Home Equity Is NOT Your Savings Account! May 21, 2008

I saw this article and thought it good to pass on, especially with the times the way they are.      Home equity is not your savings account
By Melissa Ezarik • Bankrate.com
Thanks to the real estate run-up of the past several years, you’re sitting in a $500,000 home that you owe $50,000 on. Wow, you’re rich. You’ve got $450,000 in home equity! So what if you have no savings? You’re sitting on a pile of cash. Not so fast. “Most Americans these days have more money invested in their homes than all their other investments combined, says Peter J. D’Arruda, author of “Financial Safari.” That kind of thinking could be financially dangerous. “If you put too much into your house, the bank has control over that money,” D’Arruda says. When a financial crisis hits and you need that equity most, the bank may well not give you what’s yours. Dave Ramsey, a radio talk show host and author of “The Total Money Makeover,” points out that the banking industry called home equity loans “HELs” for short. “My experience tells me they simply left off an “L.” These loans are dangerous and an unbelievable amount of them end in foreclosure,” he says. Those who do draw on their home equity may find that their home values could fall — perhaps lower than what they’ve borrowed against. If you find yourself in a financial crisis, and can’t make the payments, you could wind up in foreclosure and lose all the “savings” you thought you had, D’Arruda says. Something similar happened to a couple Ramsey calls “Ed and Sally.” Their home equity line, used for emergencies, was not renewed by their bank after Ed lost his job, and they got behind on their bills. This is despite their credit having been perfect for 17 years prior to the situation. Ed and Sally had to sell that home to avoid foreclosure. “It is clear that many folks are spending more than they are earning, and home equity is a source of that excess consumption,” says Richard F. DeMong, the Virginia Bankers Professor of Bank Management at University of Virginia’s McIntire School of Commerce. DeMong, who is an expert in home equity and mortgage lending, notes that when a home is the primary source of savings it won’t be available during retirement as money that one can use to live — unless the home is sold and a smaller, less expensive one is bought. That option doesn’t appeal to many. Still, DeMong sees home equity loans and lines of credit as useful for home improvement projects — since they increase the value of the home and thus the value of the home equity — and for dealing with temporary emergencies. “However, for longer-term emergencies, such as a permanent disability, (home equity) is not as helpful, since you will no longer have the equity for retirement or other needs,” he says. Relying on your home equity as savings can be a dangerous idea. Here are some scenarios that make clear the dangers:   • For years you count on the equity in your home to pay for your child’s college education. But just as high school graduation approaches a stock market crash or an oil embargo creates fears and sends interest rates soaring to more than 18 percent, as happened some 25 years ago. Almost better to use a credit card! • You live in an area where home prices have gone through the roof, but a real estate “bubble burst” makes your home worth less than what you paid for it, meaning there is no home equity to use. • You become subject to the alternative minimum tax (which increases your tax bill by knocking out a lot of exemptions, deductions and credits). The interest on a home equity line of credit is no longer tax-deductible, significantly reducing its feasibility. • Congress changes the rules on home equity loans. For instance, government-backed mortgages could require homeowners to keep a certain amount of money in home equity to reduce the chance of foreclosure, says investment expert Jeff Harris. This could reduce or eliminate the amount available for equity loans. Or banks could be forced to tighten eligibility requirements by the Federal Reserve, so perhaps you wouldn’t qualify for a home equity loan, even if your income remained the same. Bottom line: Home equity or not, it’s still important to save.

Best Buyer’s Market in 35 years May 3, 2008

In April of 1973, mortgage rates were about the same as they are today. Since that time, we have only had mortgage rates this low during 2001 and 2002, the height of the seller’s markets where there was little inventory.

In the last two major buyer’s markets, one in the early 1980s and the other in the early 1990s, the rates were much higher. In 1994, interest rates were at 9.5 percent, (and they were at 18 to 21 percent in 1980). In the early 1990s, the rates were hovering in the 11 to 12 percent range. Thus, today’s buyer’s market, with exceptionally low mortgage rates plus a substantial supply of inventory, is the best time in decades to purchase. Source: Imman News

Tax Time Brings Up the Age Old Debate April 10, 2008

Renting vs. Owning

Unlike renting, homeowners get part of their monthly payments back at tax time. That’s because the mortgage interest they pay is (in most cases) fully tax deductible.

For a mortgage payment of $1,000 (principal and interest only), you could purchase a home for $151,426 if you put a 10% down payment on a 30-year loan at 8% (note: many can qualify for interest rates as low as 6%!).

If your payments started in January, your first-year mortgage-interest tax deduction would be $10,862.

Assuming you are in the 27.5% tax bracket, you would save $3,041 in taxes–that’s $249 per month. So the $1,000 payment mentioned earlier is really $751 when computing the homeowner’s tax advantage. +

Quick Plug for Smugglers’ Notch Cottages for Rent April 1, 2008

I’ve recently taken over property management for 2 cottages at Smugglers’ Notch, VT and we’re running some super specials through April 15th for Spring Skiing.  $199/night for the 2 bedroom and $249/night for the 3 bedroom. 

Check out our website www.greenviewcottages.com.

Also After Tax Special for $225/night from April 15th forward.

And coming this summer, fishing packages and bike tours, again, check out the webpage www.greenviewcottages.com.

And if you book a week from now until August 31st by April 15th, we’ll give you one night free!!

Who Represents You? – Great Article from Realtor.org March 22, 2008

Who Represents You?
By John Adams

One of the hot topics facing the world of real estate right now is the issue of agency. Some would have you believe that it really doesn’t affect you, the buyer, and that nothing much has changed. But they are wrong.

The topic of agency is important to you because it answers the most basic and fundamental question that can be asked of any real estate professional: Who do you represent in this transaction?

Until that question is answered, you may be left with the impression that all agents who work with buyers actually represent those buyers, and that you have somebody going to bat for you in this transaction. Well, the issue of agency is important because without it, we can never be sure who represents who.

Here’s the scenario:

You meet a really nice agent at an open house named Bonnie. Even though Bonnie’s house is not right for you, she tells you she has others to show you that fit your needs exactly. You spend an hour or so with Bonnie looking at a half dozen homes and talking about your needs and your wants. During the course of the conversation, you volunteer that you have $100,000 cash to spend and that you will not go over $100,000 purchase price no matter what. Then you find the perfect house. Asking price is $100,000 but you decide to offer $92,500 based on recent sales in the area. During negotiations, the seller asks Bonnie directly how much cash you have and how high will you go? What does Bonnie say?

Here’s the answer: Unless you have signed a “Buyer Agency Agreement” with Bonnie making her your buyer agent, she is most likely acting as a sub-agent to the listing broker who represents the seller. If that is the case, she has a fiduciary obligation to the seller to disclose to him any information she has that might “promote or protect his interest” in the transaction. Guess what? Bonnie has that information.

The Seller, now having knowledge of your financial position, counters at a full $100,000. He knows you can afford it and that this price falls within your desired range. He also knows that you have seen a number of other homes and that his is the one you want.

Regardless of what eventually happens in this scenario, it can hardly be called an even playing field. So, how can you protect yourself from a possible disclosure required of a seller’s agent?

1. Make sure that the agent you are working with has agreed, in writing, to represent you as a “Buyer’s Agent.” This will mean signing a buyer brokerage agreement in which you promise to work only with that particular agent for a specific period of time, often 90 days. It also means that you promise not to buy from anybody else, even FSBOs, without involving your buyer’s agent. In almost every case, the commission will still come from the seller, but your agent must present the offer.

2. Never say anything to anybody unless you would be willing to have that information repeated into a seller’s ear. Assume that everybody, and I mean everybody, is working for a seller unless you have specifically hired them to work for you. And even then, be discreet. During the second world war, the military promoted a phrase designed to stop idle gossip: Loose lips sink ships! You would do well to adopt that philosophy in your home-buying as well.

**So even if the Realtor is your best friend, unless you have signed a Buyer Broker Agreement, they are still working for the seller.  Now what that boils down to is that you don’t tell them anything you wouldn’t want the seller to know, and the Agent is still required to disclose anything about the house that you should know.  They can still help you with the transaction, but you won’t get the advice on price that you might get otherwise.  Just know that you have the right to representation.

Hope this helps!

Allyson