Home Buyers: Save for That Down Payment

As the mortgage meltdown has spread, lenders are demanding stellar credit and proof of income.  Zero-down payment mortgages have almost disappeared.

This means if you plan to buy a home in the next few months, you'll need to put some money on the table.  The Federal Housing Administration offers a 3% down payment loan for low-income and first-time buyers.  But FHA loan limits haven't kept up with home prices in some high-cost areas.  For a private loan, expect to put down at least 5%, and that's assuming you have good credit.  If you want to avoid private mortgage insurance, which will increase your monthly payments, you'll need to put down 20%.

You should invest your savings someplace safe so it will be there when you're ready to buy a house.  But you don't have to stuff your money in a mattress.  Some options:

Certificates of Deposit: CDs are your best choice if you plan to buy a home from six months to a year from now.  With a CD, you can lock in an interest rate that matches your time horizon.

Credit Unions: Credit unions don't advertise much, and you have to be a member to use their products and services.  But if you do a little research, you can find good rates on credit union share certificates which are similar to CDs.

High-Yield Savings Accounts: These accounts, typically offered through online banks, are paying rates ranging from 5% to 5.3%, compared with less than 1% for traditional passbook savings accounts.  If the bank is insured by the FDIC, there's no risk you'll lose your money.

 

These rates could fall, particularly if the Fed decides to cut short-term interest rates.  But you can withdraw your money at any time without penalty — an option that makes these accounts a good choice for people who are looking for a home and need quick access to their money quickly.  CDs, by contrast, offer a guaranteed interest rate, but if you withdraw your money before the CD matures, you'll forfeit some of your interest.

 

Are you trying to save to buy a home?  Have you found a particularly good place to stash your cash?  We'd love to hear your comments.

Selling a Home?  Curb Appeal Means Everything

If you're selling your home, or even THINKING ABOUT it, one of the most important things you must do is to improve the curb appeal of your home.

The exterior of your home is the first item potential home buyers are going to see.  Therefore, there should be a lot of emphasis placed on your homes exterior.  After all, if potential home buyers are turned off by your home's curb appeal, you may never get them inside the home to have a chance for a sale.  Here are a few tips to spruce up your home's exterior:

• Power-wash your siding
• Re-mulch your landscaping beds
• Trim up bushes and hedges
• Add colorful flowers
• Add some cheap bushes in bare spots
• Spot seed your lawn if you have any bare spots
• Water your lawn to "green it up"
• Weed and feed your lawn as well
• Re-paint the siding if needed
• Pick up any lose debris in the yard
• Rake up leaves
• Trim tree branches if necessary
• Keep the yard mowed very regularly
• Edge along your driveway and your sidewalks (makes a big difference)
• Pull out all weeds in landscaping beds
• Waterproof wood patios
• Re-seal concrete patios
• Hide or store away any unsightly or run down outdoor furniture and/or decor
• Repaint or replace your mailbox if necessary
• Clean outside windows
• Make any necessary repairs to siding, roof, flashing, shutters, etc.

This list is only the beginning and only includes the outside of your home.  This list can be as long (or longer) for getting the inside of your home ready to show, but hopefully these tips get you started on that all important curb appeal.

See other Home Selling Tips in the "Home Selling Tips" category of this site for more.

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Home Buyers Getting More Conservative?

Borrowers tend to fall into two camps:  Conservative buyers who are willing to pay more now for not having the risk of payments going up later, and the rest who focus almost solely on the monthly payments, asking "what is the smallest payment that will get me into a house?"

Both groups are shying away from short-term adjustable loans.

For conservative borrowers, the chance that the payment could increase beyond their comfort level is a very real and unwelcome possibility.  They prefer the certainty of a fixed-rate 15- or 30-year mortgage.

For buyers intent on getting the smallest possible monthly payment, adjustable rates are no longer automatically the ideal.  Payments can go up and the ability to refinance in a few years is not a sure thing anymore.

Which camp do you find yourself in right now?  We'd love to hear your commment below.

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Why Some Sellers May Get a Break From the IRS

Most people who sell their home after having owned it for at least two years don't have to pay federal taxes on their gain.  A sale in less than two years after the purchase, however, often triggers some sort of tax hit.  But even owners who need to sell in less than two years may qualify for special relief if they had to sell because of "unforeseen circumstances," according to a 1997 law.

The general rule is that you can exclude a gain of as much as $500,000 if filing a joint return with your spouse, or as much as $250,000 if single or filing separately, under certain circumstances.  To be eligible for this full exclusion, you typically must have owned your home, and lived in it as your primary residence, for at least two of the five years prior to the sale.  This rule applies only to a main residence, not a vacation home.

Even if you can't meet the two-year tests, you still may be eligible for a reduced exclusion if you had to sell because of "a change in place of employment," health reasons or "unforeseen circumstances."  An IRS publication offers a general definition of unforeseen circumstances as "the occurrence of an event that you could not reasonably have anticipated before buying and occupying your main home."

Talk to your tax accountant or advisor to see whether you might qualify under the "unforeseen circumstances" ruling, or see the IRS Publication 523 for more information.

Think you might qualify for such an exception?  Post your comment here and we'll try to get an answer for you.

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Selling Your Home?  Offer Concessions Instead of Lowering the Price

Lowering the asking price on your home isn't the solution to making it stand out in today's crowded housing market.  According to the National Association of Realtors, there is nearly a nine-month supply of homes for sale on the market.

How will you make your home stand out among all those other ‘For Sale' signs?

One way experts say to stand out instead of slashing the asking price is to propose lowering the rate on a potential buyer's mortgage by providing seller financing incentives.

Consider this example showing the difference in cost and savings for lowering a home's price vs. offering seller concessions.  In the case of lowering price, a motivated seller might reduce their $250,000 asking price by 5% or $12,500.  For less money, the seller could pay up to three discount points on the buyer's mortgage, lowering the buyer's interest rate and monthly mortgage payment.  A discount point is considered 1/100 of the buyer's loan amount - about $2,500 per point in this example.

The math is simple. Seller concessions cost the seller $7,500 in this example (vs. $12,500 to lower the price of the home 5%) and the deal is actually more enticing for the buyer.  At today's 30-year fixed rate, three points off a mortgage rate can potentially save a buyer more than $30,000 in mortgage payments over the life of the loan!  And, points paid through seller concessions may even be tax deductible.

By offering a concession to lower the interest rate, the seller makes their home more affordable, without dropping their price.  This gets them to the closing table sooner.  The buyer actually may save more in reduced interest over the life of the loan than they would have via a lower home price, depending on the rate and terms of their mortgage.

Other examples of seller concessions that buyers can offer include paying some or all of the buyer's closing costs, and providing an allowance for the buyer to landscape or make improvements to the home.

Seller concessions can be an inexpensive and innovative way to move a house in a slow market.  Both the buyer and seller may benefit from such seller concessions.

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