Real Estate Information Archive

The death of one partner in a marriage can have significant consequences for a mortgage.  Exactly what effect it has will depend on whether it is a single or joint mortgage, what balance remains on the mortgage, and other debts and assets of the deceased.

• In the case of a couple having a joint mortgage, the death of one spouse will simply mean the other spouse becomes the sole mortgage-holder. As long as she can continue making the payments, the property will be unaffected.  Federal law prohibits the lender from calling the entire mortgage due because one spouse has passed away.
   
• If the mortgage is only in the name of the deceased and she had more assets than debts, then the state will pay off the mortgage as part of the probate process. The worst-case scenario is that the house may have to be sold to pay the mortgage off if there aren’t enough other assets to cover the outstanding amount. However, when there is no will and assets are distributed to heirs according to the intestacy laws of the state, the surviving spouse is always one of the first in line to receive the remainder of the deceased’s assets after debts, taxes, and funeral expenses are paid. If the mortgage can be paid off through other assets, in many cases, the spouse would receive the paid-off home as his share of the estate.
   
• If the surviving spouse sells the house within two years of the death, has not remarried prior to the sale, and meets required conditions, she has the right to exclude up to $500,000 of her profit from the transaction.  For further information read US Government Publication 523.
   
• If the surviving and now sole-owner of the home realizes he is not going to be able to continue make mortgage payments for a long period of time, he may want to look into a reverse mortgage.  A reverse mortgage is a loan for senior homeowners that uses a portion of the home’s equity as collateral.  The loan generally does not have to be repaid until the last surviving homeowner permanently moves out of the property or passes away. At that time, the estate has approximately 6 months to repay the balance of the reverse mortgage or sell the home to pay off the balance.

Information provided by Chester County PA Realtor Scott Darling.

You probably already know that you can invest your IRA money in stocks and bonds and even in mutual funds if you so desire, but did you know that you can also invest those IRA funds in real estate?  Doing so, however, is a bit complicated, and IRS rules concerning such purchases must be followed to the letter.  

Usually, when you take money out of an individual retirement account before you reach age 59 1/2, the IRS considers these premature distributions. In addition to owing any tax that might be due on the money, you'll face a 10 percent penalty charge on the amount.  This is not the case, however, when you use the money to buy your first investment real estate.  (Note: Technically, you don't have to be purchasing your very first home or building. You qualify under the tax rules as long as you, or your spouse, didn't own a principal residence at any time during the previous two years.)  You can use up to $10,000 in IRA funds toward this purchase. If you're married, and you and your spouse are both first-time buyers, you can each pull from retirement accounts, giving you $20,000 to use.

The restrictions are many (and perhaps time-consuming) and include the following:

• You will need to find an IRS custodian who handles these investments (and the options are currently limited).  Generally banks and brokerage firms do not handle IRA distributions for real estate transactions.
   
• Only the custodian may handle your IRS funds.
   
• The type of property you buy must be for investment only and may not be used by you or by relatives. 
   
• All proceeds from the investment will go back into your IRA fund.  Likewise, however, all expenses must be paid from that fund, so you must have enough liquidity in your IRA to cover such costs.
   
• You must let the IRS know that you used the retirement money early for a tax-acceptable purpose by filing Form 5329.
   
• You must use the IRA funds within 120 days of withdrawal to pay qualified acquisition costs. This includes the costs of buying, building or rebuilding a home, along with any usual settlement, financing or closing costs.

The above information applies only to traditional IRSs.  To learn about the procedure for an Roth IRA, click here.

Information courtesy of Chester County PA Real Estate Expert Scott Darling.

It’s that time of year again; time to file your taxes.  You may or may not be happy about that but there are two things that are always going to happen, death and taxes.  On a not so morbid note, let’s look into a few homeowner tax mistakes  that folks typically make so that you can be sure to avoid them. 

Many times when folks purchase a home that needs a lot of renovations, they forget to keep the receipts for these renovations and take advantage of them at tax time.   Some home renovations can be a tax write off.   If you do such things as installing energy-efficient features into your home you need to be sure to take these as a tax right off.  There are some home improvements that will not qualify as a tax deduction but they will still be helpful if you ever decide to sell your home.

• If you have been a home renter for many years, you may have been able to file a very easy tax form known as the 1040ez.  Do not make the mistake of thinking you can continue to file this simple form for taxes once you purchase your own home.  It may be to your benefit to talk to a tax professional about what all you can deduct once you become a homeowner and what forms to use.  You may in fact want to just hire a professional to make sure that your taxes are done correctly and save yourself a lot of worry. 
• Be careful not to list your full escrow amount on your taxes.  Many homeowners try and list their full escrow balance on taxes.   You may be surprised to find that if you are a homeowner not all of your funds in escrow are used to pay taxes.  Again, hiring a tax professional may be in your best interest at least for the first year after becoming a homeowner.  Why have unnecessary stress when you can let someone who knows what they are doing take care of your taxes. 
• You may find this surprising but many folks file their new home on their tax forms in the wrong year.  Remember that taxes are a year behind.  If you purchased your home in the first part of 2015, you do not need to include it in your tax return this year because you are filing 2014 taxes.  You can actually end up filling the wrong amounts if you make this mistake and that can lead to less of a refund than you had anticipated. 

Hopefully these tips will be helpful to you this tax season.  If you haven’t yet filed your taxes, go ahead and do so to avoid having to file extensions.  Better to get it all out of the way and enjoy whatever 2015 is going to bring your way and stop worrying about your taxes so that you can enjoy your new home!

While many people focus on personal health goals in the New Year, the beginning of the year is also a great time to check your financial fitness. So how can you whip your finances into shape?

South University College of Business, Virginia Beach faculty member Dr. Alan Harper says everyone should adopt these five financial habits in 2015:

1. Establish a budget

Harper says the first step in taking control of your finances is to establish a budget. "It is extremely important to know how much money is coming in, where it's going, and allocating it appropriately," he says. "Having a budget allows you to gain a broader understanding of your spending habits."

Make sure your budget includes allowances for food, clothing, gas, and even entertainment, Harper advises.

2. Start saving

Your budget should also include money set aside for emergencies. Harper says the old rule-of-thumb that three month's salary is enough to have in your bank account no longer applies in our current economy.

"We found in the last recession that people who lost their jobs tended to stay out of work much longer than three months," he says. "You should have six months to a year's worth of income in savings, just in case."

Harper says you should also try to put away 15 percent of your take-home income toward your retirement. Many retirement savings options are available, including 401(k)s, Roth IRAs and individual retirement accounts. It is important to do your homework before deciding on a long-term investment strategy so that you are aware of terms, conditions and any fees associated with your options.

3. Manage your credit

The beginning of the year is a perfect time to check your credit history, and to look for any mistakes on your credit report, Harper advises. Mistakes on your credit report can cost you large sums of money in interest rates, or even keep you from being approved for a loan.

"The law requires the three major credit reporting agencies to provide you with one free credit report a year," Harper says. "Pull those reports and look for discrepancies. If you find one, file a dispute with the credit reporting agency and they will remove the item if it is incorrect."

Harper also says to check your FICO score on the report, make sure you have an understanding of what the score means, and how to improve it if the score is low.

4. Shop smart

Make it a priority to save money while you shop, Harper says. He encourages clipping coupons, and says purchasing membership cards to discount stores like Sam's Club and Costco can help you save money over time.

"Those stores will save you money in the long run on purchases like food, gas, and even personal care items."

5. Check your insurance

Setting aside time at the beginning of the year to check your insurance policies can also save you money. Harper advises that you should review your auto, home and life insurance to make sure you have the proper coverage.

"You want to make sure you aren't paying for coverage that you may no longer need, but you also want to make sure you have adequate coverage in case there is an accident or you need to make a claim," he says.

Many companies also offer discounted rates if you hold multiple policies with them. So, if your auto, home and life insurance policies are with different companies, you may want to explore the benefits of choosing just one company.

"It's also important to make sure your life insurance policies are sufficient to protect your family from a financial crisis in the event that something happens to you," Harper notes.

"Establishing a budget, saving, staying on top of credit and insurance, and shopping smart all take some work," Harper points out. "But the rewards to your personal and household bottom line are well worth the effort." (BPT)

Be sure to read the article below from Realty Times author Blanche Evans discussing why sellers overprice their homes. She doesn't mince words!

Why would sellers deliberately sabotage their chances of selling their homes? It doesn't make any sense, yet it happens all the time.

Sellers arrogantly slap the highest price on their homes that they think they can get away with. Then they're surprised when the market slaps them right back with insultingly low offers or none at all.

If you're a seller getting ready to list your home with a real estate professional, and you're even thinking of testing the market with a high price tag, it's time to slap you and get your attention.

Here are four really bad reasons to overprice your home.

You think you're smarter than everyone else.

If you're truly smarter than everyone else, then your agent, the buyer's agent, the buyer's lender, the county appraiser, all the other sellers who have sold or who currently have their homes listed in the market and every buyer on the market is stupid compared to you.

Maybe you'll get lucky and some state lottery winner will write you a check. Oh, yeah, that'll happen.

You want control.

You're the seller who hires a real estate professional, but then doesn't listen to a word she says. Or you politely listen, smile smugly, and then inform your agent that you're in no hurry, you can afford to wait for the right price, you can always decide to drop the price later, blah, blah, blah.

But you're not in control. The market is in control. Buyers don't have to buy homes, and they certainly don't choose to buy overpriced homes.

You're dishonest.

Like keeping an ace up your sleeve, you see nothing wrong with hiding information from your agent or the buyer. Maybe you want to put such a high price on your home because you owe more on your home than it's worth. What if you can't get your price and you have to ask the lender to take less money. That's a big risk. It takes more time, the lender could say no, and your buyer could get righteously angry and walk away.

You're entitled.

You feel you deserve nothing but the best, but you're really the client from hell. You really think it's your hapless agent's job to meet your unrealistic expectations. You expect your agent to hire Josh Whelan to video your home, put a full-page ad in the New York Times, hold an open house every week, stand in your front yard with a bullhorn and get buyers to step right up -- all for a discounted commission.

Overpricing is a risk. Buyers aren't stupid. Agents don't work for free. Lenders don't ignore lending guidelines. So don't be stupid. Don't overprice your home.

Information courtesy of Chester County PA Realtor Scott Darling!

If you have been wanting to purchase a new home but have counted yourself out of the equation due to the fact that you cannot come up with the down payments needed, don’t count yourself out just yet!  3% down payments are still out there for the taking, so get out there and start looking for your new home today! These low down payments are being offered by Fannie Mae and Freddie Mac.  Fannie began backing the loans on December 13, while Freddie will start offering them March 23, 2015.

The 3% down payment loans are only going to be offered to you if you have a credit score of at least 620.  Also you may want to know that if you want to take part in the great down payments as low as 3% you are going to need to buy private mortgage insurance. 

• If you are expecting to get a 3% down payment loan without home ownership counseling then you are mistaken.  I still think it is worth it no matter how many hoops you may have to jump through to take advantage of the low down payment.  Some folks may find that without the low down payment plan they are just not able to purchase a home, so the hoops are well worth it in the end. 
• You will have to offer a total and complete documentation of your job status, income and all of your assets in order to possibly qualify for one of the 3% down payment plans. 
• Those who want to refinance or who are first time home buyers will be the candidates that qualify for this program. 

If you think that you may qualify for these new low down payment plans from Fannie Mae or Freddie Mac you should give your Realtor a call as soon as possible to get the ball rolling in your favor.  These kinds of deals don’t come around all the time so be sure to take advantage of them.  You will save thousands of dollars in the long run once making your home purchase if you are just willing to take a little extra time gathering all of your documents that will be needed to qualify. 

Information provided by Chester County PA Realtor Scott Darling.

There are many factors that go into the decision to buy a home. One of those factors is how long you expect to stay in the home. This applies whether you are a first time homebuyer or stepping up to a larger home. The length of time you stay in a home affects the financial outcome of that ownership.

Here’s a summary of some thoughts from moneyning.com and the 5-year rule for buying a home. There is a tendency for younger buyers to go through 3-year upgrade cycles. Why? Newer and younger buyers typically experience significant increases in income in their younger years.

As income increases their ability to afford a larger mortgage increases and the desire for a larger house sets in. There seems to be an assumption that buying is more cost effective than renting. Click here for a perspective on ownership costs vs. rent. That thought process occurs, on average, every three years.

The 5-year rule states that generally you should plan to stay in a home you’re buying for at least five years. That is for two primary reasons…

• The first reason is closing costs. Every time a home changes hands both the buyers and the sellers put money on the table just to make the transaction happen. These costs can easily add up to thousands of dollars. Those dollars provide no real financial benefit to the buyers or sellers except to allow the transaction to happen.
• The second reason is the payment of interest on the mortgage. A mortgage payment has two components – payback of the principal of the loan borrowed and interest on the amount borrowed. Because typical mortgage payments remain the same during the life of the loan the proportion paid on the two components changes. In the early years the payment is almost all going to pay interest and very little to principal. As the principal is gradually paid down the portion going to interest diminishes and the portion going to the principal increases.

According to author Thursday Bram “it isn’t until you’re about five years into paying down your mortgage that you’ve made enough progress on the principal to make it a better deal than paying rent each month.”

Here’s how to beat that average…don’t buy the biggest house you can just because a lender tells you what you can afford. Instead, consider buying smaller and then adding extra money to your monthly payments. That extra money will go entirely to paying down the principal loan – that means you will pay less interest over the life of the loan and you will create more equity because you are diminishing the principal balance faster.

However, if you’re not going to stay in your home five years you should probably consider renting.

Military families are going to like what the Obama Administration has been up to lately.  A new agreement was made on August 29, 2014 to lower the mortgage payments of those who fight for our country.  The agreement was made with five of the nation's largest mortgage lenders; Wells Fargo, Ocwen Loan Servicing, CitiMortgage, Bank of America and Quicken Loans. 

These new lower mortgage payments are going to help military families in the following ways:

• Give military families a little wiggle room when it comes to paying their bills
• Aid military families in being able to fight for our country while providing for their families back home
• Make military families aware that this type of help does exist and is available to them

Some military families are not aware that help from the government to lower their mortgage  has been in place for some time.  This new service will help every military family to know that it is available to them and will also make it much less of a hassle for them to receive. The big banks and financial institutions will now be notifying service men and women who qualify for lower rates.  These institutions will also make it very easy to enroll in the program.   

It is expected that thousands of military families will benefit from this new program.   It will be so nice for those who are serving us in such an honorable way to receive back a little from the government and for more military families to be able to own their own home.  Not only that, but many of these military families who take advantage of the governments help to lower their monthly mortgage payment will also be able to send their children to college or even be able to put some back to retire on. 

I personally give the government two thumbs up for this new assistance to military families.  It is a perfect time to show those who fight for our freedom just how much they are appreciated. 

According to a DexOne Corporation survey, as reported by CT Power Team, “42% of Americans say that their mortgage is the debt they most want to eliminate.” That is a completely understandable goal when you consider the savings. The important question is "How can I do it?” Here are some examples…

• Increase your monthly mortgage payments simply by adding a fixed amount to your required payments. The easiest way to do this is to use an increase in your income from time to time to increase the amount of your mortgage payment. Doing that does two things for you...
  1.  It decreases the amount of principal owed by a larger amount each month.
  2. The following month, after making an increased payment, you pay less interest because of the larger decrease in the principle.

The combination of the above two changes results in paying off the mortgage in less time than originally scheduled and you will pay significantly less total interest.

• Make additional payments on the principle at any time if you can’t increase your regular monthly payment. You can do this anytime you have a little left over at the end of the month, or you get a bonus at the end of the year, or you receive a gift. No matter how much, or how little, you pay extra it will decrease the time it takes to pay off the mortgage. That means you will save interest.
   
• Refinance with a shorter-term mortgage if you see the interest rates come down. Just keep in mind that refinancing means spending money on loan closing costs. Only consider this if the interest rates are lowered enough to justify paying closing costs. Otherwise, you can always choose to keep your original mortgage, but increase the monthly payment as outlined above.

Here’s just one example of how paying off early works…

Let’s assume you are paying on a 30-year mortgage for $200,000 at a 5% interest rate. If you pay off the mortgage in 30 years, you will pay $186,512 in interest. If you pay off that same mortgage with even payments over 20 years, you will pay as little as $116,779 in interest. That’s $70,000 that stays in you pocket!

Visit bankrate.com for more in-depth information. Also, use their online mortgage calculator. You will never regret paying off your mortgage sooner then planned.

You’ve officially joined the ranks of the empty-nesters. One of the first questions that usually comes to mind is should we downsize our home. The kids are gone and we probably don’t need this big house. But is buying a smaller home right for you? Obviously, there are pros and cons to consider about both your finances and lifestyle before making a decision.

Reasons not to downsize:

• The family is spread all across the country and you want to have a place for everyone to gather for the holidays and vacations.
• You’ve been in your current home for many years and have filled it with mementos you don’t want to part with.
• You’re not emotionally ready to pack up and leave a lifestyle you worked hard to create. Leaving family, friends and familiar surroundings is more than you can bear.
• You enjoy the feelings that go along with your larger home. A smaller home will not feel right for your current lifestyle.

Reasons to downsize:

• The lower (or zero) mortgage payment that comes with a smaller home would give you more discretionary funds to travel and enjoy other recreational activities.
• A smaller home means less to maintain and more time to play.
• You and/or your spouse are not able to navigate the stairs like you use. A single level home is more desirable.
• A smaller, newer home is more efficient and cost effective.
• You need to be closer to a family member who needs assistance and your attention.

If you decide to downsize, make sure the new home fits both your lifestyle and pocketbook. Talk with a real estate professional about how much money you will net from the sale of your current home, as well as the costs of buying another one. Look into how much it would cost to move and to maintain the smaller home. Make sure it really is cheaper to live there. Downsize only once you’re satisfied that the finances make sense.

Buy into your new lifestyle:

A smaller house in your current neighborhood could be the right decision if your priority is maintaining close ties to neighbors. Just make sure there are amenities like public transportation and stores nearby if your health begins to deteriorate.

A retirement community could be perfect if you never want to move again and you want to focus on travel, hobbies and perfecting your golf stroke instead of mowing the lawn. Talk to current residents to see whether they’re happy with the rules and the way things are run. Another option you may prefer is a condominium to eliminate the maintenance but not be locked in for life like many life care communities.

It is a big decision to downsize. So, make it carefully, do not rush, and get professional advice about the real estate and financial aspects of moving.