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Shelly Pattison

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Lighting Conversion Plan

11/20/2017

Lighting Conversion Plan

In 2007, Congress passed an energy act that required new energy-efficient standards for basic light bulbs. Standard incandescent bulbs are being phased out and eventually will be unavailable.

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The alternative bulbs differ considerably in price. LED bulbs are the most efficient but they also cost the most. CFLs are a less expensive alternative.  Interestingly, the more expensive replacements offer lower operating costs and longer economic life.

One approach will be to inventory the different types and quantities of light bulbs you need in your home. Then, research either online or a big box store to find out what each type of bulb costs. This information will give you a total budget for converting your lighting.

It could be a significant expense to replace all the bulbs in a home at one time, especially when most of the bulbs still work. That’s where a plan might make sense.  

Replace the bulbs in the rooms where the lights are used the most such as kitchen, family rooms and bathrooms. There may be other “rooms” where the lights are used frequently like certain hallways or stairs. Outside flood lights for security purposes may be a large energy consumption.

Bulbs can vary in light output measured in lumens as well as color of light from warm white to bright white and daylight. The lighting label required by the Federal Trade Commission on all packaging will help you determine which will give you the most bang for your buck.

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Cash-In Refinance

11/6/2017

Cash-In Refinance

Would someone really refinance their home and not take money out of it? Certainly, if they could get a lower rate, build equity faster and pay off the home sooner.

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For people with extra cash available, this can be very attractive compared to the low savings rates being paid by banks.

In the example below, the current mortgage is 5% for 30 years after 48 payments of $1,342.05. The owner can refinance for 15 years at 3.37%. If they put $36,000 into the refinance, their payments will be slightly more but the mortgage will be paid off in 15 years. At that same point, if they keep the current mortgage, their unpaid balance will be $136,049.03.

If you have a goal to get your home paid off and have the available funds, a Cash-In Refinance may be just the strategy for you.

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Up-front Points to Lower the Rate

10/30/2017

Up-front Points to Lower the Rate

When loans are quoted by lenders, most buyers pay attention to the interest rate but not so much to the points that may be charged along with the rate.

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A point is one-percent of the mortgage amount and considered pre-paid interest that affects the yield on the loan. Buyers or sellers can pay points but there can be limits based on underwriting guidelines for different types of loans.

A lower note-rate would obviously make the payments less. However, with a little analysis, you can determine how much points paid up-front can save a borrower or whether you'll recapture the additional costs in the anticipated time in the home.

In the example below, two choices are compared; a 4.25% loan with no points vs. a 4.00% loan with one point. If the buyer stays in the home at least 69 months, he will recover the $2,700 cost for the point on the lower interest rate.

If the purchaser stays ten years, he’ll save two thousand dollars over the cost of the point. A less obvious advantage will be realized because the unpaid balance on the lower interest rate loan will results in an additional $1,780 savings.

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This is an example of a permanent buy-down but temporary buy-downs are also available.  A trusted mortgage advisor can help you determine alternatives

 

Debt Relief May Trigger Tax

10/23/2017

Debt Relief May Trigger Tax

The Mortgage Debt Forgiveness Act, originally passed in 2007, was extended three times to protect homeowners from paying income tax on debt that was relieved due to foreclosure, short sales or deed in lieu of foreclosure.  

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The law expired on December 31, 2016 and unless it is extended again, homeowners with debt relief in 2017 may be subject to tax.

A homeowner might feel a sense of relief without the obligation of a delinquent mortgage but just because the payments are no longer due doesn’t mean that there isn’t another obligation that replaces it. If a lender cancels or forgives debt, a taxpayer must include the cancelled amount in their income for tax purposes depending on the circumstances. The tax significance could be serious.

This previously allowed relief only applied to a taxpayers’ acquisition indebtedness of their principal residence which did not include second homes and investment property. The maximum amount was limited to $2 million of mortgage debt forgiveness or $1 million if filing separately.

Due to the serious consequences involved in short sales and foreclosures, it is advised that homeowners faced with this possibility should seek expert advice from their legal and tax professionals.

 

Indecision is Not a Decision

10/16/2017

Indecision is Not a Decision

There could be some legitimate reasons for not buying a home but indecision is not one of them. Indecision is rooted in not having enough information to move forward to own a home or continue renting.

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If you keep renting, at the end of the year, you have had a place to live and a pile of receipts that helped the landlord pay for his house. Deciding to buy a home will give you a place to live that is yours and all the things that come with that.

When you consider principal reduction, appreciation and tax savings, your monthly cost of housing could be much less than the rent you’re paying. The principal reduction included in each payment is like a forced savings account that increases as your mortgage balance decreases. Your equity in the property will also grow due to appreciation as the home goes up in value. The equity is part of your net worth and an investment in your family’s future.

The income tax savings can be an additional financial consideration if the combined interest and property taxes are greater than the allowable standard deduction.

Trends are showing that both tenants and homeowners are staying in their homes longer. It’s been said that whether you rent or own, you’re paying for the home. Do you really want to buy the home for your landlord? Check out your numbers on a Rent vs. Own and then, call us to help make it happen.

 

Risk Rate Relationship

10/9/2017

Risk Rate Relationship

Regardless of what a lender quotes on mortgage rates, the actual rate a borrower pays is based on a number of variables. Lenders determine whether to loan money and at what rate based on the risk involved with the transaction.

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Factors that increase the risk that the loan will be repaid will proportionately increase the interest rate charged to the borrower. If the risk becomes too high, the loan will not be approved.

  • Loan amounts – conventional mortgages above conforming limits as set by Fannie Mae and Freddie Mac are considered jumbo loans and generally have a higher interest rate.
  • FICO score – the lowest interest rate is reserved for the highest score; the lower the score, the higher the rate the borrower will pay.
  • Occupancy – borrowers occupying a home as their principal residence are considered a better loan risk than second homes and investment properties.
  • Loan purpose – purchase transactions generally have the lowest interest rate with refinancing for better rates and terms being priced slightly higher. An even higher rate might be charged for refinancing and taking cash out of the property.
  • Debt-to-Income Ratio – a borrower’s monthly liabilities divided by their gross monthly income develops a ratio that helps lenders to assess the borrower’s ability to repay the mortgage.
  • Property Type – some types of property are considered higher risk than others which could adversely affect the rate.
  • Loan-to-value – the lower the percentage of the loan to the appraised value of the property will generally lower the interest rate.

Any combination of these factors could limit a borrower’s ability to secure a mortgage at the rate initially quoted. Pre-approval by a trusted mortgage professional can be the best way to know what rate you can expect to pay. Please call for a recommendation of a trusted mortgage professional.

 

Easier to Play the Game

9/25/2017

Easier to Play the Game

It’s much easier to play a game when you know the rules so you can avoid mistakes that may keep you from winning. Homeownership isn’t a game but there are some rules that will protect your investment and increase your enjoyment.

Most people want a home of their own to raise their family, share with their friends and to feel safe and secure. In most cases, it is also their largest asset. These suggestions can help protect your investment and make homeownership more enjoyable.

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  • Don’t overpay for your home
  • Maintain your home to protect its value
  • Minimize your assessed value to lower property taxes
  • Make extra contributions to save interest and build equity
  • Validate the insured value of improvements and contents
  • Be aware of current surrounding property values
  • Make mortgage interest payments deductible
  • Invest in capital improvements that increase market value
  • Don’t over-improve the neighborhood comparables
  • Keep records of capital improvement & other maintenance

We’d like to be your personal source of real estate information and we’re committed to helping from purchase to sale and all the years in between. If you need assistance with any of the items mentioned in this article or need a recommendation for a service provider, it would be our pleasure to help.

 

Investing on Your Side of the Fence

9/11/2017

Investing on Your Side of the Fence

The grass tends to look greener on the other side of the fence. Maybe that’s why some people invest in things they don’t understand. It has been said that the grass is just as hard to mow on the other side of the fence so stay with what your most familiar.

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Single-family homes used for rental property give a person a chance to invest in something they understand: a home. They also have distinct advantages over other types of investments.

An investor can borrow up to 80% of the value at fixed interest rates 30 years. The financing creates leverage so that the investor can benefit from the increase in value of the home not just the down payment.

It is reasonable to expect that the home will appreciate while providing tax advantages and practical control that are not available with many other investments. Low housing inventory in many markets has caused rents to increase and low new home growth will make it difficult to keep up with demand.

Consider a $150,000 home purchased for cash that would rent for $1,500 per month. With $18,000 income and allowing for property taxes, insurance and maintenance, it is still reasonable to expect $10,000 net income. There would be an 8% return on investment without considering tax savings or future appreciation compared with 5-year CDs paying less than 2.35% and a 10-year Treasury yield at 2.13%.

An added bonus is the amortization that occurs on the loan as the principal is reduced with each payment. It becomes a forced savings account that increases the equity and isn’t taxable until the property is sold.

The reasonable control has a lot of appeal to many investors who find the volatility of the stock market unacceptable and don’t want the risk associated with alternative investments. Please contact me if you’d like to know more about available opportunities.

 

Deductible Dilemma

9/6/2017

Deductible Dilemma

The purpose of insurance is to shift the risk of loss to a company in exchange for a premium. Most policies have a deductible which reduces the amount of the claim that is paid by having the insured share in the first part of the loss.

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In the process of managing insurance premiums, policy holders often consider higher deductibles to lower the premium. Lower deductibles mean less money out of pocket if a loss occurs but also results in higher premiums. Higher deductibles result in lower premiums but require that the insured bear a larger part of the loss.

A small fire in a $300,000 home that resulted in $2,500 of damage might not be covered if the policy holder has a 1% deductible. If the homeowner can afford to handle the cost of repairs in exchange for cheaper premiums, it might be worth it. On the other hand, if that loss would be difficult for the homeowner, a change in the deductible could be considered.

Homes in high-risk flood areas with mortgages from federally regulated or insured lenders require additional flood insurance. However, each homeowner needs to assess the risk of being able to financially sustain a flood loss on their home when flood insurance is not required. The recent events in south Texas and Louisiana are evidence that the unexpected can happen.

It is important to review your deductible and discuss risks with your property insurance agent so that you’re familiar with the amount and make any changes that would be appropriate before a claim is made.  The FEMA website has information and frequently asked questions about flood insurance.

 

Your Home's Equity Could Be the Answer

8/28/2017

Your Home's Equity Could Be the Answer

A home equity line of credit, HELOC, is a mortgage loan made to homeowners to be used on an as-needed basis. A lender, such as a bank, will approve a borrower for a specified amount based on the equity in their home and all the necessary paperwork is signed to authorize the loan.

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The line of credit amount is available to the borrower and no interest is due until some or all the money is used. When the money is paid back, the line of credit is again available in full to the borrower.

The specifics of the repayment will depend on the HELOC lender. It may require interest only or it may require amortized payments of principal and interest.

The proceeds from a HELOC can be used to make improvements on the home or anything else such as medical expenses, college tuition or unexpected expenses or other liquidity issues.

Unlike personal credit card interest, the interest on a HELOC may be tax deductible. Your tax advisor will be able to let you know about your situation.

Rates and fees can vary widely on HELOC loans. Borrowers should shop around, compare and get recommendations before deciding on a lender.

 

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