Real Estate Information Archive

Given the number and severity of natural disasters world-wide this year, it is no wonder that owners of Chester County real estate are becoming increasingly concerned about their insurance coverage for damages caused by these disasters, especially floods. 

Since your basic homeowner’s insurance policy will not cover damage due to rising water,. you would be well advised to research flood insurance policies for your Chester County real estate.  Think you’re safe because you live in a moderate-to-low-risk flood area?  Think again.  About 25% of all flood insurance claims come from areas with just such a designation!

The National Flood Insurance Program (NFIP) is a federal program that offers flood insurance to homeowners. Visit FEMA and Floodsmart to determine your community’s flood risk.  There are three types of policies available to owners of Chester County real estate: the standard dwelling; general property (for businesses and apartments); and residential condominium building association, and each can be purchased through most leading insurance companies at a relatively low annual fee. Average residential premiums cost about $570 a year, but a low-risk policy can be had for as little as $129.

As with other types of insurance, it’s important to know exactly what your policy covers, information about deductibles, rates, payment, and claim procedures.  One area not covered is the basement, so finished walls, floors, and personal belongings found there are not claimable.  .  Rates are set and depend on factors such as your home’s age, type of construction, and location.  Like other policies, having a higher deductible lowers the amount of the premium but will reduce your claim payment. Be advised that unless flood insurance is required by your lender, there will typically be a 30-day waiting period.

Insurers urge homeowners to inventory all of their belongings, estimate their value, and keep a copy of the list in a waterproofed spot or even in a location away from the residence.  Some property owners rely on videotapes to catalog their possessions.  Click here for free and easy-to-use inventory checklists and planners.

Lest you are thinking of foregoing flood insurance to save money, consider this:  just a few inches of water from a flood can cause tens of thousands in damage.  During the past decade the average flood claim has amounted to over $33, 000!  Best not to be penny wise but pound foolish…

As the owner or potential owner of Chester County real estate, there are two currently popular options re: your mortgage that you might want to consider:  early payoff and/or shorter term.  As mortgage rates sink deeper into record territory, many homeowners are in a position to explore the possibilities of paying off or paying down their loans or choosing a 20, 15, or even 10 year term rather than the traditional 30.

As with most any financial transaction, experts disagree about the advantages and disadvantages of an early payoff.  Most, however, will tell you that the decision to pay off your Chester County real estate mortgage early should be based on a number of factors, including:

• Your ability to sustain your desired lifestyle during retirement. If using your savings to pay off the mortgage, don’t forget to give yourself a financial cushion for life’s inevitable surprises.
• The interest rate you are paying on your mortgage. If your current interest rate is high (i.e., greater than 5 percent or variable) and you are unable to refinance, it might make sense to pay off the mortgage earlier.
• Your tax bracket (i.e., how beneficial the mortgage interest deduction is to you).
• Psychologically, the importance of not having a mortgage. Some folks derive significant satisfaction in having no debt; for others, it’s not a big concern.

To further aid you in making a decision in this matter, visit Forbes for more detailed information and Bankrate.com for an easy-to- use early payoff calculator.  Click here to learn more about paying down a mortgage as opposed to paying it off.

Much has been written recently about the recent trend of taking out Chester County real estate mortgage loans for fewer than the traditional 30 year term.  More and more homeowners are refinancing, lowering their interest rate, and opting for a shorter-term loan. Also, if you’ve paid down your principal significantly, current interest rates are substantially lower than your old interest rate, your income has increased, or  your non-mortgage debt has decreased, you might be able to afford the monthly payments on a 15-year mortgage. In addition, recent changes in the Obama administration’s Home Affordable Refinance Program (HARP) recently cut the fees for certain borrowers getting new loans if they reduce the term of the mortgage to less than 30 years.   Click here to see interest rate comparisons for varied terms.

Although the housing market has been unpredictable in recent months, the existence of a seller’s market and the availability of low interest rates are providing incentives for potential buyers. Obtaining a mortgage, especially one which is attractive to you, is not as easy as it was a few years ago. As a result of the extreme increase in the number of foreclosures, banks have raised their lending standards for all borrowers, and there is little reason to believe that these stringent requirements will lessen anytime soon. This tight credit situation affects would-be buyers of Chester County real estate in numerous ways, among them down payments, credit scores, documentation, debt-to-income ratio, and appraisals.

        1. Down payments: Requirements will be higher. Generally speaking, to get the best interest rate you need to put down at least 20% of the purchase price of the Chester County real estate. FHA loans are available for a down payment of only 3% to 5% but these loans will include additional costs for insurance and a slightly higher interest rate.

        2. Credit scores: You will most likely need a score of 730 for the best rates, whereas the average score for an FHA borrower is about 690. Financial advisors strong urge you to obtain a copy of your credit report six months before loan shopping (you are entitled to one free report from each of the three bureaus annually at www.annualcreditreport.com) and examine it carefully to detect any errors/misinformation.

        3. Documentation: Be prepared! Lenders will ask for a great deal of documentation regarding your salary, savings, job stability, debts, and the like. You will need to provide pay stubs for the past 30 days; W-2 forms for the past two years; bank, retirement, and investment account statements; and a listing of debts and monthly expenses. Monthly housing expenses should not exceed 28% of your gross monthly income, and total debt should be less than 37% of that amount. If you are self-employed, you will also have to submit two years of tax returns and possibly a profit-loss statement.

        4. Appraisals: Gone are the days of a sure-thing, easy appraisal. Lenders today want a thorough inspection of both the interior and exterior or your Chester County real estate, and the less money put down, the more extensive the scrutiny of the home’s market value. It is wise to include an appraisal contingency in your offer so that your earnest money deposit will be returned to you if the appraisal fails to meet the negotiated price.

How can you find the best rates? Check out available interest rates daily and discloses the best “par rate.” In addition, if you provide contact information, the site will forward that information to the local lender offering the best rate.

If you are considering refinancing your Chester County real estate, take advantage of this calculator to help determine if this is a good financial move for you.

You should also avail yourself of the consumer-friendly good faith estimates (GFE) that lenders are required to give you and with which you can compare offerings. (Search online for “HUD + good faith estimate” for an example.) This form clarifies the type, rate, and features of the loan for which you’re applying. These rates are guaranteed, and if the charges are underestimated, the lender, not you, if responsible for the difference.

Happy New Year! January is the time for starting out with a clean slate and vowing to make changes that are good for us. In spite of our good intentions, however, by now many of us have made--and broken--many familiar resolutions and have fallen back into bad habits. Despair not. There is one action you can begin right away, stick to without hardship or self-denial, and benefit greatly from in just a few months. The holiday season may be behind us, but tax season is not far away, and you can resolve to get an early start by identifying house-related tax deductions now and gathering the necessary documentation for them.

Doing so provides you with a win-win situation. Not only will you get a head start on a sometimes onerous task, you will also derive pleasure from seeing how much money you will save simply by owning Chester County real estate. The following information is current as of now, but I urge you to check with your accountant, visit the IRS website, or call the IRS assistance line at 800-829-1040 for verification and/or specifics.

PRIMARY RESIDENCES

• MORTGAGE INTEREST: As you know, much of your mortgage payment goes toward paying off interest, especially in the early years. All this paid interest, on debts of up to $1 million on a joint return, is tax deductible. The amount you have paid is reported to you on a 1098 form sent by your lender and should be reported by you on line 10 of a Schedule A form (itemized deductions).

• HOME EQUITY LOAN INTEREST: Interest paid on home equity loans (second mortgages, equity credit lines, and some refinancing) is fully deductible up to $100,000--regardless of how you use the proceeds. If you use some or all of the proceeds for home improvements, that amount can be added to the $100,000. Be sure to carefully document all improvement costs. Note: The limits mentioned apply only as long as all debt secured by the residence does not exceed the fair market value of your Chester County real estate.

• POINTS: The points you paid to the lender at closing are deductible for the year in which you paid them. This amount is also reported to you on the lender’s 1098 form. See publication # 936 from the IRS for more specific information, especially about points paid for refinancing.

• PROPERTY TAXES: Chester County real estate property taxes are fully deductible.

• PRIVATE MORTGAGE INSURANCE: If your mortgage was taken out between 2007 and 2010 and your joint income is below $100,000, you can deduct any premiums you paid. Note: This is the last year that you can take this deduction.

• HOME OFFICE: If you use a portion of your home exclusively for business purposes, there are certain costs you can deduct. Such expenses may include a percentage of your utilities, repairs, qualified insurance premiums, and even property taxes. The IRS has specific requirements for these deductions. Consult IRS publication #509.

• SELLING YOUR HOME: In addition to being able to pocket as much as $500,000 tax free in profit if you file jointly and have lived in the piece of Chester County real estate for two of the past five years, you can also deduct from your taxable capital gain many costs which you incurred while selling the property. Such costs usually include realtor commissions, legal and inspection fees, and title insurance. In addition, cosmetic repairs and improvements you made to the home within 90 days of the sale are also deductible.

TAX CREDITS: These are even more beneficial than deductions and fall into two categories for the 2010 tax year.

• HOMEBUYER TAX CREDIT: Buyers who purchased a house before May 2010 and qualified for a Homebuyer Tax Credit may claim that credit by mailing in (you cannot file electronically) your return with IRS Form 5405. Members of the military, foreign service, and intelligence communities have until April 30, 2011, to purchase a home and be eligible for this credit.

• HOME ENERGY TAX CREDIT: If you installed qualified energy-efficient systems, windows, and/or appliances in your home before December 31, 2010, you may be eligible for a tax credit of up to $1500. Again, you may not file electronically, and you must complete and attach IRS Form 5695 to your return.

FORGIVEN DEBT: Mortgage debt to buy a principal residence that is forgiven (as in a short sale, foreclosure, or debt restructuring) is no longer taxable in many cases. Restrictions apply for investors, equity lines, refinancing, etc. See IRS Publication 4681 for detailed information and use IRS Form 982 for filing.

News releases in recent weeks have increasingly unearthed irregularities in the foreclosure process, disclosures which have far-reaching effects on first time and move-up buyers of Chester County real estate, those in the process of foreclosure, the real estate market, and the economy in general. In reaction to these reports, Ally Financial, JP Morgan, PNC, Morgan Chase, and Bank of America have temporarily halted all action on foreclosures, and nearly half of the states have issued a foreclosure moratorium.

The National Association of Realtors (NAR) has long urged lenders to seek resolution to distressed properties through modification and short sales rather than through foreclosure, stating that “These options are far better” and that they involve less risk of irregularities caused by the impact of dealing with such a high volume of foreclosures and heavy demands by lenders for speedy processing, In a recent letter to various federal agencies, the NAR expressed both concern for the rights of borrowers and the buyers of Chester County real estate and the hope that the foreclosure review will proceed expeditiously.

Reacting to a demand by some for a national moratorium (which many feel is inevitable), the White House called for caution in taking such a step and acknowledged that there are valid foreclosures with proper documentation that should go forward. White House spokesman David Axelrod also placed some of the responsibility for the “title wave” on government-run Freddie Mac and Fannie Mae, stating that “…if they had slowed down their loan purchases using internal controls, many of these problems would not have occurred.”

So what does all this mean for the purchaser or would-be buyer of Chester County real estate? In all probability, closings and contract purchases on distressed properties will not take place until all moratoriums have been lifted. It also means that foreclosures already in process will be held up and that some bank-owned listings will be removed from the market. Some “experts” say that those who have already purchased a foreclosed home will not have problems because of the legal finality of foreclosure sales, while others worry that that the moratoriums will bring most mortgage closings to a halt. All seem to agree, however, that properties which do have clear mortgage documentation will demand a premium price in what will be smaller supply of homes from which to choose.

Obviously there is no imminent solution to the current foreclosure fiasco, and the wise and prudent buyer would do well to follow the situation carefully, proceed cautiously, and seek professional advice before making a commitment.