Real Estate Information Archive

To a home loan shopper, there may seem to be an endless--and confusing--array of mortgage types. Of course you want to choose the option that is best suited to your current and future financial situation, but understanding the terminology, types, and monetary ramifications is not always easy. Mortgages generally fall into four categories (fixed rate, adjustable rate, step, and balloon) according to the interest rate and duration of the loan.

Basic terminology;

    Fixed rate--The interest rates do not change during the life of the loan, thus allowing you to know the amount of your payments.

    Adjustable rate (ARM)--the interest rate is tied to certain indexes plus a margin and can fluctuate up or down, thus affecting each payment,

    Step--the interest rate and monthly payment remain the same for a specified period of time. After that the interest will change to the prevailing rate and will remain there for the duration of the loan.

    Balloon--a loan payment that expands after a certain amount of time. Basically it functions similarly to a fixed rate mortgage in the earlier months/years with a delayed steep increase at the end,

The following information, courtesy of Mortgages.Interest.com, outlines the type of mortgage, the loan characteristics, and the situations most appropriate for each one. If, for instance, you plan to live in your Chester County real estate more than 10 years and desire stability in payment amounts, then a fixed rate mortgage is for you. If, however, your finances are currently strained, but you know that in 5 to 10 years your monetary situation will improve or that you will most likely move within 10 years, then an ARM or balloon mortgage may be better for you. Being familiar with these options allows you to discuss them intelligently with your real estate agent and/or lender and then select the type which best fits your circumstances.

 Fixed rate mortgage (30, 20, 15, 10 years)*

*Interest rate & monthly payment remain the same for the entire term of the loan
*plan to live in property more than 10 years
*like total payment stability

0/1 year adjustable rate mortgage1

*Interest rate & monthly payment remain the same for 10 years
*Starting the 11th year, interest rate adjusted every year, so payment is subject to change every year for remainder of loan
*plan to live in property more than 10 years
*like initial payment stability, can accept later changes OR
*plan to move within 10 years
 *want loan to remain in force in case plans change

7/23 (2-Step) or '30 due in 7' mortgage

Interest rate & monthly payment remain the same for 7 years
*Conversion option: On the 8th year, interest rate adjusted to reflect prevailing interest rates, resulting payment will remain the same for remainder of loan
*plan to live in property more than 10 years
*can tolerate one payment adjustment OR
*plan to move within 7 years
*want to remain in force in case plans change

7/1 year adjustable rate mortgage

*Interest rate & monthly payment remain the same for 7 years
*Starting the 8th year, interest rate adjusted every year, so payment is subject to change every year for remainder of the loan
*plan to live in property more than 7 years
*like initial payment stability, can accept later changes OR
*plan to move within 7 years
*want loan to remain in force in case plans change

7 year balloon mortgage

*Interest rate & monthly payment remain the same for 7 years
*At the end of 7 years, loan is due in full. Borrower must refinance into new loan at prevailing interest rates
*plan to live in property more than 7 years
*are willing to refinance at prevailing market rates OR
*plan to move within 7 years
*like payment stability

In addition, there are variations of the ARM, step, and balloon mortgages which differ primarily in the duration of the loan and of the planned residency.

Another good source of information for first-time Chester County home buyers is the Department of Housing and Urban Development (HUD), an agency which oversees FHA loans. This type of loan is particularly useful if you have little money for a down payment, less than great credit, or large monthly bills. An FHA loan requires as little as 3% down (and it can be a gift from a relative or friend). In terms of your credit rating, the FHA is primarily concerned that for the past two years you have paid bills in a timely manner and have been steadily employed. With FHA you have to wait only two years after declaring bankruptcy, and your debit-to-credit ratio can be higher than for a conventional loan. You can qualify for an FHA loan if your monthly payments are no more than 43% of your income, and, as with conventional loans, you can choose from many types.

Of course, there are some negatives to consider before taking on an FHA loan. Interest rates generally run about 1/8 of a percentage point higher than conventional rates, but the real disadvantage of an FHA loan is that the borrower must pay an up-front insurance premium of 1.75% of the mortgage if the down payment is less than 20%. This cost can, however, be added to your total loan amount.

So there you have it--an easy-to-understand guide to mortgage types. As always, you should feel free to contact me anytime with questions. I am glad to recommend a number of outstanding mortgage lenders if you are interested in talking with one.

Are you tired of the same old promises you make to yourself every January 1^st but forget by February? Not this year! Here’s a 2010 resolution that’s so beneficial you simply must keep it: buy a Chester County home! Now that the Home Buyer Credit Act has been extended and qualifying income levels have been raised, this is an ideal time to purchase a house. Generally advertised as a tax credit for first-time buyers, the new legislation actually benefits many current homeowners, also.

Basic facts:

Changes: Originally slated to end in November 2009, the credit deadline has been extended to April 30, 2010. If you have a binding, signed contract and settle on a Chester County home before July 30, 2010, you are also eligible.

First-time buyers are those who have not owned a home in the last three years. They are eligible for a credit of 10% of the purchase price (not to exceed $800,000), up to $8000. Ownership of a vacation home or rental property not used as a prime residence does not disqualify a buyer as a first-timer.

Repeat buyers, or those who have owned and lived in a principal residence for at least 5 consecutive years of the last 8, may qualify for a credit of up to $6500.

Income levels have been increased to $125,000 for individuals and $225,000 for couples.

Military exception: For an active-duty member of the U.S. military serving an extended tour (90+ days) more than 50 miles from home, the deadline is April 30th   (or June 30) 2011.

Applying for the credit is easy. Buyers purchasing in 2010 will have the option to claim the credit on their 2009 (by filing an amended return) or 2010 income tax return. Applicants will use the new IRS form 5405 and attach copies of their HUD settlement form.

Important notes:

• Applicants must be 18 years of age at time of settlement.
• Principal residences may include single family homes, condos, townhouses, co-ops, and duplexes.
• For married couples, the homeownership history of  both parties must qualify for the credit.
• Recipients of the credit must own and live in the purchased home for at least 3 years or face repayment of the credit amount.
• Your Chester County home may not be purchased from any family member.

Remember that a tax credit is far more advantageous than a simple deduction as it provides a dollar-for-dollar reduction in what a taxpayer owes. If the amount of  the credit exceeds the amount owed, a refund will be issued.

If you have specific questions or need additional information, contact a tax professional or the Internal Revenue Service at 1-800-829-1040 or www.irs.gov.  

Enjoy the new year in your new Chester County home!

Search all Chester County homes for sale. 

It's official! The new and improved home buyer tax credit goes into effect today. Provisions of The Worker, Homeownership and Business Assistance Act Of 2009 extends and expands the home buyers tax credit up until to April 30, 2010!

Home Buyer Tax Credit Expansion and Extension  

• The $8,000 tax credit will be extended and available for first-time home buyers through May 1, 2010.
• A new $6,500 tax credit will be available for repeat buyers who purchase between December 1, 2009, and May 1, 2010. To qualify, buyers must have used the home sold or being sold as a principal residence consecutively for 5 of the previous 8 years.
• Prospective buyers with binding contracts in place as of April 30, 2010, will be allowed an additional 60 days to complete the transaction.
• Income limits are expanded to $125,000 on a single return and $225,000 on a joint return.
• Limitation on the cost of a purchased home is $800,000. 

If you know anyone looking to buy their first home at a time when prices and interest rates are still down, or if you are thinking of buying another home and getting the new $6,500 credit please contact me today.

Something to consider when selling your home is the Capital Gains ramifications. Will you owe Uncle Sam money after the sale of your Chester County home? Capital Gains are calculated as the difference between what you paid for your property and what you sell it for. Here is how you calculate your Capital Gains.

Calculating Capital Gains

(+) PURCHASE PRICE - Price paid for property

(+) COST OF PURCHASE - Transfer fees, attorney fees, inspections

(+) COST OF SALE - Repairs, commissions, attorney fees, inspections

(+) COST OF IMPROVEMENT - Room additions, deck, for example, though not replacing existing

(=) ADJUSTED COST BASIS OF YOUR HOME

(-) AMOUNT YOU SELL YOUR HOME

(=) CAPITAL GAIN 

A Special Real Estate Exemption for Capital Gains
Even though the above calculation may indicate you owe Capital Gains, there is a special real estate exemption. Since 1997, up to $250,000 in capital gains ($500,000 for a married couple) on the sale of a Chester County home is exempt from taxation if you meet the following criteria: 

• You have lived in the home as your principal residence for two out of the last five years.
   
• You have not sold or exchanged another home during the two years preceding the sale. 

NOTE: As of 2003, you may also qualify for this exemption if you meet what the IRS calls "unforeseen circumstances" such as job loss, divorce, or family medical emergency. 

Learn more about selling your Chester County home by visiting ChesterCountyHomeSource.com.

Search all Chester County homes for sale. 

Always consult a tax attorney regarding current tax laws.

The most important piece of a person's financial life is their credit score. Whether buying a new Chester County home, applying for a job, refinancing your home, paying off debt, or getting utility service, your credit score will drive the outcome. One would think that Americans are all aware of what the scores are measuring and what factors play a part. But, most Americans do not know enough about the three digit rating or what is involved. Do not let these credit score myths get in your way when preparing for the purchase of your next Chester County home.

Myth: Checking a credit report can either damage or lower your score. A credit report can be conducted by you or someone like an employer as many times as desired with out having any impact on your credit score. Reviewing your credit report will never change your credit score. Just make sure that reports are retrieved through the bureaus or a legitimate score seller.

Myth: Age, sex, and income are factors that affect your score. None of this information plays a role in determining your score. A higher income may make it easier to pay off debts, but income and net worth have no impact of credit scores.   

Myth: A credit score can be destroyed by shopping for a loan. When seeking to extend credit, too many inquiries can have a negative impact your credit score. However, when several inquiries are made by the same type of lender with in a 14 day period they only count as one inquiry against your credit.

Myth: Your score can be hurt by credit card offers. When companies offer you their credit cards it does not have any affect on your score. Unless, your take advantage of all the offers and carelessly use all of the credit available. The number of credit cards a person manages does not matter. The important thing is maintain a low ratio of used to available credit.

Myth: Credit scores of married couples are shared. A credit score can only belong to one person, just as one person can only have one score. A married could does not share a credit score, but their scores could have an affect each others. When opening a joint account, the information accumulated from that account's activity will be reflected on both people's credit report. If all of the couple's accounts are joint, then their scores will be somewhat similar.

Myth: Closing unused accounts improves credit scores. Unused accounts most likely contain available credit, which is an important part of a credit score. Closing unused accounts removes available balances from the equation. This causes your ratio of used to available credit to increase, ultimately affecting your credit score.

Myth: Paying off bills is a quick way to boost credit. Over time, a good record of properly paying bills will improve credit. Credit reports reflect your long term history, scores do not change overnight.

The clock is ticking on the $8000 first-time home buyer tax credit. You must close prior to December 1, 2009. This date sounds like a long way off, but there is a lot to do between now and then. First you have to get your financing in order ( 2 weeks), then you have to go out and actually find a home (2-3 weeks), negotiate a contract (1 week), conduct inspections (1 week) and allow for the escrow process (4 weeks). All together, you are looking at about 11 weeks before you will be ready to have keys to your new home placed in your hands. There are now (August 18, 2009) only 14 weeks until the December 1 deadline.

So 'time's a wasting'. Click to get started, request more information or receive a complimentary consultation.

1. It is a tax credit to home buyers, not a loan as in last year's program.
2. It is only for first time home buyers, defined as someone who has not had an ownership interest in a principle residence in the 3 year period prior to the date of the 2009 purchase.
3. The buyer must remain in the home for a minimum of 3 years.
4. It is applicable to purchases between January 1, 2009 and December 1, 2009.
5. Full credit is available to those with adjusted gross income of $75,000 or less ($150,000 for married filing jointly). The credit is phased out entirely for those with adjusted gross income over $95,000 ($170,000 for married filing jointly).

If you bought a home last year under the old $7,500 tax credit rules, those rules still apply to your 2008 home purchase.