Tag: Homeowner

Homeownership Investment

Homeownership has always been part of the American Dream. Because of that, many people accept owning a home as the right, even obligatory thing to do without considering the benefits and the risks. If you are contemplating buying a home, you should know and review the pros and cons of the investment you are about to make—as you would any investment decision—before signing on the dotted line.

Attractive Long-Term Investment

Appreciation represents the increase in home values over time. Real estate prices are cyclical, and homeowners shouldn’t expect the property’s value to increase drastically in the short-term. But if you stay in your home long enough, there’s a very good likelihood you will be able to sell your home for a profit because of appreciation later in the future.

In fact, buying a home is one of the best long-term investments you can make.
Despite some dramatic dips, such as that in 2008-10, residential real estate tends to rise in value. According to the Federal Reserve Bank of St. Louis, the average price of sold houses in the U.S. rose from $340,400 in Q3 2014 to $382,700 in Q3 2019—over 10% increase in value over five years. Go back a decade, when the average home fetched $274,100 (Q3 2009), and you have a 39% increase. That’s not a bad return on an investment that also provides you with a place to live.

Real estate appreciates primarily because of the land on which the home sits, while the actual structure depreciates as time goes by. So the expression “location, location, location” is not just a real estate catch-phrase, but a very important consideration when buying a home. The neighborhood with the amenities it brings—school districts, parks, condition of roads, etc.—and the city where the home is located all factor into the property’s appreciation.

Consider a home that is rundown and dilapidated to the point that it’s uninhabitable. The land underneath the home may still be worth a significant amount of money—more than the residence, in this case,. A seller may consider selling it as is—with the structure still intact—or spending a little extra to demolish the home and sell the land at a higher price on its own.

Illiquidity

Unlike stock, which can be sold within a matter of days, homes typically take much longer to unload. The fact that you may have access to $500,000 in tax-free capital gains doesn’t mean you have ready access. Meanwhile, you still must make mortgage payments and maintain the house until you sell it.

Building Equity

Home equity represents the difference between how much you still owe on your mortgage and the market price or value of your home. Home equity and appreciation may be considered together. As noted above, your home is likely to grow in market value over time. Your equity also grows as you pay down your mortgage, with less of your payment going toward interest and more toward lowering the balance on your loan.

Building equity does take some time because it takes time to lower the principal balance owing on the mortgage loan—unless, of course, you make a large down payment or regular prepayments. One thing to keep in mind, though, is that the length of time you have your home is a big factor in how much equity you build and the appreciation you can realize. The longer you keep it, the more equity you obtain.

As you pay down your mortgage and reduce the amount you owe, without realizing it, you are saving as the value of your home is increasing—just as the value of savings account increases with interest. When you sell, you will likely get back every dollar you paid out and more, assuming you stay in your house long enough. Over time the average 6% return (interest rate) on your savings should more than
cover your outlay.

Another plus: Home equity provides flexibility to get a loan that is tied to the amount of your home equity. Many investors follow their home equity and home appreciation simultaneously. If an investor believes their home value is greatly appreciating they may put off a home equity loan to have a better opportunity to realize seller’s appreciation.

Location, Location, Location

While paying down your mortgage works the same no matter where you live, market-value growth varies with location. According to the Federal Housing Finance Agency (FHFA) House Price Index (HPI), real estate prices rose an average of 32.88% over the five-year period ending Dec. 31, 2019, in the U.S. overall. However, prices in the Middle Atlantic census division rose only by 23.21%, while prices in the Pacific census division climbed by an average of 40.39%

Capital Gains Exclusion

Eventually, you will sell your home. When you do, the law allows you to keep the profits and pay no capital gains taxes. Well, not necessarily all the profits. There’s a tax-free profit of up to $250,000 for single homeowners and $500,000 for married couples. This is for your main residence only—not for a second home or vacation property.

There are a few requirements you need to meet in order to qualify for this exclusion. You must own the home for at least two years—24 months—within the last five years up to the closing date. The residence requirement dictates that you should have lived in the home for at least 730 days, or two years, during the five-year period leading up to the sale. The final requirement, the look-back requirement, outlines that you didn’t profit from selling another primary residence during the two-year period leading up to the most recent sale.

Tax Deductions

After appreciation, the benefit of homeownership that is cited most often is tax deductions or savings. When you buy a home, you can deduct some of the expenses of owning that home from the taxes you pay to the government. This includes mortgage interest on both your principal residence and a second home, which can amount to thousands of dollars per year.

Interest on home-equity loans or home-equity lines of credit (HELOCs) is also deductible if the funds are used to substantially improve your home.

You can also deduct up to $10,000 in state and local taxes (SALT), including property taxes.

Pride and Financial Responsibilities

One often-cited benefit of homeownership is the knowledge that you own your little corner of the world. You can customize your house, remodel, paint, and decorate without the need to get permission from a landlord.

Ownership comes with responsibilities, however. You must pay your mortgage or risk losing your home and the equity you’ve built. Maintenance and upkeep are your responsibility. You can’t call the landlord at 2 a.m. to have a leaky water pipe repaired. If the roof is damaged, you must repair it—or have it repaired—yourself. Lawn mowing, snow removal, homeowners insurance, and liability insurance all fall on you.

The Tax Cuts and Jobs Act’s Effect

The Tax Cuts and Jobs Act, passed in December 2017, made substantial changes to the parts of the tax code that have to do with homeownership. Unless a future Congress amends the law, all provisions will expire after Dec. 31, 2025. But for now, changes in that law have reduced the value of owning a home.

The law limits mortgage interest deductions to $750,000 of total mortgage debt, including for a first and second home and any home-equity or HELOC loans. The previous limit was $1,000,000 in mortgage debt plus an additional $100,000 in home-equity debt.

There is an exception allowing $1,000,000 in total mortgage debt if you bought your home on or before Dec. 14, 2017. This provision even applies if you refinance that older mortgage. Home equity loan interest is only deductible if the money is used for substantial improvements to the home on which you took out the loan. Previously, interest on up to $100,000 was deductible no matter how the home-equity money was used.

The law also set the SALT deduction limit to $10,000. Previously, all SALT payments were deductible, unless you were subject to the alternative minimum tax.

Other new provisions include restrictions on claiming casualty losses except for federally declared disasters. The moving expenses deduction no longer exist except for the active-duty military moving for reasons of work.

All these changes have lowered the value of owning a home—including the fact that, with the doubling of the standard deduction (another feature of the Act), fewer people will have enough deductions to file Schedule A instead of taking the standard deduction. So the fact that you are eligible for a tax deduction does not mean that it will end up being useful to you. The severe limiting of the SALT deduction will be particularly detrimental in lowering available deductions for people who live in highly taxed states.

High Upfront Costs

The cost of investing in a home can be high—there’s more to your expenses than the property’s selling price and the interest rate on your mortgage. For starters, you can expect to pay anywhere from 2% to 5% of the purchase price in closing costs. Some of the most common closing costs include an application fee, appraisal fee, attorney fees, property taxes, mortgage insurance, home inspection, first-year homeowner’s insurance premium, title search, title insurance, points (prepaid interest), origination fee, recording fees, and survey fee.

Experts say you should plan to stay in your house at least five years to recover those costs.

Potential Depreciation

Not all homes grow in value. The housing crisis of 2008 resulted in many homeowners being underwater, which means owing more on your mortgage than your home is worth. It doesn’t take a housing crisis for home prices to stagnate or drop. Regional or local economic conditions can result in home values that don’t keep up with inflation.

Remember, as well, that the actual structure you live in will depreciate over time. This can be due to wear and tear on the property, or a lack of maintenance and repairs.

The Bottom Line

A home is an investment that comes with many investment benefits but also risks, which makes it an investment that is not for everyone. Weighing the investment benefits against the risks is important. A rational comparison of pros and cons can help you decide whether to put your money into a home investment or potentially find better returns elsewhere.

Home Ownership: Why it’s Good for Everyone

It’s no wonder that owning a home is often referred to as the American Dream. While statistics show that homeownership is down from historical levels, it is still an aspiration for 61% of Americans. That number is likely to rise as the housing industry continues to recover. That is good news not only for potential first-time homebuyers, but also for the overall economy.

The Importance of Homeownership

For many people, owning a home represents the stability, independence and freedom of reaching adulthood. While that perception may be changing to some degree as more people wait longer to buy homes, it is still a major milestone. Real estate is considered by many to be a sound investment that offers unique wealth-building opportunities.

Buying a home expands options for the future, whether you plan to sell and make a profit or leverage the equity in your home to pay for other major expenses.

Benefitting a Community

Homeownership also helps to improve the areas surrounding individual homes. The housing industry is closely tied to the economy—when home sales are up, so are jobs. Together, these complementary forces create a more stable local, state and national economy. This is why many economic analysts wait for the latest housing numbers to be released before announcing their forecasts, as these numbers help indicate where the overall economy is headed.

The community also benefits from the real estate taxes paid by the property owner. These funds are used for infrastructure services and projects including:

  • government social services
  • road repair
  • library operations
  • police and fire protection
  • snow removal
  • parks and greenways
  • other enriching infrastructure projects
  • construction of schools

The impact goes beyond the financial aspect. In fact, some of the greatest community benefits are intangible. Homeowners in a city or town are often very invested in the area. They get involved in activities, volunteer for charity organizations and help out with special events. They feel a sense of belonging that is often greater than someone who is renting for a short term.

Homeowners often get involved in the politics of the community, attending city council meetings and volunteering for groups and organizations, such as neighborhood watches and school boards. In addition, they work hard to keep their properties looking nice. This sense of responsibility carries over into other areas of the community as well. That is not to say that renters don’t have the same intentions, but they often cannot stay in the same place long enough to develop roots and a sense of belonging.

Homeownership has far-reaching effects, financial and otherwise, starting with the buyer and continuing throughout the community.

 

Being a Firts-Time Home Buyer: Tips & Tricks

Buying a home can be nerve-racking, especially if you’re a first-time home buyer.

These tips will help you navigate the process, save money and avoid common mistakes. We organized them into four categories:

  • Mortgage down payment tips.

  • Mortgage application tips.

  • House shopping tips.

  • First-time home buyer mistakes to avoid.

    Mortgage down payment tips

    1. Start saving for a down payment early

    It’s common to put 20% down, but many lenders now permit much less, and first-time home buyer programs allow as little as 3% down. But putting down less than 20% may mean higher costs and paying for mortgage insurance, and even a small down payment can still be hefty. For example, a 5% down payment on a $200,000 home is $10,000.

    Play around with this down payment calculator to help you land on a goal amount. Some tips for saving for a down payment include setting aside tax refunds and work bonuses, setting up an automatic savings plan and using an app to track your progress.

    2. Explore your down payment and mortgage options

    There are lots of mortgage options out there, each with its own combination of pros and cons. If you’re struggling to come up with a down payment, check out these loans:

    • Conventional mortgages They conform to standards set by the government-sponsored entities Fannie Mae and Freddie Mac, and require as little as 3% down.

    • FHA loans Loans insured by the Federal Housing Administration permit down payments as low as 3.5%.

    • VA loans Loans guaranteed by the Department of Veterans Affairs sometimes require no down payment at all.

    Making a higher down payment will mean having a lower monthly mortgage payment.

    If you want the smallest mortgage payment possible, opt for a 30-year fixed mortgage. But if you can afford larger monthly payments, you can get a lower interest rate with a 20-year or 15-year fixed loan. Use our calculator to determine whether a 15-year or 30-year fixed mortgage is a better fit for you. Or you may prefer an adjustable-rate mortgage, which is riskier but guarantees a low interest rate for the first few years of your mortgage.

    3. Research state and local assistance programs

    In addition to federal programs, many states offer assistance programs for first-time home buyers with perks such as down payment assistance, closing cost assistance, tax credits and discounted interest rates. Your county or municipality may also have first-time home buyer programs.

    Mortgage application tips

    4. Determine how much home you can afford

    Before you start looking for your dream home, you need to know what’s actually within your price range. Use this home affordability calculator to determine how much you can safely afford to spend.

    5. Check your credit and pause any new activity

    When applying for a mortgage loan, your credit will be one of the key factors in whether you’re approved, and it will help determine your interest rate and possibly the loan terms.

    So check your credit before you begin the homebuying process. Dispute any errors that could be dragging down your credit score and look for opportunities to improve your credit, such as making a dent in any outstanding debts.

    To keep your score from dipping after you apply for a mortgage, avoid opening any new credit accounts, like a credit card or auto loan, until your home loan closes.

    6. Compare mortgage rates

    Many home buyers get a rate quote from only one lender, but this often leaves money on the table. Comparing mortgage rates from at least three lenders can save you more than $3,500 over the first five years of your loan, according to the Consumer Financial Protection Bureau. Get at least three quotes and compare both rates and fees.

    As you’re comparing quotes, ask whether any of the lenders would allow you to buy discount points, which means you’d prepay interest up front to secure a lower interest rate on your loan. How long you plan to stay in the home and whether you have money on-hand to purchase the points are two key factors in determining whether buying points makes sense. You can use this calculator to decide whether it makes sense to buy points.

    7. Get a preapproval letter

    You can get pre-qualified for a mortgage, which simply gives you an estimate of how much a lender may be willing to lend based on your income and debts. But as you get closer to buying a home, it’s smart to get a preapproval, where the lender thoroughly examines your finances and confirms in writing how much it’s willing to lend you, and under what terms. Having a preapproval letter in hand makes you look much more serious to a seller and can give you an upper hand over buyers who haven’t taken this step.

    House shopping tips

    8. Hire the right buyer’s agent

    You’ll be working closely with your real estate agent, so it’s essential that you find someone you get along with well. The right buyer’s agent should be highly skilled, motivated and knowledgeable about the area.

    9. Pick the right type of house and neighborhood

    You may assume you’ll buy a single-family home, and that could be ideal if you want a big yard or a lot of room. But if you’re willing to sacrifice space for less maintenance and extra amenities, and you don’t mind paying a homeowners association fee, a condo or townhouse could be a better fit.

    But even if the home is right, the neighborhood could be all wrong. So be sure to:

    • Research nearby schools, even if you don’t have kids, since they affect home value.

    • Look at local safety and crime statistics.

    • Map the nearest hospital, pharmacy, grocery store and other amenities you’ll use.

    • Drive through the neighborhood on various days and at different times to check out traffic, noise and activity levels.

    10. Stick to your budget

    Look at properties that cost less than the amount you were approved for. Although you can technically afford your preapproval amount, it’s the ceiling — and it doesn’t account for other monthly expenses or problems like a broken dishwasher that arise during homeownership, especially right after you buy. Shopping with a firm budget in mind will also help when it comes time to make an offer.

    In a competitive real estate market with limited inventory, it’s likely you’ll bid on houses that get multiple offers. When you find a home you love, it’s tempting to make a high-priced offer that’s sure to win. But don’t let your emotions take over. Shopping below your preapproval amount creates some wiggle room for bidding. Stick to your budget to avoid a mortgage payment you can’t afford.

    11. Make the most of open houses

    When you’re touring homes during open houses, pay close attention to the home’s overall condition, and be aware of any smells, stains or items in disrepair. Ask a lot of questions about the home, such as when it was built, when items were last replaced and how old key systems like the air conditioning and the heating are.

    If other potential buyers are viewing the home at the same time as you, don’t hesitate to schedule a second or third visit to get a closer look and ask questions privately.

    First-time home buyer mistakes to avoid

    With so much to think about, it’s unsurprising that some first-time home buyers make mistakes they later regret. Here are a few of the most common pitfalls, along with tips to help you avoid a similar fate.

    12. Not budgeting for closing costs

    In addition to saving for a down payment, you’ll need to budget for the money required to close your mortgage, which can be significant. Closing costs generally run between 2% and 5% of your loan amount. You can shop around and compare prices for certain closing expenses, such as homeowners insurance, home inspections and title searches. You can also defray costs by asking the seller to pay for a portion of your closing costs or negotiating your real estate agent’s commission. Calculate your expected closing costs to help you set your budget.

    13. Not saving enough for after move-in expenses

    Once you’ve saved for your down payment and budgeted for closing costs, you should also set aside a buffer to pay for what will go inside the house. This includes furnishings, appliances, rugs, updated fixtures, new paint and any improvements you may want to make after moving in.

    14. Buying a home for today instead of tomorrow

    It’s easy to look at properties that meet your current needs. But if you plan to start or expand your family, it may be preferable to buy a larger home now that you can grow into. Consider your future needs and wants and whether the home you’re considering will suit them.

    15. Passing up the chance to negotiate

    A lot can be up for negotiation in the homebuying process, which can result in major savings. Are there any major repairs you can get the seller to cover, either by fully handling them or by giving you a credit adjustment at closing? Is the seller willing to pay for any of the closing costs? If you’re in a buyer’s market, you may find the seller will bargain with you to get the house off the market.

    16. Not knowing the limits of a home inspection

    After your offer is accepted, you’ll pay for a home inspection to examine the property’s condition inside and out, but the results will only tell you so much.

    • Not all inspections test for things like radon, mold or pests, so be sure you know what’s included.

    • Make sure the inspector can access every part of the home, such as the roof and any crawl spaces.

    • Attend the inspection and pay close attention.

    • Don’t be afraid to ask your inspector to take a look — or a closer look — at something. And ask questions. No inspector will answer the question, “Should I buy this house?” so you’ll have to make this decision after reviewing the reports and seeing what the seller is willing to fix.

    17. Not buying adequate homeowners insurance

    Before you close on your new house, your lender will require you to buy homeowners insurance. Shop around and compare insurance rates to find the best price. Look closely at what’s covered in the policies; going with a less-expensive policy usually means fewer protections and more out-of-pocket expenses if you file a claim. Also, flood damage isn’t covered by homeowners insurance, so if your new home is in a flood-prone area, you may need to buy separate flood insurance.

Being a Homeowner: Struggling with Mortgage

If you are now struggling to make your mortgage payments, you’re not alone. According to RealtyTrac, 1 in every 2,253 homes is in foreclosure. In New Jersey, it’s 1 in every 1,043 homes; in Ohio, it’s 1 in every 1,503 homes.1 And with the novel coronavirus pandemic leading to rising levels of unemployment and income loss, you may feel that you’re also on the fast track to becoming another foreclosure statistic. Know that the federal government is suspending all evictions and foreclosures until the end of April. And if your mortgage payment issues are related to COVID-19, both Fannie Mae and Freddie Mac, which together guarantee more than two-thirds of all mortgages, are offering assistance to those financially struggling due to the fallout of the virus.

Whether your trouble meeting your mortgage payments is coronavirus-related or not, the first thing to do is to call your loan provider. If you can, try doing this before missing payments, as this will keep the largest number of options available to you. Here, experts lay out different options for when you’re struggling to pay on time.

Solution #1: Refinance to Change Your Interest Rate Terms

Refinancing to an adjustable rate mortgage (ARM) is a viable option if you’ve almost finished paying off your mortgage. “More and more consumers recognize the financial benefits an adjustable rate mortgage can provide under the right circumstances,” says Hensling. A perfect example is a homeowner who anticipates selling their home in the next three years and currently has a $400,000 fixed rate loan at 4.25% paying $1,976.76 per month.

Hensling says if the homeowner refinanced to a hybrid adjustable rate mortgage fixed for five years at 2.875%, this would reduce the monthly payment to $1,695.57 per month and save $281.19 per month.

Jeremy Brandt, CEO of WeBuyHouses.com, agrees, adding, “If a home is nearly paid off, the vast majority of the monthly payments are going to equity and not interest. Refinancing to an ARM might solve short-term cash flow issues by reducing the monthly payment at the expense of subsequent payments.” That being said, if interest rates start increasing, the monthly payments may increase over a period.

Alternatively, if you have an ARM, switching to a fixed rate mortgage may not lower your current monthly payments, but it can stop your payments from growing. “This makes sense if current fixed rates are lower than the ARM interest rate, or if you expect to move later than the next three years,” says Brandt. However, he warns that if you’ve been in an ARM for a while, the fixed rate you refinance into may be higher than your existing rate and this can cause your monthly payment to go up.

Solution #2: Request Mortgage Forbearance

Both Freddie Mac and Fannie May released guidelines for mortgage forbearance related to COVID-19. Essentially, they each are providing mortgage forbearance to borrowers financially affected by the novel coronavirus for up to 12 months. That means that individuals can reduce or suspend their payments for that time. Additionally, any related mortgage delinquency won’t be reported to the credit bureaus, so missing payments won’t tank your credit score. After the forbearance is over, lenders will work with borrowers to modify loans to lower monthly payments as necessary.2 3

Solution #3: Refinance to a Longer-Term Loan

Spacing your loan out over a longer period is one option that can reduce your monthly payment amount. Refinancing to a longer-term loan is the simplest way to reduce monthly mortgage payments, especially when cash flow is a problem, according to Al Hensling, president of United American Mortgage in Irvine, Calif.

However, it’s important to note that your interest rate will increase. To offset this, Matt Hackett, underwriting and operations manager at New York-based Equity Now, recommends making higher payments to increase the speed at which you pay down the principal. The majority of mortgages have no prepayment penalty (though you should definitely check yours).

Solution #4: Modify the Loan

A loan modification is an alternative for those who cannot refinance their loan but need to lower their monthly house payment. But, unlike a refinance, it requires a hardship. Pierce says borrowers must show the lender that as a result of a financial hardship, they are not able to continue making the regular monthly house payment. “This process involves extensive paperwork that must be completed and sent to the lender for review,” says Pierce.

She recommends that homeowners get counseling through a HUD-certified organization to fully understand their options and get help contacting the lender. “However, not all lenders offer loan modifications or may just offer short term loan modifications,” says Pierce.

As part of their mortgage assistance plans related to COVID-19, Fannie Mae and Freddie Mac are both allowing borrowers to modify their loans after forbearance.32

Solution #5: Get a Home Equity Loan

Getting a home equity loan may provide immediate assistance to struggling homeowners, but this strategy only works if you have a lot of equity in your house, which means that your home is valued at much more than you owe on it. Anthony Pili, director of strategic planning at Greater Hudson Bank in Bardonia, New York, advises struggling homeowners to consider paying off a mortgage with a home equity line. “Banks usually cover all closing costs on home equity lines. The savings in closing costs can be used to pay off the principal balance quicker,” says Pili.

He adds that this strategy is highly effective for borrowers who have the self-discipline to pay more than what is owed each month, since the minimum payment is usually just the interest that has accrued during the month.

Solution #6: Get the Lender to Eliminate Private Mortgage Insurance

Depending on how much equity is in your home, eliminating the private mortgage insurance (PMI) can lower your mortgage payments. “If you have at least 20% equity in the property, I recommend contacting the lender about dropping the mortgage insurance,” says Pierce. She explains that borrowers who usually don’t pay 20% down are required to have PMI for at least two years, but says there may be exceptions to the two-year rule. For example, if the homeowner made improvements to the house that increased the value, the requirement may be waived.

Solution #7: Challenge Property Taxes

If the value of your home has dropped, challenging your property tax may provide some financial relief, says Cara Pierce, a certified housing counselor at Clearpoint Credit Counseling Solutions, a national nonprofit organization. “You’ll need to contact the county tax assessor’s office in the county in which the house is located to see what type of information they will need as proof that the housing values have dropped,” says Pierce.

However, Pierce says this is a short-term strategy. She warns that as property values increase, property taxes will rise. Also, be advised that it may cost several hundred dollars to have your home appraised.

The Bottom Line

If you’re struggling with your mortgage, don’t throw in the towel. There are various solutions that can help you stay in your home and manage your monthly mortgage payments.

Being a Homeowner: Common Problems

Congrats, you own a home! Your dream of being a homeowner is finally a reality. But lurking just beneath the euphoria is the realization that you’re on your own now. No building superintendent to fix a leak. No landlord to repair the air conditioner. Home maintenance and repairs are now your responsibility.

Maybe you have a homeowner’s warranty that protects you from major problems — but it’s not going to replace light bulbs or clean your gutters.

Here are five common problems new homeowners have (and how to solve them):

1. Alone in the Dark

If your entire home goes dark during a storm, you’ll have to wait it out until the power company does its thing. But if the power goes out in just part of the home, a circuit breaker has tripped. This may be because you plugged too many things into a single circuit or because you have a power fluctuation or short circuit in your system. Every home has an electrical panel containing fuses or circuit breakers. Know where yours is located and which fuses or switches control each circuit. If your problem is a simple overload, the fuse has burned out or the switch for that circuit will have flipped itself to the off position. Unplug some appliances from the circuit and replace the fuse or flip the switch on again. If it goes out again, you may have a bigger problem. Call an electrician. Caution: You do not want to attempt any electrical work without killing the circuit.

2.  It’s Alive!

Your home might be made up of wood, metal, and fabric, but your yard is a living thing that requires your attention. If you’re starting from bare ground, you have to consider seeding or sodding and what grass and plants work best for your location. If your lawn is established, you have to think about watering (how often and how much?). Then there’s fertilizing (what kind and when?), spraying herbicide, (pre-emergent, post-emergent — what does that mean?), and mowing (how short, how tall?) Your first decision is whether to hire a lawn care professional or take on the work yourself. If you choose the latter, you’re in for a crash course on lawn care — and a trip to the store for a lawnmower, edger, fertilizer spreader, and weed whacker.

3. Water, Water Everywhere!

Water overflow occurs when your drain or toilet gets clogged. Whether the drain was clogged by hair or an entire roll of paper your 4-year-old flushed down the toilet, the first priority should be to stop the water immediately. Most sinks, lavatories, and toilets have a water cut-off valve on the wall where the water lines come in. If cutting that off doesn’t work, you will have to shut off the water at the meter in the yard. This involves a special key, available at home centers. While you’re there, arm yourself with a plunger, a can of drain cleaner, and a snake (a flexible rod that clears minor obstructions that you will eventually need). If you are not able to fix the problem, call a plumbing company and let the pros take care of it.

4. It’s Always Something!

Even if your home is brand new, you’ll face handyman chores from hanging pictures to tightening knobs on kitchen cabinets. Start building your toolbox with the essentials right away.

Your starter toolbox should contain:

  • A hammer.
  • Screwdrivers (both flathead and Phillips).
  • Tape measure.
  • Pliers.
  • Adjustable wrench.
  • Utility knife.
  • Putty knife.
  • Flashlight.

Most tools can be purchased online, and whether you need a common torque wrench or a specific type of drill press, there are plenty of buying guides on the internet to help you get the best tool. Your toolbox will get bigger as new needs come along.

5.  Sweating It Out

One of the obligations of homeownership is changing the filter on your HVAC system. Although your air conditioner compressor is outside, your main unit is in a utility closet, basement, or attic and that’s where the filter is. The filter keeps dust and other gunk from being sucked into your blower fan, and if it’s not changed regularly, you’ll develop HVAC problems. Different units need different sized filters, and you’ll find them at home improvement centers. Follow the manufacturer’s recommendations on how often to change the filter — usually monthly or quarterly.

Homeownership comes with challenges, but you’ll get the hang of it. Besides, investing a little elbow grease and sweat will put your personal stamp on your home.

Being a Homeowner: Mistakes Everyone Makes in the Summer

Dreams of the summer season tend to focus on long, lazy days spent reading the latest bestsellers, napping in the rope hammock, or watching white clouds drift across a blue sky. But if you’re a homeowner, you know that summer isn’t always a day at the beach.

Forgetting the HVAC Filter

Your air conditioner works hard over the summer. Don’t make it work any harder than necessary. Keep the unit running smoothly—and keep cooling costs low—by checking the HVAC filter on a regular basis (as often as once per month if you own pets or live with a smoker). While slightly more expensive washable filters can be reused, cheaper fiberglass filters, once dirty, must be replaced. Consult the manual to learn the recommended filter type for your unit.

Letting the Siding Slide

Exterior siding: So highly visible to neighbors and passersby, its condition says a lot about your priorities as a homeowner. But while curb appeal may be one motivation for performing exterior maintenance, there’s a practical and even more compelling reason to do so. Over the summer months, dirt, mold, pollen and tree sap steadily accumulate. Unchecked, such surface imperfections could ultimately shorten the lifespan of your siding material.

Paying Pavement No Mind

It’s not impossible to repair concrete driveways, walkways, and patios in fall and winter, but cold weather makes it a lot more difficult to ensure a satisfying result. For that reason, there’s no better time than now to repair cracked, crumbling, or chipping concrete before it inevitably worsens, sometimes irretrievably. Use latex or epoxy patching compound, and if you wish to disguise the repair or give the paved area a smooth new look, applying a resurfacer.

Passing Over Pests

Insects are an unavoidable fact of life, particularly in the summer. Unpleasant though they may be, household pests are usually benign. However, it would be a mistake to forget that some critters pose a genuine threat—termites most of all. Do due diligence to prevent an infestation. Indoors, keep the basement and attic dry and well-ventilated. Outdoors, maintain a one-inch gap between soil and wood portions of the home, and tightly seal foundation cracks.

Overlooking the Roof

There are summer winds that blow in from the sea, bringing welcome relief on the hottest days of the year. And then there are tenacious gales that, on their own or in the course of a summer thunderstorm, put your home at risk of considerable damage. If and when especially rough weather visits your town, don’t forget to assess your roof in the aftermath. Upset shingles—whether loose, torn, or warped—are an open invitation to roof leaks and water damage.

Neglecting the Gutters

When’s the last time you inspected the gutters? Even beyond the fall season, leaves and debris can accumulate enough to form clogs. Combine heavy summer downpours with obstructed gutters, and your home becomes vulnerable to extensive, expensive damage. Now, for your gutters to drain away stormwater with persistent reliability, experts recommend twice-annual cleaning. If you’re tired of the hassle and hazards of climbing up a ladder to remove gutter gunk year after year, you wouldn’t be the only one! Perhaps it’s finally time to consider the alternative—a storm drainage system that requires zero maintenance. Guaranteed not to clog, seamless one-piece LeafGuard Brand Gutters eliminate the need for homeowners to clean—or even think about—their gutters. It’s a get-it-and-forget-it solution.

Home Maintenance: Summer Checklist

Everything you need to do to keep your home and yard in tip-top shape this summer.

With the change of each season comes a new set of maintenance tasks for your home. Now that summer’s here, you’ll want to prepare your home and yard for the onslaught of summer heat. From air-conditioner upkeep to hanging a clothesline, these simple chores will help keep your home happy and healthy.

Check detectors. Check your home’s smoke and carbon monoxide detectors to make sure they’re working properly.

Inspect air-conditioners. If you haven’t already, prep air conditioners and fans for their busiest season:

  • Clean all ceiling fans and other fans with a damp rag. If you have high ceilings, a ceiling-fan duster can help you de-grime hard-to-reach blades.
  • With the help of your spouse, install window air-conditioning units. Remove and clean the filters before firing up the AC. If you have central air-conditioning, consider a professional servicing.

Enjoy a dry spell. Install an outdoor clothesline to dry your laundry in the summer sun; you’ll save money and energy by skipping the dryer. Plus, who doesn’t love the smell of air-dried sheets?

Clean your outdoor cooker. Give your grill a deep cleaning with these simple steps:

  • For gas grills, turn the heat up to high and let the grill cook with the lid closed for about half an hour. Allow the grill to cool and then brush it off with a grill brush. Wipe down the exterior with a damp sponge and a gentle cleanser. Clean the grill’s drip pans.
  • For charcoal grills, completely empty the grill and wipe out any ashy residue. Then clean it inside and out with hot water, a scrubby sponge and some liquid dishwashing soap. Let the grill dry completely before using it again.

Polish your porch. Thoroughly sweep painted porch floors; then mop them with an all-purpose cleaner. If there’s a lot of built-up dirt on the floorboards, you may need to scrub them with a brush.

Wash your windows. If you didn’t tackle exterior window washing in the spring, now’s the time to get your glass clean.

Make much ado about mulch. Add a layer of mulch to keep weeds down and help the ground retain its moisture in the heat. It’ll give your plants a chance to grow.

Be a leak detective. Check your hoses and exterior faucets for leaks — even a tiny drip can add up to a big waste of water. Pinhole leaks in hoses can be covered up by winding regular electrical tape around the (dry) hose in overlapping layers.

Primp your plants. Deadhead both perennials and annuals to keep them productive. If you have visible dead foliage from spring bulbs, pull it out to maintain a tidy look, but if the daffodil or tulip leaves are still green, leave them alone; they’re busy nourishing the bulb to bloom again next year.

Plan your watering schedule. Train your garden to endure dry days by watering deeply a couple times a week, instead of watering lightly daily. This style of watering will promote the growth of deep, strong roots.

Stop dirt at the door. Keep summer’s mud and muck outside with not one, but two doormats at your main entry door. Place a coarse mat at the exterior and a softer, cloth one on the interior to catch the most dirt. Better still, instruct family members to remove their shoes upon entering. If you live near a beach, a tub of water for sandy feet placed by the door works wonders for keeping sand outside where it belongs.

Analyze your deck. Look over your deck for signs of rotting and hammer in any nails that are poking up. Then, determine if your deck needs sealing. Sprinkle water on the deck’s boards. If the water beads up, you’re in good shape; but if it soaks right in, it’s time to reseal that sucker.

Being a Homeowner: Big Financial Benefits

Home is where the heart is. It’s also where a big chunk of your financial responsibility lies. Home ownership is a pillar of the American dream, and while many of those in younger generations either can’t afford to or actively choose not to pursue it, those who buy in to the housing market often see major financial benefits.

There is no doubt that becoming a homeowner is one of the biggest financial decisions you will make in your entire life. It’s also undeniable that simply getting to that point requires a certain degree of financial success. You need to come up with a down payment and closing costs (generally about 3 percent to 4 percent of the total home purchase price for buyers) before you can even turn the key in the door. But among those who take on the big task of home ownership, many see financial benefits that far outweigh their initial investment, especially during tax season. Here are 5 of them.

Amass equity

Every single month that you pay your mortgage you own just a bit more of your home. This is a big benefit over renting, where you’re paying comparable monthly fees without any comparable stakes. The equity in your home builds in two ways and often concurrently: (1) equity builds as the value of your home increases, and (2) equity builds as you pay off more of your loan. These two factors mean that after the first couple of years (when, again, you’re mostly just paying mortgage interest), every month you pay money toward your loan you are building up your financial resources for the future. It’s why some people refer to mortgage payments as “forced savings.”

Want to build equity even faster? Take steps to pay off your debt quicker (like financing with a shorter term loan or paying more than you owe every month) or increase your property value (think home improvements and a focus on routine maintenance).

Build up a stronger financial future

The recent recession threw a wrench into the idea that home ownership always builds wealth over time. But the fact remains that owning a home is one of the fundamental means of accumulating wealth as we age. The caveat: you have to buy a house that you can actually afford.
Asset-wealth is a much more secure predictor of future financial stability than income, which can—and often does, in today’s evolving economy—change from year to year. In a strong economy, home values generally increase by 3 percent to 4 percent every year, thanks to inflation and natural population growth. From 2011 to 2016, as the housing market has recovered from the bubble that contributed to the recession, home values have been increasing even higher at an average rate of 6.3 percent a year. Putting money into home ownership versus a rental is akin to the difference between putting money into an investment account versus a no-interest checking account, with the latter being only as valuable as it is in the moment while the former increases over time.

More control over day-to-day housing-related costs

Unless you change the terms of your mortgage, you know the base cost that you’re going to be spending to live in your home every month, both now and in the future. This affords more stability than rent, which is variable and can (and often does) change over time. And control over costs goes even further than that. As a renter, you don’t have a say over whether your landlord supplies you with energy-efficient appliances that can save you hundreds of dollars every year, but you do have to pay the utility bill either way. As a homeowner, you can make better short and long-term financial decisions that are geared specifically toward your own financial goals and abilities. While this isn’t likely going to help you save for your future in the same way building equity does, it should bring you peace of mind to know that you’re saving money everywhere that you can.

Home ownership tax deductions

You get a number of tax breaks for owning a home, most notably a deduction for the interest and property tax portion of your mortgage. This deduction is particularly useful for off-setting the initial financial blow that comes with purchasing your property, since in the first years of owning your home you’re mostly just paying off the interest on your mortgage, as opposed to the principal. The first year you buy your home you are also able to write off any mortgage points on your loan, which can lead to pretty considerable savings depending on how many points you claimed. And if you ever decide to refinance your home after building sufficient equity in it, you also have the option of taking out a home equity line of credit, which is itself tax deductible.

Do keep in mind: the Tax Cuts and Jobs Act, passed in 2017, limits mortgage interest deductions to $750,000 of your total mortgage debt, including any home equity credit you take out. Previously, the limit was $1,000,000 in mortgage interest deductions plus a $100,000 for home equity credit.

Positive perks

Home ownership has other financial benefits that may come in handy for you someday. For example, a mortgage is considered “good debt,” and as such, it is likely to increase your credit score, provided you always make your payments on time. It also proves your credit-worthiness for other things you may want to consider, like a business loan or a new line of credit. It can even lower your monthly car insurance payments. While perks like these should certainly not be deciding factors when determining whether or not you should purchase a home, they do add up as additional benefits if you choose to opt in to the housing market.

But what about the financial risks?…

Owning a home isn’t all equity building and cost cutting. Aside from the significant payments that have to be made in order to own a home in the first place, there are also some financial risks that all potential and current homeowners need to keep in mind when trying to balance their budgets.

The biggest financial risks for homeowners are in terms of maintenance costs. There’s no landlord to put the responsibility on if the roof starts leaking or the heating system goes out in the middle of winter. While you’re unlikely to face major repairs like this all of the time, they do occasionally come up and it’s important for all homeowners to have savings set aside to deal with them when they happen.

Then there’s the risk of home depreciation. Ultimately, it’s your home’s land that appreciates in value over time, barring any major negative changes in your area like a natural disaster or a school or major business closing. The structure of your home, however, tends to depreciate in value as things get worn out and lived in. While you don’t have a lot of control over what goes on in your neighborhood that may negatively impact the price of your land, you do, fortunately, have some control over maintaining and increasing value on your home’s structure by keeping up with maintenance and putting in certain home improvements. Don’t let your home’s value be something that you just tacitly accept—work toward making sure your home, and not just the land it sits on, is appreciating as the years go on.

Being a Homeowner: Responsibilities

When a person goes from renting an apartment to owning a home, it is one of the greatest accomplishments of their lives. It takes many people several years to build their credit and to become financially ready to purchase their own home. While home ownership is a huge accomplishment, it also involves a great deal of work. When you were renting, your landlord was responsible for everything. Your only responsibility was to keep your unit clean and pay your rent on time. This is not the case when you own a home. There are several responsibilities that you would need to learn to embrace now that you are a homeowner.

We want to set you up for success on your journey to home ownership, so here are 10 tips:

1. Schedule trash pick-up.

When you were living in an apartment, you took your rubbish to the curb once a week and it was picked up. This was likely set up by your landlord. When you buy your home, you are responsible for setting up your rubbish collection.

2. Make your mortgage payments.

One of the biggest responsibilities that you have when you purchase your home is making your monthly mortgage payments. It is important that you make these payments on time every month. When you were renting, if you were short on cash one month, you could sometimes get away with an apology and a promise to be on time next month. This is not the case when you are paying a mortgage. If you are late, the late payments would have a negative effect on your credit report. If you cannot make your mortgage payments, you risk having your home go into foreclosure.

3. Pay your property taxes.

Now that you are a property owner, you need to start paying property taxes. This is something that you never had to worry about when you were renting. If you stop making your property tax payments, interest would be added to the amount of money that you owe. Also, over time, the government can put a lien on your house. Paying property tax is a very important responsibility.

4. Pay your water bill.

When you are renting, often, the only payment you are responsible for is your rent, electricity, and heat. Most landlords pay for the building’s water bills. When you own a home, you will need to start paying your own water bill. Your bill would depend on how much water you use. If you have a large family who takes long showers, if you do laundry in the home often, or if you use your water to fill a pool, your bill would be higher than the average.

5. Landscaping duties.

When you were living in an apartment, it was the responsibility of the property owner to take care of the landscaping duties. When you own your home, you would need to do all of the landscaping yourself. This would include mowing and watering the lawn, trimming the bushes and hedges, and planting any plants or flowers that you want to have in your yard. If curb appeal is important to you, you should start to assume landscaping responsibilities right away.

6. Schedule snow removal.

After a snow storm, your landlord was responsible for plowing the driveway and clearing the stairs and walkways of snow and ice, to make getting in and out of your home safe. When you purchase your home, you would be responsible for the snow removal yourself. Some homeowners shovel and treat their driveways, walkways, and stairs, while others hire a professional to do the job. Either way, you can no longer rely on a landlord to handle the snow removal duties for you.

7. Pest control.

There is nothing worse than a pest infestation. Whether it is ants, spiders, bed bugs, termites, mice, or any other pest, you need to get the pests out of your home as soon as possible. When you lived in your apartment, you did not need to worry about pest control. It was the responsibility of your landlord. When you own your home and you have a pest problem, you would need to hire and pay for an exterminator yourself.

8. Clean the gutters.

The gutters on the home are designed to drain all of the water from the roof down to the ground. Over time, leaves and other debris can clog up the gutters, which can result in standing water. During the summer, this standing water can result in a mosquito problem. During the winter, the water can freeze, creating ice dams. These can be very damaging to the roof. As a homeowner, it would be your responsibility to clean your gutters regularly.

9. Regular maintenance of the furnace and water heater.

To be sure that a furnace and water heater are running as efficiently as possible, they need to be maintained every year. If they aren’t, it can be a waste of money and it can result in an expensive breakdown. As a homeowner, it would be your responsibility to make the appointments for regular maintenance.

10. Home repairs.

When you were living in your apartment and something needed repaired, you would call your landlord and they would have it fixed as soon as possible. When you own your home, any necessary home repairs would be your responsibility. This is one of the most expensive responsibilities of being a homeowner. There are certain home repairs that can be very costly. If you are handy, you can handle the job on your own. If not, you would need to hire someone to make the necessary repairs for you.

 

Becoming a homeowner is one of the most fulfilling and exciting times of your life. There are, however, several new responsibilities that you need to start taking on yourself to make sure home ownership is a positive experience!

Mortgage Mistakes You Should Avoid

Bad decisions on a $400,000 home loan can easily cost you $100,000.

If you already have a mortgage, it’s not too late to fix old mistakes (or avoid making them with your next loan).

You should review your mortgage every 2 years anyway.

Why? Because less income needed to payout your mortgage means more money for other areas of your life. Your mortgage is probably the biggest financial commitment you will make in life. It is easy to get right and just as easy to get completely wrong.

Most people are surprised to find out that a low interest rate is not the only factor in reducing mortgage cost and paying out a loan faster.

You won’t see lenders advertising most of the tactics available to you, as it’s not in their best interests – the longer it takes to payout your loan, the more money they make. Lenders make money by lending you as much as possible, for as long as possible and with fees as high as they can get away with.

1.  You didn’t set up your loan with the right features

There are loan features that you might need now or down the track, such as an offset account or the ability to top up. These features do not have to make your loan more expensive, regardless of what an individual lender might tell you. It’s important to design a loan based on your needs now and in the future.

This is why independent mortgage advice, combined with the assistance of your financial planner, is so important.


2.  You’re not getting commission refunded

Some mortgage brokers will cap their income and provide a commission refund. Getting commission refunded on an ongoing basis is probably the easiest way to put $10,000’s back in your pocket over the life of your loan.

It’s also the strategy that’s possibly least utilised, as not many people know about it.

The mortgage broker who arranges your loan receives an immediate commission payment. For a $450,000 loan, your broker would receive around $3,000 at settlement.

In addition, that broker will receive a yearly commission payment (called trailing commission). On a $450,000 loan, your broker would receive about $700 every year. Although that commission reduces as your loan size decreases, trailing commission can last up to 30 years. Mortgage brokers build their businesses on this recurring income. And while they should be paid, you may find one that caps the commission they take.

Trailing commission can create a bias towards lenders who pay a higher % to brokers. In other words, your broker might be swayed to recommend the loan that pays them the most. While many brokers put their clients interests first, this ongoing commission can reduce the incentive for your broker to give you advice on how to pay out your loan more quickly. They may be more inclined to recommend a fixed term with a fixed interest rate, when a variable may be more appropriate.

There are only a few mortgage brokers in Australia who will refund any commission.

Getting this money back, and using it as additional repayments, can take years off your loan.

A note: Some mortgage brokers will tell you they don’t receive commission, but their employers do – and those brokers are paid salary and bonuses to recommend particular lenders.

Can you avoid commission by going direct to a lender? 

No – lenders will not bite the hand that feeds them by undercutting every broker in Australia. In addition, they use the commission saved to provide you with loan service otherwise provided by the broker.

How do you get trailing commission refunded if you already have a mortgage?

You can’t get trail commission back on a current mortgage, unless your broker is kind enough to start giving it back to you. However, you can review your current mortgage and work out if it’s worth refinancing.

To summarise, getting a commission refund:

1. Puts money back in your pocket, to help pay out your loan faster

2. Removes the chance your broker will recommend a particular loan because it pays them more.

3.  You fell for cheap tricks with rate comparisons

You should almost never pay the Standard Variable Rate (SVR). Each lender’s SVR will vary with others – it is the basis by which your interest rate is determined but not the final rate you are likely to pay. Some banks have higher SVR and so will discount theirs by more to reach the ultimate rate you will pay. Some have lower SVR and so will only apply a small discount.

Therefore, comparing the SVR across lenders does not help you work out which loan is cheapest.

2 tricks to look out for:

  1. Showing a large discount off their SVR to make you think you are getting a great deal. A big discount off a high price still costs more than a small discount off a lower price.
  2. A lender comparing their lowest interest rate with the SVR of other lenders – rates you would never pay if you used those companies.

4.  You’re sticking with the same mortgage ‘til the end

Home loans can become uncompetitive in only a few years, or less.

For starters, it pays to check your lender hasn’t jacked up the rate of your loan and is no longer competitive.

Competition improves loan features and you might be missing out on benefits if you stick with the same loan to too long.

You should check your loan remains the best option every 2 years. It costs nothing (but some of your time) to check if there is a better deal. And that time can save you thousands of dollars a year.

A tip: When you set up your mortgage, always assume that you will need to repay early or refinance. If suitable given your overall needs, take out a loan that has low or negligible break costs. This is another reason you should get advice from a broker who will consider the costs of exiting your loan early – ideally a fee based broker who takes their payment only from you, and not the lender.

5.  You set your loan term as long as possible

Reducing your loan term just a few years can take $100,000’s off the cost of the average loan.

It’s not always the best strategy to go for the longest loan period possible. Paying a little more off your loan each month can make you significantly more wealthily over the long-term, or at least debt free earlier. You should look at the opportunities presented by a shorter mortgage, such as the ability to focus on your kids’ education once you’re debt free.

Your lender and mortgage broker want you to take out a 25 – 30 year loan as they are being paid interest and trailing commission for the entire time.  The longer the loan the more money your lender and broker make.

And using a mortgage offset is not always the best strategy for some people, as the easy access to funds presents a temptation to spend the cash (a redraw facility adds an additional layer of admin and gives access to funds if needed). Always get financial advice with your mortgage advice.

6.  You relied 100% on rating websites to make your choice

While useful as a tool for adding to a short list, rating websites are incomplete and often contain inaccurate information. The lenders they feature generally pay these sites and most sites will exclude lenders who aren’t willing to pay a fee. Some sites promote a lender’s most profitable (expensive) loans, rather than the cheaper loans also offered by the same lender.

There are often many inconsistencies in the results of top rating sites when compared with independent research.

7.  You focused too much on interest rate

Interest rate is only one factor that influences the total cost of your loan. Going with the lender that offers the best initial interest rate doesn’t mean you have the cheapest loan.

Interest rates can change soon after your loan starts and you can quickly end up with a very uncompetitive and expensive rate. In addition, there are other costs that can make a loan significantly more expensive than it seems, based on the interest rate alone.

Fees might include:

–       Lenders mortgage insurance

–       Application fees

–       Valuation fees

–       Legal and settlement fees

–       Rate lock fees

–       Early payout fees (deferred establishment fees)

–       Discharge fees

–       Establishment fees

8.  You went direct to the lender

Lenders love it when you walk in their doors without being referred by a broker, as they can pocket the commission they would normally have to give the broker. Lenders save by you going direct, not you.

If you deal directly with your bank, you will waste the opportunity to ask a mortgage broker for more broad advice (beyond one lender’s products) and you will never get any commission refunded.

In addition, there are some lenders who do not deal with brokers (or pay commission) and therefore promote cheaper loans. An independent mortgage broker can recommended one of these lenders, as they do not get paid via commission anyway (a traditional commission-based broker will never recommend one of these lenders).

9.  You used personal rather than professional reasons for choosing your mortgage broker

Not all mortgage brokers are the same. I’d say almost 100% of people have no idea if they got the best mortgage available; and yet are happy to recommend their broker to their friends (let’s face it, usually because they ‘like’ them personally).

So don’t decide to use a broker simply because your mate is one, or recommends theirs because they ‘got a good rate’. Unless you happen to know an independent mortgage broker, if you use anyone else, you are using one of the 99.99% of compromised and biased brokers in Australia. And, this means you’re giving away $10,000’s of your hard earned cash in the form of commission over the life of your loan. And you may not get the best loan (and therefore pay more in interest and ongoing costs as well).

Everyone wants to support friends and family – and use people they recommend. Just keep this article in mind when you decide to give your business (and hard earned cash) to someone you know or a broker referred by a friend without a professional basis.

To be fair to many mortgage brokers, most are not aware of the inherent conflicts and costs associated with their profession (although most don’t ask or think about it critically). Brokers are taught by their employers, who make billions out of their associations with a hand full of lenders.