Realtor Rankin’s Blog
Condo, PUD, Co-op: What’s the Difference?
Condos: Walls, floors, and ceilings owned by all residents; HOA dues; covenants, conditions, and restrictions; value depends on the desirability of entire development.
Planned Unit Development (PUD): Individuals own structure and some land.
Co-op: Corporation made up of all tenants; larger units have more power in how building is run; fees for taxes, mortgage, repair, improvement; heavy scrutiny of financial, personal history.
Townhome: Not a form of ownership, but a term for an attached row house.
Advantages of each: Prices often lower than for single-family home; maintenance minimal or nonexistent; safety in “cluster” environment.
Disadvantages: HOA dues; CCRs may be complex.
Real Estate Trends
Home prices have risen nationally three times faster than incomes since the turn of the century, which has made home ownership an impossibility for more Americans than ever before.
In many large cities, home prices have outpaced income. In Miami, for example, incomes have risen 16 percent, while home prices have increased 58 percent since early 1998. New York’s Long Island suburbs have seen just a 14 percent rise in incomes as compared to an 81 percent increase in home prices. Boston home prices have gone up 89 percent, while incomes have increased only 22 percent.
Even with a downturn in the real estate market looming on the horizon, home sales are still headed for another record year.
The first sector to show slowing is the high-end home market. Because of “overpersonalized” big-ticket properties, the pace of house auctions nationwide has surged.
Low interest rates are the only continuing positive trend of the housing market. Low rates average now less than 6 percent for 30-year fixed-rate loans, the lowest since the 1960s.
Real-estate analysts believe that if the housing market stalls, some areas will continue to grow modestly while other markets gradually go soft, rather than pop.
Pre-approval, as opposed to pre-qualification, signifies that the loan application has been taken through a rigorous procedure. Here’s why pre-approved buyers are ahead in the home buying game:
If you make an offer on a home and then apply for a loan, you are at the lender’s mercy, who is aware that you do not have time to shop around.
Pre-approval saves time spent looking at houses you can’t afford.
A pre-approval letter from a lender gives you an edge when multiple offers have been made on a house.
Pre-approved buyers can generally close escrow more quickly, since most of the work has already been done.
Home Equity: How to Use It
A refinance pays off your current mortgage and gives you cash based on your equity. These are good for:
1.Lowering or locking in your mortgage interest rate
2.Getting large sums of money ($30,000 or more)
3.Home equity loans (second mortgage) are installment loans that are paid out in one lump sum. They’re good for:
4.Repaying credit card debt
6.buying a new vehicle
7.A home equity line of credit works like a credit card – you agree to a pre-set limit and then borrow as you need to, or in the event of an emergency, usually for up to 10 years. Good for:
9.Major home improvements
Your FICO Score
Your FICO Score measures credit-worthiness. Underwriters use three credit bureaus, Equifax, Experian, and Trans Union, to determine your score in the following ways:
1. Delinquencies lower scores, and scores drop when several credit accounts are opened in a short period.
2. A long credit history is better than a new one, and too few revolving accounts makes it harder to evaluate the ability to manage credit.
3. Consumers with “maxed out” cards may have trouble making payments. Too many revolving accounts indicate over-extension.
4. Tax liens, bankruptcies, and use of consumer credit agencies can all lower a FICO score.
5. Small credit card balances and no late payments show responsibility.
It’s the little things you do today that help you tomorrow!
Capital Gains Exclusions
Determining your principal residence according to the IRS for tax purposes if you own more than one home can be tricky, but the IRS continues to refine the rules. First of all, principal residence can take many forms: conventional home, condominium, mobile home, house trailer, tenant-stockholder cooperative housing unit—even a boat, as long as it has sleeping, cooking and sanitary facilities (a bathroom).
The difficulties arise when you split your time between two different properties during a year. Simply put, the IRS says that your principal residence is the home you own and use as a residence for “a majority of the time during the year.”
But of course, there are other considerations. For instance:
l. the location of your property in relation to your place of employment.
2. the location where your family members reside.
3. the address you use on your federal and state tax returns, driver’s license, automobile registration and voter registration card.
4. the mailing address you use predominantly for bills and correspondence.
5. the location of your banks.
6. the location, believe it or not, of your “religious organizations and recreational clubs.”
Should You Get An ARM?
Let’s look at the pros and cons to ARMS and the different options available within this category of home loan.
The lender assumes the greater risk with a fixed rate mortgage because no matter how high interest rates go, the borrower’s interest is locked in for 30 years. That’s why fixed interest rate loans have higher interest rates. ARMs, however, put the risk squarely on the borrower.
ARM qualifying rates are less than fixed-rate loans, so lenders also offer ARM borrowers more liberal qualification ratios. For instance, with a fixed-rate loan a lender might allow 28 percent of a borrower’s gross monthly income for the payment of principal, interest, taxes and insurance. But with an ARM the qualifying ratio is usually higher, say 33 percent. Put these two factors together – lower initial qualifying interest rates and more liberal qualifying ratios – and you can borrow quite a bit more than you would with a fixed rate loan.
So how do ARMS work? The ARM interest rate is determined by an “index” that fluctuates with economic conditions and a “margin.” A typical rate cap on an annual basis is 2 percent, or 2 percent above or below the previous year’s rate.
An interesting ARM option is called the LIBOR (London Interbank Offering Rate) ARM. The London Interbank Offering Rate is the rate that international banks based in Europe charge each other for overnight funds. Now here’s the kicker – LIBOR ARMs often have a much lower interest rate than others. The interest rate on an ARM has a lifetime cap of 13 percent, and monthly payments can’t rise more than 7.5 percent annually.
A LIBOR ARM may be for you if you
l. are looking to minimize your monthly payment.
2. are seeking to lower your interest rate and monthly cash flow.
3. want to take advantage of the equity in your house. This is a good refinance program for those who want to consolidate consumer debt such as credit cards.
Any ARM is a good idea if
l. ARM interest levels are significantly below fixed-rate interest charges
2. You won’t be staying in the house for more than five years (especially if you have a locked-in rate for the first three, five or seven years)
3. You anticipate a higher income in the future (such as a young professional just starting out)
ARMs are not a good idea if
1. initial rates are comparable to fixed-rate loan rates
2. high closing costs offset the low interest rate
**I am not a lawyer, finical advisor, nor an accountant. All blog articles are for entertainment purposes and to bring awareness of options that are available to consumers.
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