who bought in the past few years with a 5% or 10% down payment has a good chance of being upside down as froth comes off the market. In those areas the problem is about irrational price spikes and the hazards they bring to homeownership.

Some would call this “a Cadillac problem” — a great problem to have, like having more boats than you have water-skiers. Though 5% of the homeowners may be losing their homes, most of the other 95% probably feel significantly richer.

How much richer? Try this. Suppose you paid three times your income for a house and it nearly doubled in value over five years. What does that mean? It means your net worth grew by nearly three years of income. Try achieving that with your 401(k) plan. Even if you bought halfway through the surge, your gain is likely to be well more than one year of income. However you cut it, the change compares quite favorably with working and saving.

The three metro areas with low price appreciations are a different matter. Homeowners in Detroit have actually lost money on their homes over the past five years. That, in turn, has limited their ability to make up for income shortfalls by borrowing against home equity. Add a shrinking job market, and places such as Detroit are coping with a perpetual surplus of sellers over buyers.

One indication is the cost of renting a U-Haul truck. It recently cost $1,447 to rent a 26-foot truck to move from Detroit to Dallas but only $521 to rent the same truck to move from Dallas to Detroit. The real economic problem, for the most people, isn’t the price-spike states. It’s the deflation states.

Don’t let your yard sabotage your home sale

Excerpted from Bankrate.com

Will your landscaping pull in buyers or make them drive on by? Outdated or extreme styles, high-maintenance features and invasive or overgrown foliage can kill interest. Here are the experts’ dos and don’ts. These days, elaborate patios, outdated or high-maintenance landscaping and invasive plants and trees can kill buyer interest in a home almost as quickly as an outdated kitchen or orange shag carpeting, according to landscaping experts and real-estate agents.

Landscaping often makes the difference between a prospective buyer getting out of the car for a closer look at the house and simply driving on by.  Indeed, good landscaping can provide more bang for your buck than almost any other home improvement — provided it’s done right.

A few dos — and 6 don’ts

Buyers today expect landscaping that’s easy to take care of and water-wise, and offers benefits like shade or privacy, according to the National Gardening Association. A pot of bright annuals by the front door isn’t going to do it for most discriminating buyers. There’s really a trend towards landscaping that is both functionally and environmentally correct. You want to have the right plants in the right place. Here’s a look at the top landscaping turnoffs for buyers and what homeowners can do to make sure their landscaping efforts enhance, rather than detract from the value of their home.

1. Your father’s landscaping

Rounded junipers, squared-off boxwood and holly bushes, and topiary shrubs scream that the house is a throwback to the 1960s and ’70s, agents say. People now want their landscaping to look natural, with more native plants and interesting, varied foliage. Flat top shrubs and those with poodlelike puffs are out, landscapers say. Big pine trees and other evergreens planted decades ago also can be a turnoff to buyers. These trees can get too big and must be continually hacked off at the top (a bad look) or taken out entirely to avoid roofs and power lines.

2. Gnomes gone wild

It should go without saying, but put the lawn ornaments away. Other buyers may not share your love of lawn globes, gnomes and plastic deer. The same rules for depersonalizing and de-cluttering inside your home apply to the outside, as well.

3. High-maintenance yards

While many buyers fancy themselves green-thumb gardeners, few want to invest serious time in pruning, spraying, mowing and fertilizing. Beds of non-disease-resistant plants such as hybrid tea roses can eat up a buyer’s weekends with pruning and applying fungicide. They may be beautiful when they are in flower, but it’s a nightmare to keep them from getting sick.

A house can stay longer on the market specifically because of the rigors of its landscaping.  Customers want more flower power with less maintenance according to local nurseries. That means fewer annuals with short bloom times and more native plants and hardy perennials. You could plant newer flower varieties with longer bloom times, such as continuous blooming hydrangeas; knockout roses, which flower abundantly and require little pruning or spraying; and some of the newer types of azaleas that bloom twice a year.

4. Over-the-top outdoor living spaces

The line between the indoors and outdoors has been blurring in recent years, with more homeowners building elaborate outdoor living spaces complete with fireplaces, kitchens, outdoor showers and custom stone work. In many parts of the country, these areas are a big selling point, making the house seem larger. But when the work gets too ornate or extensive, it can sometimes detract from the value of a home — especially in colder climates. If you go overboard, you are going to limit the number of people interested in the property.

5. Bad seeds

Some plants send up a red flag with many knowledgeable buyers because they are so invasive. High on the list are ficus trees, especially those planted too close to a driveway, house or patio. The fast-growing, shallow roots of the ficus crack pavement and can wreak havoc on foundations. Similarly, ivy and other vines can proliferate too quickly, posing a danger to other plants, as well as to windows and roofs. They also can attract bugs to the house.

Invasive trees such as the Callery pear can be beautiful when flowering, but dump a lot of litter on the lawn. The trees also are very brittle, making them susceptible to storm damage. And like some other fast-growing varieties, Callery pear trees have a relatively short life span of 25 years. This life span is something buyers should consider when buying a house with a mature tree that figures prominently, landscapers say.

6. Too much green?

Many people are asking for smaller expanses of grass so they spend less time pushing the lawn mower and running the sprinkler. People don’t want a yard that makes huge demands on their time. You can plant grass in shadier ends of the lawn along with higher-water plants like azaleas or ferns, or group drought-resistant specimens where the sun is most brutal. By sorting plants according to water need, you waste less water and homeowners can spend less time wielding the hose. But, that doesn’t mean buyers are ready to give up color.

And just as important, consider the landscaping in relation to the house. If you’re going to have a four bedroom (house), you better have a yard.  Most important, maintain whatever landscaping you have. Overgrown hedges, dying flowers and leggy bushes send the message that the inside of the house is ill-kept, as well. Maintenance is key to maintaining your value and curb appeal.