How Much Home Can Your Lifestyle Afford?

If you're considering purchasing a home, you've likely already considered how much you have available for a down payment, what an ideal mortgage payment would be, and how much home you can actually afford based on your monthly income. But what about your lifestyle? Have you considered how much wiggle room you need to leave in your home budget to enjoy life? Here are six life factors to consider when buying a home:

1. Travel

Travel is an important goal for many people. Think about the travel goals you have for yourself:

Where do you want to go?

What do you want to see?

How long are your ideal trips?

How much money would you need on an annual basis to make your travel goals possible?

Is this already factored into your budget or will you need to cut back on travel to fund your monthly mortgage payment and home expenses?

There are no right or wrong answers, but it's important to reflect on your priorities.

2. Green Thumb?

Do you love gardening, being outside, and all things landscaping? If you purchase a home with a lawn and don't enjoy the upkeep, you could be looking at an extra $100 or more a month for professional landscape maintenance. Are you willing to skip the lawn in favor of hardscaping to reduce costs?

Bottom line: Factor hobbies and services into your monthly budget to see if the numbers still work out in the black.

3. Pool Time

How dreamy would it be to buy a home with a pool!? Before the dream becomes reality, add up the costs of pool maintenance and servicing, energy, and insurance (along with liability if you have small children) and you may be better off heading to the neighborhood swimming hole. 

Pools can be a lot of fun, but they come with a lot of work. Factor time and money into your future plans when buying a home with this special feature and, once again, ask yourself if the numbers add up to support your other financial goals.

4. Children 

If you're buying a home and plan to start a family in the next few years, don't just consider the amount of mortgage you can afford under your current expenses. Factor in daycare costs and then determine what your cash flow will look like. You may have to adjust the amount of home you're looking to purchase.

5. Entertainment

Chances are you enjoy dining out, going to concerts and sporting events, and seeing movies. If you need to rein in these activities to make room for your mortgage, home expenses, and savings, aim to strike a balance that won't leave you feeling restless.

After all, you're likely choosing a 30-year mortgage, and three decades is a long time to feel deprived. If necessary, reduce the amount of home you purchase so you can enjoy yourself in the ways that are important to you. 

6. Retirement

If you're in your 20s, you should try to save 10% of your income; in your 30s, you should be saving 15%. If you need to cut back on your retirement savings to make a home purchase work, think hard about when you'll be able to get back to your ideal contribution levels and how much you may be losing out on during that time. 

Although home ownership can help build long-term wealth, it's important to also maintain retirement savings for future security.

5 reasons you still need a real-estate agent

You might think buying or selling on your own will save money, but it could be more costly in the long run.

The proliferation of services that help home buyers and sellers complete their own real-estate transactions is relatively recent, and it may have you wondering whether using a real-estate agent is becoming a relic of a bygone era. While doing the work yourself can save you the significant commissions that many real-estate agents command, for many, flying solo may not be the way to go — and could end up being more costly than a commission in the long run. Buying or selling a home is a major financial and emotional undertaking. Find out why you shouldn't discard the notion of hiring an agent just yet.

1. Better access/more convenience
A real-estate agent's full-time job is to act as a liaison between buyers and sellers. This means that he or she will have easy access to all other properties listed by other agents and will know what needs to be done to get a deal together. For example, if you are looking to buy a home, a real-estate agent will track down homes that meet your criteria, get in touch with sellers' agents and make appointments for you to view the homes. If you are buying on your own, you will have to play this telephone tag yourself. This may be especially difficult if you're shopping for homes that are for sale by owner.

Similarly, if you are looking to sell your home yourself, you will have to solicit calls from interested parties, answer questions and make appointments. Keep in mind that potential buyers are likely to move on if you tend to be busy or don't respond quickly enough. Alternatively, you may find yourself making an appointment and rushing home, only to find that no one shows up.

2. Negotiating is tricky business
Many people don't like the idea of doing a real-estate deal through an agent and think that direct negotiation between buyers and sellers is more transparent and allows the parties to look after their own interests better. This is probably true — assuming that both the buyer and seller are reasonable people who are able to get along. Unfortunately, this isn't always an easy relationship.

What if you, as a buyer, like a home but despise its wood-paneled walls, shag carpet and lurid orange kitchen? If you are working with an agent, you can express your contempt for the current owner's decorating skills and rant about how much it'll cost you to upgrade the home without insulting the owner. For all you know, the owner's late mother may have lovingly chosen the décor. Your real-estate agent can convey your concerns to the seller’s agent. Acting as a messenger, the agent may be in a better position to negotiate a discount without ruffling the homeowner's feathers.

A real-estate agent can also play the “bad guy” in a transaction, preventing the bad blood between a buyer and seller that can kill a deal. Keep in mind that sellers can reject a potential buyer's offer for any reason — including just because they hate his or her guts. An agent can help by speaking for you in tough transactions and smoothing things over to keep them from getting too personal. This can put you in a better position to get the house you want. The same is true for the seller, who can benefit from a hard-nosed real-estate agent who will represent his or her interests without turning off potential buyers who want to niggle about the price.

3. Contracts can be hard to handle
If you decide to buy or sell a home, the offer-to-purchase contract is there to protect you and ensure that you are able to back out of the deal if certain conditions aren't met. For example, if you plan to buy a home with a mortgage but you fail to make financing one of the conditions of the sale — and you aren't approved for the mortgage — you can lose your deposit on the home and could even be sued by the seller for failing to fulfill your end of the contract. (Keep in mind that the details of any contract may vary based on state law.)

An experienced real-estate agent deals with the same contracts and conditions on a regular basis and is familiar with which conditions should be used, when they can be removed safely and how to use the contract to protect you, whether you're buying or selling your home.

4. Real-estate agents can't lie
Well, OK, actually they can. But because they are licensed professionals, there are more repercussions if they do than for a private buyer or seller. If you are working with a licensed real-estate agent under an agency agreement, such as a conventional, full-service commission agreement in which the agent agrees to represent you, your agent will be bound by law to a fiduciary relationship. In other words, the agent is bound by law to act in his clients' best interest, not his own.
In addition, most real-estate agents rely on referrals and repeat business to build the kind of client base they'll need to survive in the business. This means that doing what's best for their clients should be as important to them as any individual sale.
Finally, if you do find that your agent has gotten away with lying to you, you will have more avenues for recourse, such as through your agent's broker or professional association or possibly even in court if you can prove that your agent has failed to uphold his fiduciary duties.
When a buyer and seller work together directly, they can — and should — seek legal counsel, but because each is expected to act in his or her best interest, there isn't much you can do if you find out later that you've been duped about multiple offers or the home's condition. And having a lawyer on retainer any time you want to talk about potentially buying or selling a house could cost far more than an agent's commissions by the time the transaction is complete.

5.  Not everyone can save money
Many people eschew using a real-estate agent in order to save money, but keep in mind that it is unlikely that both the buyer and seller will reap the benefits of not having to pay commissions. For example, if you are selling your home on your own, you will price it based on the sale prices of other comparable properties in your area. Many of these properties will be sold with the help of an agent. This means that the seller gets to keep the percentage of the home's sale price that might otherwise be paid to the real-estate agent.
However, buyers who are looking to purchase a home sold by owners may also believe they can save some money on the home by not having an agent involved. They might even expect it and make an offer accordingly. However, unless buyer and seller agree to split the savings, they can't both save the commission.


The bottom line
While there are certainly people who are qualified to sell their own homes, taking a quick look at the long list of frequently asked questions on most “for sale by owner” websites suggests the process isn't as simple as many people assume. And when you get into a difficult situation, it can really pay to have a professional on your side

How Staging Can Eliminate Buyer Confusion

When I first met with a recent client, Stuart, he shared memories of raising his family, gatherings with friends, and 23 years in his beautiful 3,200-square-foot contemporary home.

The home offered tremendous open space and wonderful features, but for the past several years, key rooms in the home were converted to Stu’s home office suite. The living and dining room housed desks, chairs, and video editing equipment — an uninviting space for a young family seeking a place to call home and make their own memories.
Real estate professional Ellen Levada of Calcagni in Cheshire, Conn., recommended our staging services to make the home attractive to buyers, get it sold, and for top dollar. With a new home already purchased, Stu was motivated and understood the importance of staging to sell. After our initial meeting, he embraced our proposal to stage 14 rooms and showcase the open floor plan, square footage, and wonderful architectural details of the home.

The open living room offers great windows, high ceilings, and hardwood floors but as an office suite was not going to engage buyers. To show buyers the space potential, stagers removed all of the office furniture and replaced it with appropriate furnishings including a couch, love seat, and tables. We also painted the walls a more modern, neutral color, and accessorized.

Buyers today want move-in condition homes with updated decor that can easily fit their lifestyle and furnishings. Fresh modern paint choices in several of the rooms and new carpeting provided a neutral canvas for furnishings and decor. Our team then transformed 14 rooms in the home in a single day to “wow” buyers and help establish an emotional connection to the space.
Professional listing photos captured the beauty of the home and in just a short 14 days on the market, guess what? The home sold and is now under contract!

This home's dining room was open to the living room and featured beautiful natural light but was another room being used as office space. We continued the updated paint color throughout this space and added an elegant 

dining room table, chairs and accessories.

This spacious master bedroom looked small and uninviting. A warm neutral wall color showcases the rooms size and high ceilings. We replaced the existing bedding with more sophisticated decor in gold and taupe tones to create a modern retreat.

How To Add Power To Purchase Offer

Figuring out how much to offer on a home you'd like to make your own is never easy. 

A complicating factor is that although it appears that the housing market may be stabilizing, there is no guarantee that prices won't slip further.

With this in mind, don't buy for the short term. Don't buy betting on future appreciation. Buy a home that will work for you long term, at the best price you can negotiate, using financing you can afford.

To avoid paying too much, hook up with a real estate agent who will educate you about how much you'll have to pay for a home that works for you. The Internet is a great resource to help you learn about neighborhoods, current listings, and past sale prices.

However, a diligent, knowledgeable real estate agent who has experience helping people buy and sell homes in the area where you want to live can get you up to speed on what's happening in that niche market now.

HOUSE HUNTING TIP: Ask your agent to give you a summary of all listings that you might have been interested in that sold during the last three months to six months, including list price, sale price and how long they took to sell. It's also useful to have information about the change in average sale price over the past year. Have prices declined? Are they flat? Or are they rising?

Also, ask for a list of properties currently available and pending sale. A pending sale is one where the sellers have accepted an offer, but the sale hasn't yet closed. Significantly more active listings than pending sales in an area suggests a high-inventory market where buyers have an advantage. Few active listings relative to pending sales is characteristic of a low-inventory market.

During your house-hunting education, make sure your agent reports back to you about day-to-day changes in the market. If an overpriced listing has a price reduction and is now in your price range, make a point of looking at it as soon as possible. A new price can attract other buyers' interest.

When listings you've seen sell, your agent should let you know the sale price. This will help you develop a sense for when a listing is priced too high, or priced at or under market value. How well a listing is priced for the market affects your offer strategy.

A well-priced listing in a low-inventory market is likely to sell quickly. There could be more than one buyer making an offer. If so, you may need to make an aggressive offer near, at or over the asking price. However, multiple offers don't always result in a sale price higher than the list price.

Becoming savvy about local market pricing enables you to know when to make a strong offer on a new listing, even though the overall market may be lagging.

It's a different story in segments of the market where there are plenty of listings that take months to sell. In this case, you have choices, making it possible to offer less than the asking price and negotiate. If this one doesn't work out, you move on to the next. You should be prepared to walk away rather than pay too much.

Buyers making offers that are contingent on the sale of another property usually have to pay more than all-cash buyers who can close quickly. If you've already sold your home and are waiting for the sale to close, you'll be in a better position to negotiate on price.The best bet is to have your home sold and closed. It removes uncertainty in the sellers' minds and may make them more receptive to a lower price.

Getting Organized in the New Year

The New Year compels all of us to relinquish the past and change our circumstances for the better. Hoping to literally wipe the slate clean? Look no further than your household. How many times have you vowed to keep things organized, only to discover that by mid-January, the clutter culprits are back in full force? 

Nothing kills New Year’s motivation faster than setting a goal beyond realistic reach, and if you don’t have a knack for organization, tackling your entire home will be impossible. Rather than organizing every nook and cranny, carry out a small-scale purge instead.

1. Stock up on storage.
Unloading more stuff at home seems completely counterproductive, but those bins and baskets will create order out of chaos. Place them at drop points around your house, such as near your main entrance, on your kitchen counter or coffee table, or in your home office. No need for a meticulous system – mail, coupons, takeout menus, instruction pamphlets and more can go in whichever catch-all is most convenient.

2. Gift yourself a paper shredder.
Papers tend to accumulate quickly at home, and sensitive documents can be a gateway to identity theft if not handled properly. And trust me – there’s nothing more exciting than watching your cross-cutting machine lay waste to piles of paperwork. Round up junk mail, bank statements, non-active membership documents, and any private information you’re not required to keep and get shredding.

3. Pare down duplicates.
Two isn’t always better than one. Consider donating multiples of common household items you haven’t had a need for in a year or more. 

4. Get smart about space.
Who has time for a closet overhaul? If your closets are bursting, don’t try to cram more into them. Instead, work within the parameters of the space. Vacuum seal items that are not in season, and use this space-saving trick for bed linens: store folded fitted and flat sheets and one pillowcase inside the accompanying pillowcase. For clothes, utilize the hanger strategy: flip your hanging garments so that the opening of the hanger faces you. Whenever you wear an item, put it back on the hanger and turn it to face away from you. After a few weeks, donate, toss or sell items on hangers still facing you.

5. Cut computer clutter.Having too many files not only makes documents harder to find, but can slow down your computer’s processing speed and sap precious battery power from laptops. Remove programs that haven’t been used in six months or more, delete photos that aren’t album-worthy, and reserve space on your desktop for the applications you visit most frequently.

4 Common Real Estate Deal Killers

Recently, the sellers of an architect-designed home in the hills above Oakland, Calif., received two offers in less than two weeks. They accepted the offer from the buyers who seemed most committed to buying the house.

In less than 12 hours, the buyers backed out. Although they had been looking for a home for months and thought they'd decided where they wanted to live, they had a change of heart -- not about the house, but about the location. Buyer's remorse is one reason transactions fail.

The enthusiasm that permeated the home-sale market when the federal tax credits were available has waned. Economic news has been mixed at best. This has led to an increased reticence on the part of some home buyers.

HOUSE HUNTING TIP: 

An easily avoidable reason why contracts fail is failure of sellers to disclose a significant defect in the property before the buyers make an offer. Some sellers resist having presale inspections done because they don't want buyers to know too much about what's wrong with their home until they fall in love with it.

This strategy might work for sellers in a hot market where prices are rising quickly. However, in today's market, buyers are diligent and cautious; falling in love takes a back seat to practicality.

In one case, sellers withheld a report that revealed significant foundation problems that could be fixed only at great expense. The buyers, who were buying at the top of their price range, were furious. 

They wouldn't have made an offer had they known about the foundation upfront, particularly since the seller was unwilling to correct the defect. They wasted time and money on their own inspections. The deal fell apart and the sellers had to put the house back on the market.

Often contacts are so loaded with conditions unacceptable to the sellers that they don't make it to first base.

One seller refused to respond to an offer because the price was very low, the offer was contingent on the sale of the buyers' home that was not yet on the market, and the buyers wanted the sellers to take their home off the market until the buyers found a buyer for their home.

Another culprit that can rattle a transaction, even one that's not full of unreasonable contingencies, are conditions pertaining to the buyers' financing. Well-qualified buyers were recently told by their lender that they had to increase their cash downpayment from 20 to 25 percent because of one late payment on their credit report.

The buyers had enough cash to increase their downpayment. But, when defects were pointed out during inspections, the buyers didn't have enough cash left to make the repairs. They asked the seller to credit them money at closing. The seller agreed and the sale closed. However, this could have blown the deal if the seller was unwilling or unable to pay for repairs.

Low appraisals also have been a factor in keeping transactions from closing. The situation has improved recently due to a lift in home-sale activity, however, following the expiration of the federal tax credit on April 30, the NATIONAL ASSOCIATION OF REALTORS® reported a decline in pending sales -- accepted offers that have not yet closed.. 

If pending sales continue to decline, this could have a negative impact on home prices, which could lead to more low appraisals. Lenders want appraisers to use comparable sales that occurred within the last three months. 

Keep in mind that the home-sale market is a local business. Although national trends and consumer confidence impact local markets, prices tend to hold up well for well-priced homes in high-demand, low-inventory neighborhoods.

Common Contingency Hangups

Recently, buyers removed the loan contingency after the lender's underwriter told their mortgage broker that the loan was approved. Soon after removing the contingency, the buyers found out that the lender required a second appraisal before the loan would be funded.

The buyers' deposit was at risk if a second appraisal came in at a lower value than the purchase price and the buyers were unable to close the sale, even though the first appraisal was approved by the lender.

This, unfortunately, is not an isolated incident. All too often, underwriters grant buyers' loan approval and then ask that additional conditions be met before the buyers' loan documents are issued. For example, an underwriter might want first-time buyers to provide verification that they made their rent payments on time.

As long as the conditions are satisfied, the transaction closes -- but delays are common.

Buyers should include a financing contingency in their purchase offer for lender approval of their creditworthiness and of the property appraisal. Some contracts specify a time period for this contingency to be satisfied, such as 14 to 30 days from acceptance. 

Other contracts state that the financing contingency remains in effect until the buyers' lender funds the loan. Lenders don't fund until all conditions for loan approval have been satisfied. So from the buyers' standpoint, this is the safest alternative.

A financing contingency that runs until the buyers' mortgage is funded poses logistical problems for both buyers and sellers. Most sellers don't want to move out of their home until they're sure the sale will close, or until it has closed. Lenders usually don't fund earlier than the business day before closing. So the parties often don't know until the last minute when they'll move.

It's not much different with a financing contingency that has a deadline that falls a week or more before the closing date if the lender requests more information from the buyers at the last minute, which the lenders often do. Buying and selling in today's rigorous financing environment requires patience and flexibility on the part of all involved.

HOUSE HUNTING TIP: Buyers who need to remove a financing contingency by a certain date should ask the sellers for an extension if their lender grants loan approval subject to conditions that the buyers aren't certain they can satisfy, like a second appraisal.

Most sellers would grant an extension rather than put the house back on the market if all other contract contingencies have been satisfied.

Contingency-free offers are showing up in some high-demand niche markets, reminiscent of the recent bubble market where buyers made offers with no contingencies for financing, appraisal, or inspections in order to outcompete other buyers in a multiple-offer situation. 

This is risky, particularly if the sellers haven't provided a complete disclosure package before an offer is written that includes a home inspection report, wood-destroying pest ("termite") report, and any additional inspections recommended in the home and pest reports, such as for roof, engineer, or drainage evaluations.

Recently, there were six offers on a desirable listing in Piedmont, Calif. Two included no contingencies. The only presale inspection report made available to buyers was a "termite" report.

Although there was no financing contingency in the contract the sellers chose to accept, the buyers needed to qualify for a mortgage and the property needed to be appraised for the sale to go through. It was not an all-cash offer.

The sellers had the good sense to add a short inspection contingency and a financing contingency to the contract. They weren't worried about the buyers' financial capabilities or the house appraising for the purchase price. The buyers found defects when they inspected the property, but nothing they couldn't live with.Both buyers and sellers benefited from including the contingencies.

Agent Communication

Winning Open House Strategies

Public open houses have been a mainstay of the home-sale market for decades. During the peak market years, buyers often wandered through an open house and bought it, even though they had no intention of buying. Impulsive homebuying is rare today.

Open houses still can be used effectively to draw prospective buyers to your home. To eliminate open houses from your marketing strategy because you find them inconvenient or risky could be a mistake.

On the other hand, you can overuse open houses and generate a negative image about your home. Too many open houses can cause the listing to become shopworn.

Some sellers have homes that are not prime candidates for open houses. These are usually high-end properties that might be vulnerable to theft. They should be shown to qualified prospective buyers by appointment only. Most listings do not fall into this category, although all sellers should keep valuables out of sight while their homes are on the market.

HOUSE HUNTING TIPS: For most sellers it's a good idea to develop an open-house strategy that will maximize exposure to your property without overexposing the property to the market. It's usually wise to have a Sunday open house the first week a listing is on the market.

This is when your home is most marketable. Serious buyers, who've already seen all current listings that might work for them, wait for new listings to come up and want to see them as soon as possible. 

A public open house gives buyers an opportunity to look without having to wait to make an appointment with their agent. Often, they have already seen photos of the listing online that look appealing.

A public open house isn't the best way for buyers to see listings that catch their eye because it may be packed with other buyers and neighbors who are curious about current home values. But, at least buyers can determine if the home is interesting enough to schedule an appointment to return for a private showing with their agent.

How often you have your house held open depends on current market conditions in your local market area. If it's taking months for homes to sell, you may want to consider having your home held open to the public every two or three weeks after the initial one or two open houses, when there ought to be high demand if your home is in a desirable location, in good condition, and priced right for the market.

Sellers often wonder if their home should continue to be held open after an offer has been accepted. This depends on whether the sale is contingent upon the sale of the buyers' home. If so, you should consider having open houses until the buyers have an accepted offer on their home.

Your contract should include a release clause that entitles you to accept other offers and be released from the contingent sale offer if those buyers haven't sold their home.

Continuing to have open houses after you have accepted an offer that is not contingent on the sale of another property can annoy prospective buyers who are under the impression that the listing is for sale. The word goes out that the home is open even though it has sold.

This can boomerang if the sale falls apart and you have to put your house back on the market. It's difficult to rekindle enthusiasm about the listing if it has been open every week even though it was pending. It's better if the contract is not contingent on another home selling to hold off on open houses so a new Sunday open house will have a positive impact if the deal falls apart.

Selecting the Right Mortgage

Selecting the type of mortgage that will best suit your needs is not a simple undertaking. The right mortgage will depend on many different factors, including your financial situation and how you expect it to change in the future, how long you'd like to keep your house, and how comfortable you are with the possibility of your mortgage payment changing.

For example, a 15-year fixed-rate mortgage can save you thousands of dollars in interest payments over the entire term of the loan, but your monthly payments will be greater. With an adjustable-rate mortgage, you may start with a lower monthly payment than a fixed-rate mortgage -- but your payments could increase when the interest rate changes.

The best way to find the right mortgage for you is to discuss your finances, plans and preferences with a mortgage professional, whom your REALTOR® can recommend.

Fixed-Rate Mortgages

Fixed-rate mortgages, the most common type of mortgage, offer consistently stable monthly payments. Your property taxes and homeowner's insurance may increase, but your monthly payments typically won't fluctuate.

With fixed-rate mortgages, you have the option of choosing a 30-year, 20-year, 15-year or 10-year repayment plan. You also may shorten the loan through a biweekly mortgage, thereby allowing you to make the equivalent of an extra month's payment per year. In selecting the length of your repayment, remember that a shorter loan carries higher payments but accrues less interest and allows you to build equity quicker.

Adjustable-Rate Mortgages

The interest rate on an adjustable-rate mortgage (ARM) is dictated by changing market rates. When interest rates rise, your monthly payments will go up, and when interest rates decrease, your monthly payments will go down accordingly.

ARMs often provide a lower initial interest rate than fixed-rate mortgages, attracting people who need lower payments early in the loan in order to qualify for a mortgage. ARMs also can benefit people who plan to move or refinance in the near future or those who expect their incomes to increase in the coming years.

Before applying for an ARM, find out how high your monthly payments can go throughout the life of the loan. An ARM includes two caps or limits on interest rate increases; one cap states the boundary for how high your interest rate can go up during each adjustment period, and the other cap sets the maximum total amount of all interest adjustments over the entire term of the mortgage.

The rates of an ARM typically change once or twice a year, and there is usually a lifetime cap on both the individual rate adjustments and the total amount the rate can change over the life of the loan. By applying the terms of the caps to your mortgage payments, you can anticipate the worst-case scenario prior to applying and determine if this figure is in line with your finances.

Reverse Mortgages

A reverse mortgage is a special type of loan made to senior homeowners that allows them to convert the equity in their homes to cash for living expenses, home improvements, in-home health care, or other needs.

A reverse mortgage takes its name from its reversed payment system. Instead of monthly payments by the borrower to the lender, the lender makes monthly payments to the borrower. With a reverse mortgage, older homeowners can stay in their homes and maintain or improve their standard of living without taking on a monthly mortgage payment.

To obtain a reverse mortgage, you must meet certain criteria that differ greatly from the qualification requirements for other mortgages. Reverse mortgages are generally limited to borrowers 62 years or older who own their own homes either outright or nearly so. Homes also must be clear of tax liens. And, unlike other mortgages, seniors don't have to meet income or credit requirements to qualify for a reverse mortgage.

Borrowers typically have the option of receiving the reverse mortgage's proceeds in the form of a lump-sum payment, fixed monthly payments for life, or a line of credit. A reverse mortgage's interest rate is usually an adjustable rate that fluctuates monthly or yearly. However, the size of monthly payments that borrowers receive doesn't change.

Balloon Mortgages

Balloon loans are short-term mortgages with some of the features of a fixed-rate mortgage, like low interest rates, but without the benefit of full amortization. As opposed to a 30-year fixed-rate mortgage, balloon loan payments only cover part of what you've borrowed during the term of the loan. At the end of the term, you're required to pay off the loan's balance by refinancing or making a lump-sum payment.

Balloon mortgages are typically five-, seven- or 10-year loans, so they can be beneficial to borrowers who anticipate selling or refinancing their homes in a short period of time.

Many companies offer a conversion feature at the end of the loan's term. For example, the loan may convert to a 30-year fixed loan at the 30-year market rate plus a certain percentage point. To qualify for a conversion, you usually need to be in good standing with the payments on your balloon loan. Balloon mortgage programs with conversion options are also called a 7/23 convertibles or 5/25 convertibles.

Buy-down Mortgages

Today's mortgage lenders have developed variations on the old buy-down method of offering an interest rate that is 2 percent below the fixed rate for the first year and 1 percent below the fixed rate for the second year, followed by 28 years of paying the regular fixed rate. Buy-downs now charge higher interest in the beginning of the loan to cover the future yields.

For example, if the current market rate for a fixed-rate loan is 8.5 percent at a cost of 1.5 points, the buy-down gives the borrower a first-year rate of 6.5 percent, a second-year rate of 7.5 percent and a third- through 30thyear rate of 8.5 percent. The cost would be 4.5 points.

Location Efficient Mortgages

Location Effecient Mortgages are available through a partnership between Fannie Mae and private lenders for homebuyers in select communities nationwide. In California, LEMs are available in the San Francisco Bay and Los Angeles areas. The are targeted to consumers who live in areas where public transportation is available, reducing the need to rely on cars, as well as the costs associated with doing so. The LEM is a fixed interest rate, 15- to 30-year mortgage that requires a downpayment of at least 3 percent of the appraised value of the property and has a 97 percent loan-to-value (LTV) ratio.

Government Loans

The Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), and the Rural Housing Services (RHS) are agencies that offer government-insured loans. To obtain these loans, you must apply through a lender that is approved to provide them. All of these agencies require certain minimum standards for the properties being purchased.

Through the FHA, you can purchase a home with a very low downpayment, typically 3 percent to 5 percent of the FHA-appraisal value or the purchase price, whichever is lower. In addition, the FHA's applicant standards are more lenient than conventional loans; you don't necessarily have to have a spotless credit record or a high-paying job to qualify. FHA mortgages have a maximum loan limit that varies depending on the average cost of housing in a particular region.

The VA program allows qualified veterans to buy a house costing up to $203,000, in most cases with no downpayment and at below-market interest rates. Moreover, the qualification guidelines for VA loans are more flexible than criteria for either FHA or conventional loans. The VA application process is similar to any other type of mortgage loan, and many VA loans can be processed and closed without waiting for credit application approval. To determine whether you are eligible, check with your nearest VA regional office.

The Rural Housing Service, a branch of the U.S. Department of Agriculture, offers low-interest-rate mortgage loans with no downpayment requirements to low- and moderate-income borrowers who live in rural areas or small towns. The RHS also offers programs for home renovations and repairs. Check with your local RHS office or lender for eligibility requirements.

Graduated Payment Mortgage

The Graduated Payment Mortgage (GPM) is another alternative to adjustable-rate mortgages. Contrary to an ARM, GPMs have a fixed-note rate and payment schedule. However, GPM payments typically are set for only one year at a time. Each year for five years, the payments graduate at 7.5 percent to 12.5 percent of the previous year's payment. You may obtain a GPM in 30-year and 15-year repayment schedules.

Borrowers can maximize their purchasing power through the GPM's lower qualifying rate. GPMs also can be attractive in a market with rapid appreciation. In markets with moderate appreciation, a borrower who needs to move during the scheduled negative amortization period could face financial problems.

Initiating the Mortgage Process

Inform Yourself First

First-time and experienced buyers alike may find themselves overwhelmed by the mortgage process. With so many options -- each offering unique advantages and disadvantages -- determining the early steps to take can be baffling.

Before initiating the mortgage process, you'll want to be fully educated. Whether you peruse Web sites or attend a mortgage seminar, there are many ways to find out what to expect. And as always, your REALTOR® can answer any questions you may have, as can financial planners, mortgage brokers, or lenders.

What's in a Price?

As you initiate the mortgage process, you'll want to ensure that your monthly payments fit into your budget. Are you aware that the price isn't the only factor contributing to the amount of your monthly payments? In actuality, the price is comprised of principal, interest, taxes and insurance, which combined, are commonly called PITI. To determine your average monthly payment, lenders suggest devoting no more than 28 percent of your gross income to PITI. Of course, how much home you can afford depends greatly on other factors as well: your income, credit, savings and financing, to name a few variables.

Applying for a Mortgage

Prior to applying for a loan, you'll need several items, including pre-approval information (if applicable), the ratified sales contract, earnest money and a home inspection report.

A ratified sales contract is proof that both buyer and seller have agreed on the final purchase deal. It serves as the final contract subsequent to the purchase agreement and any counteroffers. This contract specifies the amount of your downpayment, the purchase price, the type of mortgage you're seeking, and your proposed closing and occupancy dates.

When you visit your lender, you'll need to complete a Uniform Residential Loan Application. This document asks detailed questions about you, your income, your assets and liabilities, your credit history, and the property you plan to buy. Check with your lender about the additional documentation you'll be required to supply, which can include paycheck stubs, tax returns, bank account statements and other articles.

Decisions to Make

Once you've arrived at the application stage, you'll need to know what type of mortgage you want and the mortgage amount. 

Keep in mind that the type of mortgage you select directly affects the home price you can afford and the amount of your mortgage payments. Your ratified sales contract may depend on your ability to secure approval for the kind of loan you choose.

You've probably already estimated how much money you want to borrow. The best way to determine the exact amount of your mortgage is to base the figure upon the purchase price of the home and the amount of your downpayment. If you're using your pre-qualification from a lender to determine the amount of your loan, remember that pre-qualification is only a ballpark figure and not equivalent to being pre-approved.

6 Home Projects That Devalue Your Home

1.  Removing a bedroom. If you’re an empty nester, it can be tempting to convert that unused boudoir into the home gym you’ve always dreamed about. 

But the number of bedrooms in your home directly affects its value, so ask yourself: do you really need the new room? If the answer is “yes,” just make sure the changes continue to meet building codes for a bedroom (these can vary, so it’s best to check with a professional). 

That way, you can still market the space as a bedroom. Note: Even if the room meets bedroom building codes, its perceived value will drop if it’s being used for something else. So if you’re planning to sell in the near future, it may be best to leave the bed!

2.  Mediocre renovations. A quality, well-installed kitchen island is a great way to boost your home’s value. But imperfect work is easy for potential buyers to spot, and if they feel like your renovations will need to be tweaked (or redone entirely), they may lower their offer. To avoid this problem, carefully weigh the pros and cons of doing a project by yourself before you begin. If you decide to hire help, make sure you vet your contractor thoroughly!

3.  Showcasing a satellite dish. Let’s be clear: there is absolutely nothing wrong with 1,000 premium channels of HD entertainment. The more the merrier! But if a prospective buyer can see your satellite dish as soon as they turn onto your block, your curb appeal is going to take a hit. If you get a dish installed, work with the technicians to place it in an out-of-the-way spot.

4.  Sporadic home maintenance. Big renovations tend to take the spotlight when it comes to increasing your home's value, but regular maintenance can be just as important! In fact, without proactive maintenance – like cleaning lint from the dryer or changing your furnace filter – your home could lose up to 10 percent of its value. Routine maintenance not only protects the value of your property – it can also enhance curb appeal, ensure safety and prevent simple problems from turning into costly repairs. If you’ve fallen a little behind, that’s not a problem. It only takes one hour to get back on top of things.

5.  Smoking inside. This is a big issue when it comes to your home’s value. In fact, one survey revealed that some buyers believe smoking inside of a house can lower its value by as much as 29 percent! When you combine this with the fact that fires caused by still-burning cigarette butts are the leading cause of home-fire fatalities, smoking outside becomes a no-brainer.

6.  An above-ground pool. Depending on where you live, an in-ground pool can bolster your home’s value by as much as 11 percent. However, the above-ground counterpart isn’t as popular. Since they aren’t as visually appealing, buyers will tend to focus on the negatives of the pool (maintenance costs and safety hazards), and your home’s purchase price may take about a two percent hit. Note: If you and your family simply can’t live without some pool-side fun, don’t let this deter you! You can’t put a price on epic water-basketball matches or fun Marco Polo sessions.

The American Dream

For the vast majority of us, owning a home is part of the American Dream. According to a study conducted by the NATIONAL ASSOCIATION OF REALTORS®, 87 percent of those polled cited owning a home as the number one criterion for defining "the good life." Owners and renters alike considered homeownership desirable for the following reasons: the pride of ownership, their dislike of paying rent, and the ability to change features of their homes to match their individual tastes and needs.

In addition, owning your own home provides a sense of security and well-being that's hard to beat. Home is where we raise our families, have friends over for summer barbeques, paint the baby's room pink or blue, and find refuge from the outside world.

Owning a home offers other advantages as well. For instance, as a homeowner, you have control over your environment. Not only can you change your home to meet your needs, but you also aren't subject to the terms of a lease or a landlord. As a homeowner, you can experience the emotional and financial security that comes from knowing what your housing expenses will be from year to year. Unlike rents, which can increase annually, most mortgages have fixed or capped monthly payments. So, as a homeowner, you can have a much better idea of what proportion of your paycheck goes toward your home. Think of it as the ultimate savings plan.

Bottom-Line Benefits

And it only gets better. Homeownership is the primary component in the creation of wealth for many Americans. Data from Harvard University's Joint Center of Housing Studies illustrate not only that the median net wealth of homeowners is 34 times greater than that of renters, but also that over half of that wealth is generated from home equity. As you pay down your loan amount each month, you accumulate equity, a growing ownership interest in your property. If you need funds, you can borrow against this equity in the form of a home equity loan. Further, interest on a portion of home equity is tax-deductible.

Most homes appreciate in value over time and can be a source of income for you, especially if you've lived in your house for many years. When you retire, you can sell your home if you need the funds or make use of a home equity conversion mortgage.

Finally, don't forget about the significant tax advantages of owning your home. Interest on a home mortgage and property taxes are deductible. For most of us, mortgage interest provides the largest tax deduction. Also, a home is the single most important factor that determines whether you will be able to file a return which takes advantage of the wide range of allowable itemized deductions.

Homebuying Means Getting Back To The Basics

Recently, the CALIFORNIA ASSOCIATION OF REALTORS® surveyed homebuyers to find out what they considered to be important in the purchase of their homes. The largest percentage, 27 percent, considered the mere ownership of a home as the most important reason to buy. Moving to a better neighborhood (17 percent), wanting a larger home (10 percent), and realizing the tax advantages of homeownership (8 percent) were other reasons cited for buying homes. Seven percent focused on investment value as their primary motivation for homeownership.

Over the years, your home likely will be the best investment you'll ever make. But more importantly, it will be the place that offers you and your family shelter, security and stability. That's some return on investment. 

Why Use A REALTOR® To Sell Your Home

Using A REALTOR® To Sell Your Home 

  

What is a REALTOR®?

All real estate professionals are not created equal. The NATIONAL ASSOCIATION OF REALTORS® estimates that over 2 million people hold real estate licenses in the United States, but only about 1 million of them have earned the REALTOR® distinction. Through membership in their national, state and local REALTOR® associations, REALTORS® gain numerous opportunities to enhance their educational and professional development. They also are required to adhere to a strict Code of Ethics.

Why Use a REALTOR®?

Selling a home is a complex process involving what's likely to be your most prized financial asset. Enacting a smooth transaction for your home's full value requires the expertise of a REALTOR® whose extensive training has prepared him or her to generate the best possible results on your behalf. Just like you shouldn't treat a broken leg without a doctor or handle a major legal dispute without an attorney, it's unwise to sell your home without the professional assistance of a REALTOR®.

Naturally, every seller wants to reap the highest return from the sale. It's tempting to sell the home on your own, thereby saving the REALTOR®'s fees. However, a study conducted by the NATIONAL ASSOCIATION OF REALTORS® found that 82 percent of real estate sales result from REALTORS® contacts with previous clients, referrals and other sources. Additionally, NAR concluded that most homes sell for 3 to 9.5 percent more when sold through a REALTOR®.

Selling your home with a REALTOR® yields abundant advantages, including the following:

•REALTORS® have access to Multiple Listing Services (MLS) to disburse information about your property to thousands of consumers via their REALTORS®. They also have other marketing vehicles at their disposal, such as open houses and referral networks. Through your REALTOR®'s marketing efforts, a much broader range of qualified buyers will be informed of your property's availability. As a seasoned pro at negotiation skills and tactics, your REALTOR® can maintain objectivity in assessing buyers' proposals and developing offers and counteroffers. Throughout the transaction, including appraisals, inspections and legally binding agreements, you can depend on your REALTOR®'s know-how to avoid any pitfalls. Sales transactions comprise intricate legal and regulatory requirements. REALTORS® are familiar with the regulations and can help you understand and adhere to them.

•REALTORS® work with their clients to address home improvements and tips that will enhance the home's salability.

Deciding to sell

You've probably already considered your personal reasons for selling. Now you need to take into account the other factors involved, such as market conditions, your property's value and tax implications. 

Unless you're locked into selling your home (e.g., you've already accepted a job offer in another city), it's a good idea to look at the whole picture before deciding to sell.

Assessing Market Conditions

There's a rule of thumb to keep in mind when deciding to sell your home: Your home is only worth what a qualified buyer is willing to pay at the time it's on the market. The current real estate market fluctuates based on supply and demand, interest rates, general economic conditions, and other factors. The same house may sell for more or less under a different economy. Your REALTOR® can inform you of the going price for homes in your area at the current time; this data is included in a comparative market analysis (link to Appraisals and CMAs).

Tax Implications of Selling

There are many dynamics that can affect your tax liability upon selling your home. These issues include whether you purchased the home or inherited it, if you used your home for business or rental purposes, costs associated with selling your home, and any home improvements and additions that you've undertaken.

The Federal Taxpayer Relief Act of 1997 provides capital gains tax exclusions of up to $500,000 for married taxpayers filing jointly and $250,000 for single taxpayers or married taxpayers filing separately. Current capitol gains rates are 20 percent for those in upper tax brackets and 10 percent for those in lower tax brackets. Overall capital gains rates have been lowered even further -- to 18 percent and 8 percent respectively -- for assets acquired after December 31, 2000, and held five years or more.

To qualify for this tax break, you must have used the home as your primary residence for at least two of the prior five years; these two years don't have to be consecutive. If you relocate for your job but don't meet the requirement, you may be allowed to take a capital gains exclusion proportionate to your circumstances. This exclusion is not a one-time benefit; you may take advantage of it once every two years as long as you meet the qualifications.

 The tax rules differ when you sell a home that you've inherited. If you sell the inherited home for a profit, you're required to pay federal and state taxes on the gain. If you keep the house as a second residence and/or eventually move into it after renting it to tenants, you may take the $250,000/$500,000 capital gains tax exclusion if you meet the requirements. When you're deciding what to do with inherited property, you should consider the current estate tax laws and basis practices.

Beyond these general rules, it's wise to discuss your home's sale with a tax professional who can advise you on tax benefits in more detail.

Timing Your Decision to Sell

Because most sellers finance a new home purchase with the sale of their present home, they usually put their homes on the market before they begin their search for a new home. Learning the price you can expect from the sale often sets the pricing parameters for your new home search.

Obviously, it's not wise to wait until the sale on your property closes completely before beginning to look for your new home. Timing your search properly with the buyers' transaction can make the difference between having the available funds to buy a new home and cutting down on the interim period between homes.