Myths About Homeownership

 

 

 

 

 

Myths About Homeownership

How lenders assess mortgage applications has changed a lot since 2007. What was acceptable a few years ago may not be so today. The following are some common homeownership myths:

Myth: It’s a bad time to buy a house.
Fact: Mortgage rates for fixed-rate mortgages are at historical lows, creating stable payments and long-term savings for today's homebuyers and house prices have fallen at a record pace. Additionally, there is some financial relief for first-time homebuyers through the recently enacted Housing and Economic Recovery Act of 2008 and foreclosures have increased to record levels, leaving lots of housing supply on the market with unequalled demand. The combination of these factors generally equals greater affordability, and makes now a good time for many to consider homeownership.

Myth: Buying a house is just too risky; I'll end up in foreclosure.
Fact:The recent news on foreclosures is understandably frightening. Certainly if you lose your job, go through a divorce, or suffer an illness, you could have real trouble paying your mortgage, or rent for that matter. In recent years, we've even seen an increase in excessive obligation–just too many bills–as a reason for delinquency. While you can't always solve for the unexpected twists and turns of life, good budgeting and responsible credit practices can decrease the likelihood of a foreclosure. Also if you have trouble paying the mortgage, contact your lender immediately!

Myth: You can't buy a home in the U.S. if you're not a citizen.
Fact:If you're a permanent or non-permanent resident alien, you can purchase a home in the U.S. In order to qualify for a loan you typically need to be a permanent resident alien with a valid USCIS card or, a "Green Card" and Social Security number. If you are a temporary resident alien with a valid work permit and Social Security number and have been in the United States continuously for the last 2 years, with steady employment and good credit history you may also qualify for a loan.

Myth: If you don't have a bank account or credit cards, you can't qualify for a mortgage.
Fact: Having a bank account is always a good idea and helps you establish credit. However, lenders can approve you for a mortgage even if you don't have a bank account or credit cards. You'll likely need to keep records showing a history of payments you've made for items such as rent, utilities, and car payments.

Myth: Lenders share your personal financial information with other companies.
Fact: By law, banks and other financial institutions are restricted in their uses and disclosures of information about you. In some situations, you may choose to restrict the disclosure of your information if you don't want it to be shared. If you are unsure how your information will be used, don't be afraid to ask – it's your right to know.

Myth: If you're late on your monthly mortgage payments, you'll lose your house.
Fact: If you have a financial hardship, like the death of your spouse or a medical emergency, and fall behind, it's possible to keep your home and get back on track if you contact your lender early (the organization to whom you make your monthly mortgage payments, sometimes also referred to as your mortgage servicer).

If you experience a change in your financial situation and think that you will fall behind or have fallen behind on your mortgage payment, call your lender immediately.
Despite popular belief, lenders do not want to foreclose on homes. They want to keep you as a customer for life. In fact, lenders typically lose money in the foreclosure process, so they are always looking for ways to help you make ends meet.

Myth: You can't get a mortgage if you've changed jobs several times in the last few years.
Fact: Not true. You can change jobs several times and still get a loan to buy a home. Lenders understand that people change jobs. The important thing is to show that you've had a stable income and good credit.

Information Courtesy of...

About Homeownership

Freddie Mac's Online Guide to the Homebuying Process

Tax Benefits of Home Ownership Are Almost Too Good to Be True

Tax Benefits of Home Ownership Are Almost Too Good to Be True

Uncle Sam helps you in three ways when you own your home.

1. The purchase
When buying your own home, most of the expenses are not tax deductible. But there is one exception that is worth finding.

The IRS says you can deduct interest in the year that it is paid, and that is usually part of each monthly loan payment. In addition, if the day you purchase is on any day other than the first of the month, you will likely pay a charge for "daily interest" between the day of closing and the end of the month. Look on line 901 of your HUD settlement statement.

Much more importantly, the IRS says that, in most cases, loan discount points and origination fees are tax deductible to the buyer, regardless of who pays them. Look at lines 801 and 802 of your settlement statement and see if you hit the jackpot. This is a particularly unusual deduction because you get the benefit even if the seller paid your closing costs. And because origination fees of 1% and more are common, this can amount to a lot of cash.

2. Mortgage interest
In general, you can deduct interest charged on a loan used to acquire or improve your principal residence in the year that it is paid. In the early years of a loan, most of your monthly payment is interest, so this can really add up. If you are in a 28% federal tax bracket, this can have the effect of lowering your borrowing costs by almost a third, depending on which state you live in. This is truly nothing more than a subsidy to home owners, and it's a very popular deduction.

In addition, you can always deduct interest on an additional $100,000 of mortgage debt, which can be used for any purpose. This is called the "Home Equity Loan" exception, and it allows you to tap into your home equity for any purpose. This gives home owners the ability to do what is called "debt-shifting." For example, if you live in an apartment and have a credit card balance of $10,000 at 18% interest, none of that interest would be deductible. But if you bought a house, obtained a home equity loan for $10,000 and paid off the credit card, then ALL of the interest expense becomes automatically deductible. Furthermore, the rate on the home equity loan is likely to be around prime plus one or two, usually much lower than credit card rates. This same technique works with any and all personal debt, from car loans to consolidation loans - with only one hitch. In every home equity loan, you have pledged your house as collateral for the loan. If you fail to pay the payments as agreed, you could lose your house to foreclosure. So be careful in using this technique.

3. The sale
This is the best. In fact, I can hardly believe this myself. Here's how it works:

If you have owned and occupied your principal residence for at least two of the past five years, you can earn up to $500,000 on the sale of that house and pay no federal income tax whatsoever. That's assuming you are married - singles get up to $250,000 tax free. And here comes the kicker:
You can do this as often as every two years for the rest of your life.


This is as good an excuse for getting married as I have ever heard. Buy a fixer-upper in an up and coming neighborhood, work on it nights and weekends for two years, then sell it at a nice profit and pocket the cash, totally free of federal taxes. And most states recognize the federal exclusion, so you put the cash away totally tax free. You don't have to re-invest, you don't have to be age 55, and you can do this every two years forever. No, I'm not kidding.

The one restriction is that you MUST own and occupy the house as your principal residence, so don't try this on a rental property by pretending you live there when you don't. And there are some unclear rules about how you can take a partial exclusion if you live there less than two years, but we don't really know what they mean yet, so I recommend you stay there two years.

*Information provided by the National Association of REALTORS* By John Adams : Copyright © by Move, Inc.

7 Steps to House-Selling Success - Step 7: Moving

Step 7: Moving

7 Steps to House-Selling Success
Even the smallest home contains a lot of furniture, clothes, kitchen equipment, pictures and other items. For a short move, it may be worthwhile to transport small goods by yourself, but larger items will likely require a professional mover.

Our moving center provides calculators as well as information on moving options, storage, truck rentals and related topics. This information, plus assistance and advice from your REALTOR®, can ease the moving process.

How do you plan a move?
The time to plan your move begins once you've decided to sell your home. Some of the activities required to sell the home can actually help with the moving process. For example, cleaning out closets, basements and attics means there will be less to do once the home is under contract.

Your planning will be guided by a number of things:

•Are you moving a long distance? If yes, you'll likely require an interstate mover and the use of a large van.

•Moving internationally. Contact the embassy in Washington, D.C., for information. Be aware that items which may be entirely common in the United States can be prohibited in foreign countries. Ask about customs protocols, duties and taxes.

•Moving locally? If yes, will you move yourself? You'll need to consider packing boxes, peanuts, blankets or padding and a van rental.

•Planning is key. Stock up on boxes, packing materials, tape and markers. Always mark boxes so that movers will know where goods should be placed.

Who should you use?
The decision of who to use can begin with a visit to REALTOR.com's® moving center and discussions with the REALTOR® who is marketing your home.

There are a number of factors to consider. Money is one issue: You'll want to spend as little as possible, but choosing only on the basis of cost can be a mistake. Movers must have the right equipment, training and experience to do a good job. A mover, no matter how large or small, should be able to provide recent references for home sellers with a similar volume of goods to transport.

Get mover estimates in writing. Be aware that it's possible to get discounts through membership organizations and, sometimes, on the basis of your profession: Clergy, for example, sometimes qualify for a discount.
Always confirm mover credentials. Movers should be licensed and bonded as required in your state, and employees should have workman's comp insurance.

Get a checklist.
Moving is a big job and checklists can make it more organized and easier. Here are some of the major items to consider:

•Money. If you're moving more than a few miles then you should have enough cash or credit to cover travel, food, transportation and lodging.


•Medicine. Keep medicines and related prescriptions in a place where they will be available during the move.
•Number boxes so that all items can be counted on arrival. Make a list of boxes by number and indicate their contents.

•If moving with children, make sure that each has a favorite toy or toys, blankets, games, music and other goods.

•Moving historic, breakable or valued items? Such goods routinely require special handling and packaging.


•Have address books readily available in case you need help.

•If you have a laptop computer with a modem, make it accessible during your trip to pick up business and personal e-mail.

*Information provided by the National Association of REALTORS - Copyright © by Move, Inc.

7 Steps to House-Selling Success - Step 6: Closing

Step 6: Closing

7 Steps to House-Selling Success
It might seem as though once a sale agreement has been signed that the selling process is complete. Not only is it not over yet, but some of the most complex aspects of a real estate transaction now begin.

A sale agreement sets not only a purchase price for the home, but also a series of terms and conditions. For instance:

•Contracts routinely depend on the ability of a buyer to obtain financing, which is why most sellers prefer buyers with preapproval letters from lenders.

•A growing percentage of transactions involve a home inspection, or a physical review of the home by a trained and independent observer.

•Lenders will establish numerous conditions before granting a loan. They will want a title exam, title insurance to protect against title errors, termite inspections, surveys and an appraisal to assure that the home has sufficient value to secure the loan.

The REALTOR® typically arranges required inspections and helps the owner prepare for closing.

When should you close?
With automation now available, closings can occur within a week in some areas -- at least in theory. In practice, it takes time to arrange financing, conduct inspections, obtain appraisals, locate replacement housing, contact movers, pack and actually move.

While instant closings are not practical, neither are closings too far in the future. The problem with closings much past 60 days is that loan rates are difficult to lock in. If mortgage rates go up, it's possible that the buyer will no longer be able to afford the home and thus the deal may fall through.

The result of these considerations is that most homes close 30 to 45 days after a sale agreement has been signed.

What happens?
Closing -- or "settlement" or "escrow" as it is known in some areas -- is essentially a meeting where the closing agent (the party who conducts settlement) takes in money from the buyers, pays out money to the owner and makes sure that the purchaser's title is properly recorded in local records along with any mortgage liens.

The closing agent reviews the sale agreement to determine what payments and credits the owner should receive and what amounts are due from the buyer. The closing agent also assures that certain transaction costs are paid (taxes and title searches).

Closing is also the time when "adjustments" will be made. For instance, suppose you've pre-paid taxes four months in advance. In this case, the closing agent will compensate you for the prepayment at closing by having the buyer pay you additional money.

It could also work in reverse. If you are behind on property taxes, the closing agent will reduce the money due to you at settlement by the amount of the unpaid taxes.

How do you prepare to sell?
It's important to look at the sale agreement and review your obligations. For instance, if you have agreed to paint a room or replace the dishwasher, such work must be completed before closing. Your REALTOR® can discuss your agreement and the steps which must be taken to complete the transaction.
The closing agent will handle both the settlement papers and related documents.

*Information provided by the National Association of REALTORS - Copyright © by Move, Inc.

7 Steps to House-Selling Success - Step 5: Sell it

Step 5: Sell it

7 Steps to House-Selling Success
There is no question that selling a home is an important event. A home sale represents transition, movement and change. Big money is involved. Households move from the known and comfortable to the unknown and a period of adjustment. There may be job changes, new schools, distance from old friends and the possibility of new ones.

No less important, a home sale by itself can be complex. There will be people looking at your house, documents to sign and issues to be negotiated.

Because a home sale involves an array of both personal and business concerns, it's important to get it done right. You need to carefully prepare your home, understand the market and see what alternatives are realistically available. The old motto "be prepared" is a good guide in such circumstances.

What's an acceptable offer?
The goal of every seller is to have a line of buyers outside the front door, each clutching higher and higher offers. And while this has been known to happen, in most markets there is some balance between the number of buyers and sellers. A number of factors determine whether a buyer's offer is acceptable. They include:

•Is the offer at or near the asking price? Is the offer above the asking price?

•Has the buyer accepted the asking price or something close? Has the buyer then buried thousands of dollars in discounts and seller costs within tiny clauses and contract additions?

•What is the alternative to the buyer's offer? If a home has not attracted an offer in months, then sellers need to determine if a better deal is possible -- recognizing that each month costs are being incurred for mortgage payments, taxes and insurance.

•Does the owner have enough time to wait for other offers?

•What if no other offers are received?

•What if several offers are received? Do you choose the high offer from the purchaser with questionable finances who may not be able to close, or a somewhat lesser offer from a buyer with preapproved financing?
In each case, owners -- with assistance from REALTORS® -- will need to carefully review offers, consider marketplace options and then determine whether an offer is acceptable.

What is a counter-offer?
When a home is made available for sale the owner is essentially making an offer to buyers: For a given number of dollars and other terms you can acquire this home. Buyers, in turn, can respond with several options:

•Not interested.

•Yes, we'll buy on the owner's terms.

•We're interested and here's our counter-offer.

A counter-offer is nothing more than a new offer. And just as the buyer had three options in response to the owner's original price and terms, the seller can now choose one of three reactions: accept the offer, decline the offer or make a fresh counter-offer.

Offers and counter-offers reflect the back-and-forth activity of the marketplace. It's an efficient and practical process -- but also one that may contain tricky clauses and hidden costs. The REALTOR® who lists your home can explain the local bargaining process in detail and assist in the actual negotiations.

How do you negotiate?
It's sometimes argued that negotiation must produce one "winner" and one "loser." Others suggest that a "win/win" situation is possible where each side gets something of value.
Real estate bargaining typically involves compromises by both sides. It's not war; it's not winner-take-all; and it's not the time to take personally any comments made by purchasers.

Instead, negotiating should be seen as a natural business process; buyers should be treated with respect; and owners should never lose sight of either their best interests or their baseline transaction requirements. These are the standards unique to each owner, which must be met before the home can be sold.

*Information provided by the National Association of REALTORS - Copyright © by Move, Inc.

7 Steps to House-Selling Success - Step 4: Market it

Step 4: Market it

7 Steps to House-Selling Success
If you bought a car, you could purchase a given model with selected features from any dealer. Since the car comes from one assembly plant, it's going to be the same whether purchased from dealer Smith or dealer Jones.

Homes are different. Each is unique, the marketplace is always in flux, interest rates constantly change and new buyers search for homes each day. With such fluidity, it requires REALTORS^® to craft marketing plans specifically for individual homes and market conditions.

Selling can entail a variety of marketing strategies. Once listed, it's likely that the home will be quickly entered into the local MLS (Multiple Listing Service) and placed on REALTOR.com^®. REALTORS^® routinely market by mail with new-listing announcements and regular newsletters. Open houses, broker access to the home via the use of a lock box and networking with both local and out-of-town brokers are also common.
Much of a broker's work will be quiet and unseen -- yet important. The quiet telephone calls, the work with contacts, the follow-ups with open-house visitors, conversations with ad respondents, the web postings and other outreach efforts are all part of the process required to sell homes.

Experienced REALTORS^® base their marketing efforts on previous transactions and ongoing research. For instance, according to the National Association of Realtors (NAR), most people begin their home-buying process on the Internet. NAR numbers also show that most households move within 10 miles of their current location while 20 percent move at least 50 miles.

How to market your home.
If you look at a typical transaction you can see that there are five general areas where REALTORS^® can assist in the home-selling process.

•Preparation: Before being placed on the market, homes must be in "show" condition. REALTORS^® can explain what repairs and upgrades are required for individual homes which are most likely to produce the best results.

•Pricing: Brokers do more than price homes for sale, they also construct sale terms designed to speed the selling process. It may be, for example, that a home priced at $150,000 with a 2 percent seller credit to the buyer at closing will be far more attractive to purchasers than a home priced at $147,000. Why? That 2 percent credit is worth $3,000 to the purchaser at closing -- the time when buyers are most likely strapped for cash.

•Marketing: REALTORS^® will execute strategies and programs to get the home sold. Typically this includes placement on the local MLS and Realtor.com as well as related marketing, advertising and networking.

•Negotiation: REALTORS^® assist owners in the bargaining process, offering advice and counsel as offers are received and by working closely with legal counsel, tax specialists and inspectors as required.

•Closing: Once a contract for the purchase of a home has been accepted, a series of inspections and checks are typically required to satisfy buyers and lenders. REALTORS^® can help owners complete the transaction process by assisting with the many requirements found in a typical sale agreement.

How to hold an open house.
There are no universal marketing standards for real estate because marketplaces are localized. For instance, open houses may be common in some communities but rarely used in others.

In the case of an open house, a REALTOR^® typically advertises that the home will be open for a given period (2-5 p.m. on Sunday). During the open period, the REALTOR^® hosts the home while the owners leave for a few hours.

At the open house, the REALTOR^® will provide literature, maintain a visitor log and answer questions. By interacting with visitors, the REALTOR^® will seek feedback regarding the home and opportunities to follow up with prospective purchasers.

How do you show your home online?
The Internet is an important factor in real estate marketing and will likely become more important in the future.
The Internet has two important roles in the real estate selling process. First, it is a "place" to view real estate. Realtor.com, for example, lists about millions of homes, the largest group of homes online or off. Individual REALTORS^® also maintain thousands of localized sites while professional groups and, likewise, industry organizations, have an online presence.

Online real estate information includes not only home listings, but numerous additional features and benefits. For instance, Homestore^® offers neighborhood information, school data, recent home sale prices, video tours, model forms, real estate news and consumer information.


Equally important, the Internet offers new communication media. E-mail and instant messaging give REALTORS^® and consumers more opportunities to keep in touch. As the Internet evolves, more technologies and techniques will be introduced to make transactions easier and more efficient.

*Information provided by the National Association of REALTORS - Copyright ^© by Move, Inc.

7 Steps to House-Selling Success - Step 3: Set the Price

Step 3: Set the Price

7 Steps to House-Selling Success
Every reasonable owner wants the best possible price and terms for his or her home. Several factors, including market conditions and interest rates, will determine how much you can get for your home. The idea is to get the maximum price and the best terms during the window of time when your home is being marketed.
In other words, home selling is part science, part marketing, part negotiation and part art. Unlike math where 2 + 2 always equals 4, in real estate there is no certain conclusion. All transactions are different, and because of this, you should do as much as possible to prepare your home for sale and engage the REALTOR® you feel is best able to sell your home.

What is your home worth?
All homes have a price, and sometimes more than one. There's the price owners would like to get, the value buyers would like to offer and a point of agreement which can result in a sale.
In considering home values, several factors are important:

•The value of your home relates to local sale prices. The same home, located elsewhere, would likely have a different value.

•Sale prices are a product of supply and demand. If you live in a community with an expanding job base, a growing population and a limited housing supply, it's likely that prices will rise. Alternatively, it's important to be realistic. If the local community is losing jobs and people are moving out, then you'll likely have a buyer's market.

•Owner needs can impact sale values. If owner Smith "must" sell quickly, he will have less leverage in the marketplace. Buyers may think that Smith is willing to trade a quick closing for a lower price -- and they may be right. If Smith has no incentive to sell quickly, he may have more marketplace strength.

•Sale prices are not based on what owners "need." When an owner says, "I must sell for $300,000 because I need $100,000 in cash to buy my next home," buyers will quickly ask if $300,000 is a reasonable price for the property. If similar homes in the same community are selling for $250,000, the seller will not be successful.


•Sale prices are NOT the whole deal. Which would you rather have: A sale price of $200,000, or a sale price of $205,000 but where you agree to make a "seller contribution" of $5,000 to offset the buyer's closing costs, pay a $2,000 allowance for roof repairs, fund two mortgage points, re-paint the entire house and leave the washer and dryer?

How much is too much?
Because all transactions are unique there is flexibility in the marketplace. The amount of flexibility depends on local conditions.


For example, suppose you're selling a townhouse. Suppose also that there have been five recent sales of the model you own and that sale values have ranged between $200,000 and $210,000. You now have an idea of how your home might be priced. In a strong market perhaps you can ask for $210,000 or a little more. If the market has slowed, $210,000 may be a reasonable asking price, but perhaps more than the final sale price.
Here's another scenario. Imagine that you live in a community of Victorian-style homes, most of which were built in the 1920s. All the homes are different in terms of size, condition, modernization, style and features. In such a neighborhood, an average sale price is just a statistic without much practical meaning. On a single block one home may sell for $400,000 while another is priced at more than $1 million. The average price may be outrageously high for one home and staggeringly low for another.

Who can help?
Experienced REALTORS® are active in the local marketplace and can provide assistance with pricing, marketing, negotiation and closing.

Because experienced REALTORS® have handled many transactions, they're familiar with the terms and conditions that went into individual sales, not just published sale prices which may not reflect various premiums, discounts and adjustments.

* Information provided by the National Association of REALTORS - Copyright © by Move, Inc.