Should I pay down my mortgage?

Here's an interesting article from the New York Times about when to pay down your mortgage and when to keep that money liquid, or do something else with it.

Published March 19, 2010

By RON LIEBER

This week, the Federal Reserve reaffirmed its intention to stop buying mortgage-backed securities, signaling the likelihood that the mortgage rates you can get today are as good as they’re going to be for a long while. Once the Fed stops buying, after all, rates are likely to go up.

And current rates are quite good. At about 5 percent, in fact, they’re so good that they’ve helped change the age-old debate over whether homeowners should make extra mortgage payments to pay off their debt well before their loan periods are up.

Back when rates ran at 7 or 8 percent, making extra payments offered what amounted to a guaranteed return on your money. When you’re ridding yourself of debt that costs you much less, however, it’s easier to imagine a future when you could more easily earn a higher return by investing those potential extra mortgage payments someplace else.

Meanwhile, at a time when just about everyone knows someone who is unemployed or who owes more on a home loan than the house is worth, keeping extra cash someplace more liquid than a mortgage seems like a safer approach.

So is the case against extra payments closed for good, given that so many people have locked in rock-bottom mortgage rates for the long haul?

The answer depends on two things: how likely you are to leave the extra money in savings and how good it would feel to wipe your debt out years earlier than your mortgage requires.

THE BASICS First, let’s dispense with the standard boilerplate. Don’t even think about making extra mortgage payments unless you’ve paid off higher-interest debt. Credit card debt is the easiest win here.

Also, if you’re not saving enough to get the full match from your employer in a 401(k) or similar account, increase your savings there first. And don’t make extra mortgage payments if you don’t already have a decent emergency fund set aside.

YOUR REAL INTEREST RATE Now, take a look at the interest rate on your mortgage. That 5 percent? It’s not your real rate if you get some of the interest back each year in the form of a tax deduction.

Let’s say you have a household income of $175,000 and are paying 35 percent of that in total to the state and federal tax collectors. If you pay $20,000 in mortgage interest each year on a loan that charges 5 percent, the deduction effectively brings your taxable income down to $155,000.

As a result, you’re paying $7,500 (35 percent of $20,000) less in taxes than you would have without the deduction. So ultimately, you’re not really paying $20,000 in interest at all; your net cost is $12,500 after you subtract the $7,500 tax savings.

And that makes your effective, after-tax interest rate on your loan just 3.25 percent, which is simply 35 percent (your tax rate) less than the original 5 percent.

BETTER RETURNS? So any money you set aside in lieu of making extra mortgage payments would need to earn more than 3.25 percent annually. That seems like a reasonable possibility in the future.

In fact, you could have done that well during the supposedly lost decade we just finished. Vanguard Wellington, for instance, a popular low-cost mutual fund that holds about 65 percent stocks and 35 percent bonds and other short-term securities, earned an average annual return of 6.15 percent in the 10 years ended Dec. 31, 2009.

The Vanguard Balanced Index Fund would not have outperformed our 3.25 percent benchmark, however, as it only returned 2.64 percent over the same 10-year period.

STORING THE SAVINGS Wouldn’t taxes eat into the returns from the money you’d save instead of making extra mortgage payments? Not if you place it into an account shielded from taxes. A Roth individual retirement account would fit the bill here, as would a 529 college savings account or health savings account.

Bruce Primeau, whose note to his financial planning clients at Wide Financial Group in Minneapolis on this topic inspired me to re-examine it, adds that this isn’t simply about keeping more assets under his watch so he can earn a better living. “I’m not telling them that the money has to come to me,” he said. “A 401(k) match beats the return on paying a mortgage off automatically. There’s real estate and buying employer stock through a purchase plan at a 15 percent discount and all kinds of things.”

Then you need to preserve those savings. When extra money goes toward a mortgage, it’s hard to get at it when the urge strikes to flee to an Asian beach for a few weeks of playtime. If the money is not locked up in retirement or college savings, however, you may be tempted to spend it.

THE LIQUIDITY PROBLEM Capital-gains taxes might eventually come due with some of these investments, and the rate could well rise above the current 15 percent long-term rate before too long. Still, having some of your savings in a taxable account makes sense for several reasons.

If you hit a stretch of long-term unemployment after having plowed most of your extra cash into paying down your mortgage, your bank probably won’t pat you on the back for being a good saver and give the money back to you. Nor is it likely to let you borrow it through a home equity loan if you have no income with which to repay it.

Elaine Scoggins, who had the mortgage department chief reporting to her at a bank before she became a financial planner, suggests imagining a situation where you need to move quickly but can’t sell your home or extract equity to use as a down payment in your new town. Given that possibility, why create more home equity through extra mortgage payments than you have to?

“The whole housing debacle has reminded us all, including me, that real estate is not liquid,” said Ms. Scoggins, who is the client experience director for Merriman, a planning firm in Seattle. “And it takes cash to support it.”

Those who have used their cash in an attempt to be conscientious have learned some tough lessons, meanwhile. Imagine people who scraped together a 5 percent down payment and bought a home in Florida or Arizona in 2005 and then made extra mortgage payments the first two years to try to increase their equity. Now, post-collapse, they owe, say, 30 percent more than their homes are worth and need to seriously consider walking away from the loan — and all of those extra payments.

REASON AND EMOTION So the reasoned case for making no extra payments is very strong. But there’s one counterpoint that almost always carries the day, even when there’s only a mild risk with the financial strategy of putting extra money elsewhere.

And it’s this: I need to be able to sleep at night.

Even Mr. Primeau concedes here. “Emotionally, you’re right, and financially I’m right, and emotionally, you win,” he said. “If emotionally, people want to pay down their debt, then that’s what I help them to do.”

If you’ve just started paying down your mortgage, any extra payments should go toward principal (make sure your mortgage company is applying it properly). That will have the effect of shortening the term of your loan from, say, 30 to 25 years, depending on how many extra payments you make. The extra payments won’t lower your monthly payment, but they will reduce your balance.

Many people who are years into their mortgages — and perhaps paying less in interest and getting less of a tax break as a result — tend to develop stronger feelings about making extra payments. Those feelings are often even more acute as retirement approaches and homeowners become determined to quit work with no debt to their names.

Those who do retire their debt rarely regret it or wring their hands over the big gains they might have scored by investing the money elsewhere. Tim Maurer, a financial planner and co-author of “The Financial Crossroads,” describes the feeling that washes over people who have paid their last mortgage bill as “beholden to no one.”

So he doesn’t feel as if it’s his business to separate people from their emotions if they feel strongly about working toward a debt-free existence. “The whole point of planning is to make life better,” he said. “It’s not to have more dollars at the end of the day.”

New Mommy Suggestions

After three months of mommyhood I'm ready to make some suggestions:

1. Shop Consignment Stores for Maternity Clothes. Finders Keepers in Avondale Estates had a pretty good selection. This is especially helpful during the third trimester when pants that fit one week, won't fit the next.

2. For Labor and Delivery, consider hiring a doula. We worked with Jen Purdy, director of Lumina Birth. Jen helped us work through a birth plan before I went into labor, which was really helpful. But, more importantly, she was with us when things took a turn and we had to throw that birth plan out the window. It was great to have another voice in the room to help us ask questions, both of ourselves and our doctor, since we were making important decisions quickly. She also took pictures so that Andy could be helpful to me and in the pictures.

3. Consider Cloth Diapering. If you haven't checked out cloth diapers lately, you'll be surprised how far they've come! We are using Bum Genius All-In-One's from Cotton Babies. Ginny much prefers them to disposables, and has had very little diaper rash or discomfort EXCEPT when we've used 'sposies for travel and convenience. Plus, if you live in Decatur or oterh municipalities who have a "pay-as-you-throw" garbage removal system, you'll save a ton in garbage bags. Not to mention, the benefit of not filling up landfills.

Updates on Changes to FHA

Thanks to Steve Friedman with Fidelity Mortgage for this bit of news:

As you may have heard, FHA announced today that it will seek to implement changes to current policies. These changes are all restrictive and I have attached the announcement from HUD to this email.

Snapshot:

· The upfront mortgage insurance premium will increase by 0.5% from 1.75% to 2.25%.

· The maximum seller concessions will decrease from 6% of the sales price to 3% of the sales price (in line with conventional financing).

· There are some credit score/LTV limitations that should not affect “A” paper lenders as well.

It is important to note that FHA will issue a notice and have a comment period on most of the items prior to implementation. There is no hard date for conversion but, per HUD, the changes will go into effect in the spring or early summer.

How do I pack for a move?

This is one of the best "How to Move" articles I've seen. I recommend the FLY lady for help with getting your house ready to sell as well. Enjoy!

What's a Short Sale?

A short sale is called such because the bank that holds the mortgage on the home agrees to get "shorted" when the property sells for less than the owner owes. For example, if Jack Jones owes $145,000 for his home, but despite his agent's best efforts the best offer they have gotten for the home is $125,000, if Mr. Jones meets certain criteria the bank may approve a short sale for that amount.

A short sale is not short in terms of time, it usually takes 60 - 90 days to close a short sale because of all of the paperwork and logistics of dealing with the bank. But, it's a win-win-win for everyone. The buyer gets a good deal on a home, the seller gets out of a mortgage he/she can't afford, and the bank avoids taking possession of another foreclosure. So, if you are shopping for a home and you find a short sale that you like, hang in there! If you are seller facing foreclosure, stop avoiding those calls from the bank and call me so we can sell your house!

For additional information for property owners who are facing foreclosure, click here.

How Can I Get a Free Credit Report?

Thanks to James Williamson and Robbie Crozier from Fairfield Mortgage for this information:

In 2004, the Fair and Accurate Credit Transaction Act was passed enabling consumers to obtain a free credit report from each of the three national credit bureaus once a year. While there are many Web sites that claim to provide a "free" credit report, there is only one place that offers a truly free credit report with no strings attached: www.annualcreditreport.com. Be aware that this free credit report does not come with credit scores. If you wish to learn more about credit reporting and scoring, here is an excellent Web site for you to check out: www.credco.com/crediteducation. Also, if you have questions about your report or wish to dispute an item, here is the contact information for each of the three credit bureaus:

Equifax Information Service Center

PO Box 740241, Atlanta, GA 30374-0241

(800) 685-1111 / www.equifax.com

Experian Information Solutions, Inc.

PO Box 2002, Allen, TX 75013

(888) 397-3742 / www.experian.com

Trans Union Corporation

PO Box 34012, Fullerton, CA 92834

(800) 916-8800 / www.transunion.com

How do I buy a foreclosure?

Slowly. Here are some hard-learned lessons from my last couple of foreclosure deals.

1. Remember, the seller is a bank. And, they have 100's if not 1000's of foreclosure listings. You might think that those numbers would inspire speed and efficiency, and that they would gratefully receive your offer with champagne toasts. You might expect that they are so happy to have an offer that they will accommodate your requests for a longer inspection period, to turn on the utilities, or to close later. Sadly, no. They may not acknowledge your offer for over a week. They will not accommodate you with anything except a ridiculously low price. Relax. It's not you, it's them. And keep your eyes on that ridiculously low price when you feel discouraged.

2. Be patient, but don't expect the bank to show you the same courtesy. After waiting a week to hear back from them, they will send you a curse counteroffer with a 24 - 48 hour deadline. When you reply with speed, you will wait another week to hear back from them. My advice is to roll with it, and to be prepared by knowing your bottom line before you even make your first offer. That way you will be ready to respond within their time limits, which are not negotiable.

3. Flexibility is next to godliness. Be ready to follow their instructions in terms of earnest money, inspection periods, closing dates, closing attorneys, and pretty much everything else. Then, be ready to adjust when they change their minds. Many listing agents who work with foreclosure listings have set rules that they ask you to follow when submitting an offer, but then when the asset manager from the bank gets your offer he or she might have other ideas. Just be ready to roll with it. Remember that ridiculously low price...

More to come...

What's the foreclosure plan?

The Dekalb Board of Realtors has some great information about Pres. Obama's foreclosure plan. Click here, then scroll to the bottom of the page and look for "2009 White House Homeowner Affordability and Stability Plan." Let me know if you have questions.

How do I contact my representatives?

With all of the proposed stimulus measures being talked about on the news, you might have strong feelings about a small stimulus package, a big stimulus package, or letting the market work itself out. In case you want to share your feelings with someone who can do something about it, here's what you need to know:

For Georgia's U.S. Senators:

Chambliss, Saxby - (R - GA)
416 RUSSELL SENATE OFFICE BUILDING
WASHINGTON DC 20510
(202) 224-3521

Isakson, Johnny - (R - GA)
120 RUSSELL SENATE OFFICE BUILDING
WASHINGTON DC 20510
(202) 224-3643

As for your U.S. House Representative open this webpage:
https://writerep.house.gov/writerep/welcome.shtml
and enter in your State (Georgia) and zip code. You can email your Representative directly from the site.

What would fix the economy?

U.S. Senator Johnny Isakson, R-Ga., spoke on the Senate floor last week and argued that Congress must take steps to jump-start housing demand in order to boost the slumping economy. On Jan.15, Isakson introduced the Fix Housing First Homebuyer Tax Credit Act to expand the homebuyer tax credit passed by Congress last year.

The text of Isakson's remarks is below:

"Madam President, to a certain extent I wish to follow up precisely on the remarks the Senator from Washington made at the end of her speech.
"I, too, have been disappointed with the deployment of the first half of the TARP money, and I supported that deployment in the hopes that it would stabilize the marketplace, ease credit for our customers, and help the housing market. While it probably did stabilize the banking system, there has yet to be a loosening of credit and there has yet to be a recovery of the housing market.

"Looking ahead, we continue to look at suggestions that throw money at the problem rather than getting to the root cause of the problem. In fact, with the best of intentions, I think people are struggling to meet the symptoms of a serious illness rather than treat the illness. I wish to direct my remarks tonight to that illness.

"The illness, as the Senator from Washington referred to, is the collapse of the U.S. housing market which began in the last quarter of 2007. In the first quarter of 2008, in January, I introduced a housing tax credit of up to $15,000 for the purchase of any house that was standing vacant or in foreclosure. I did it for a couple of reasons. No. 1, I was in the real estate business for 33 years, and I was in it in 1974, a year in which we had a housing collapse worse than the current situation. While many people think this one is bad, it is not as bad as 1974.

"In December of 1974, there was a three-year supply of unsold, standing new houses in the United States of America. That is a catastrophic inventory. We currently have a supply of about 11 to 13 months, depending on the State. That is not a good market, but it is not 36 months, which is a horrible market.

"President Gerald Ford, a Republican, and a Democratic Congress, came together and passed a $2,000 tax credit to any family who bought and occupied one of those standing homes. Within 1 year's time, which was the limited time of the tax credit, two-thirds of the housing inventory on the market was sold, values stopped declining and started improving, and we had a stabilization of our economy, the end of a recessionary period, and the beginning of prosperity.

"I come here tonight because about an hour and a half ago I dropped a bill known as Fix Housing First, an effort for me and others in this body to rekindle that debate of last January. Now, last year, we did pass a housing tax credit, but it was a now-you-see-it/now-you-don't approach. It was a first-time home buyer credit of $7,500 that was a refundable loan, interest free, because over 15 years you would pay the credit back to the Government in the form of income taxes. It was an incentive, but it was weak. It was not bold.

"The tax credit we introduced last year was scored by CBO at $11.4 billion, and Finance believed at that time--and maybe rightfully so--that was too big a price to pay and too expensive. Well, because we didn't do it, in October of this year, we approved $750 billion to address the symptoms of the problem, which is the failure of the housing market.

"I had the privilege yesterday of meeting with some of President-elect Obama's team, including Rahm Emanuel, Dr. Summers, and others, and told them precisely what I am saying on the floor of the Senate today; that is, I hope they will embrace this concept of incentivizing the housing market so we can stabilize values, stop the continuing erosion of equity, and begin to reflate--not inflate but reflate--the housing market.

"In America today, 20 percent of the houses are underwater, meaning there is more owed on them than they are worth. That means equity lines of credit with our banks are in default. It means students going to college are losing the money their parents had for tuition. It means there is not enough liquidity in households anymore or credit availability to make purchases of durable goods that are important to our system, and our system is continuing to feed in a downward spiral on the illiquidity, the lack of equity, and the lack of a marketplace for housing.

"I was in this business for a long time, and I called 10 people who worked for me a number of years ago last weekend in Atlanta. I asked them, I said: What is going on in the market? Tell me what the buyers are saying or are there any buyers? I talked to a lady by the name of Glennis Beacham.

"She said: Johnny, I had nine people come to my open house last weekend, and that is a good crowd for an open house in this marketplace. Every one of them had the money and they wanted to buy, but they were looking for two things: a short sale, which means somebody selling their house for less than is owed on it and getting a discount from the lender, which means it is a downward price or they are looking for somebody whose house is going into foreclosure that they think they can steal. They don't want to even make an offer on the 80 percent of people's houses in this country who are making their payments, aren't in default, aren't in foreclosure, but might need to sell. So the marketplace has died.

"Now, Fix Housing First proposes the following: Repeal the $7,500 tax credit we passed last year, which is not being used, by the way. That credit has not been used to any extent whatsoever. Replace it with a tax credit that will go from $10,000 to $22,000 depending on the formula. It would be a monetizeable tax credit. What that means is this: you make the tax credit good for this year--January 1 through December 31 of 2009--but you allow the monetization or the claiming of that credit against the 2008 income taxes of that family. The 2008 income taxes come due in April of this year, the 15th. We all know that. By allowing the credit to be taken against 2008 income taxes, you can monetize that money at the closing, use it as a part of the down payment, and immediately incentivize the marketplace. Is that a little costly? Sure. Is it something we would rather not do? Probably. But what are we going to do? Watch the marketplace go down to where four out of every five houses are underwater? Watch sales go down to where there is no viable housing market in this country? It has not stopped spiraling. It is continuing, and everything feeds off of it.

"I don't wish to belabor this point, but I wish to talk for the American people, the people of Georgia. The community bankers are hamstrung right now. Most of their investments are in real estate, residential construction, and acquisition and development loans. With no marketplace to buy the lots or buy the houses, they have no cash flow coming in to service the loans. They are deteriorating in terms of their value. Americans who have been transferred who are making their payments, who have a viable house, who have to sell it to move to the next city of choice, there is no marketplace to buy that house, so that is stagnating.

"Consumer products, take carpets, for example. The State of Georgia, the County of Whitfield, the City of Dalton produces about 85 percent of the domestic carpet in the United States of America. It is shut down. The mills are shut down. Why? People aren't recarpeting. They aren't redoing their houses. New houses aren't selling. The market is gone. I could go on and on with durable products made in the United States of America whose industries are now in trouble because the housing market has taken a severe hit over a protracted period of time.

"So my plea to the President-elect, to my friends on both sides of the aisle, to the Members of the United States House of Representatives, as we are deploying countless billions of dollars to react to problems that are manifesting because of a failed housing market and mistakes that were made in the past, let's put some money out there to incentivize Mr. and Ms. America who want the American dream to buy a home, to buy one for their family, occupy it as their residence, and give them a tax credit for doing it. It is a small price for the Government to pay to begin to restore the industry that got us to where we are and will lead us out of these dangerous and dark times.

"So I come tonight on behalf of the homeowners of the Presiding Officer's State of Florida and mine, the community bankers, the realtors, the homebuilders, the fix-it people, the durable goods producers, the building supply makers, the landscapers--every job that has been lost and gone, in some cases forever, because the housing market in this country has collapsed.

"We have learned our lesson for loose underwriting. We have learned our lesson from loaning money to people who weren't qualified to borrow. We have paid a terrible price for that lesson, both the country and the people. It is time for us to do what we know we should have done: have quality underwriting, available credit, but have accountability in our lending system, make sure values are appraised right, underwriting is done right, and credit is available but people are qualified. If we can do that and incentivize people to come back because of the tax credit, we can solve this problem.

"I don't want to oversimplify the gravity of the problem we face, but the housing market led us in; the housing market will lead us out. It is time for us to fix housing first. Our failure to do so will cost us a lot more than $700 billion of our taxpayers' money, and countless Americans who shouldn't will lose their homes, lose their jobs, and lose their faith in the greatest country on the face of this Earth.

"I ask my colleagues to study this recommendation. I hope the President-elect will embrace it. I hope, quickly, we can fix housing first in the United States of America."

What's wrong with my credit?

This is from Realtor.com. Good information on keeping up with your credit, and improving it. If your credit is on the fence between acceptable and unacceptable, please let me put you in touch with a reputable mortgage professional who can possibly help you clean it up and get the bump you need to get a better rate.

By Patrick Ritchie | February 2009

Consumers see the ads in the newspaper and read the signs nailed to telephone poles: "Credit problems? We erase bad debt." It sounds so easy. Just call the phone number and pay a fee, and your credit woes will disappear.

The reality is that bad credit does not vanish by paying someone to remove it. Are there legitimate credit repair organizations out there? Sure, and they can help remove inaccurate information from credit reports. But even they can't get rid of correct information, however damaging it may be.

When it comes to outright mistakes on their credit report, though, it's imperative that consumers have them fixed—whether they hire an agency or do it themselves.

The first step in fixing credit report errors is to identify what's wrong. Consumers have to obtain a copy of their credit report (everyone is entitled to one free report per year from each of the three credit bureaus: Experian, Equifax, and TransUnion) and review it for accuracy. Look for:

• Late payments. There should be no late payments over seven years old on the report. This is important, as approximately 35 percent of a credit score is based on timely payments.

• Collections. The report shouldn't show any collections or charge-offs more than seven years old. It's a good idea for consumers to save copies of their credit report for seven years so they have proof of when an item was added.

• Payment records. All paid-in-full installment loans and all collections that have been paid in full or settled for less than the amount due should show a zero balance. Sometimes collections are not updated after they've been paid or settled.

• Mysterious accounts. Consumers should be able to recognize all accounts listed on the report. Incorrect accounts do sometimes appear, either by mistaken identity or by identity theft. Consumers should contact the creditor immediately to compare their name and Social Security number with the one shown for the incorrect amount. In the case of an incorrect collection, consumers may have to request a "validation of debt," or what is sometimes called a "media packet," which provides details on the account holder. If the account is a case of identity theft, the consumer should request a fraud affidavit from the creditor. It's also a smart idea to file a police report.

• Original dates. Length of credit history is 15 percent of a credit score, so consumers should be sure the original dates they opened their accounts are accurate. Original account dates could be reported inaccurately if a credit card company is acquired or merged, or if a credit card is reported lost or stolen.

• Available credit. Credit limits on the credit report should match up with credit card statements. It's best to keep balances under 50 percent of the available limit; less than 30 percent is even better. Debt accounts for 30 percent of your score.

• Types of accounts. Sometimes accounts are not categorized correctly. A home equity line of credit should be listed as a second mortgage, not just a line of credit. If the account type is not reflected properly, consumers should contact the creditor.

• Reason codes. Consumers should read what the credit bureau has to say about why their score is what it is. These so-called "reason codes" appear in the credit report to explain what factors played into the credit score and what actions can be taken to improve the score over time. One caveat: If a consumer already has a good credit score, ignore the reason codes, as making changes could actually result in a lower score.

One last word of advice for consumers: Think twice before closing that credit card, which shrinks the available credit listed on your report and hurts the credit utilization ratio.

The key to good credit is being proactive in reviewing credit reports regularly. If consumers find their credit score is a respectable 680 or higher, removing minor dings may not be worth the effort. Otherwise, finding and eliminating errors is one way to get the high credit rating they deserve.

What Should I Read? Home Cheap Home

I am crazy about this little book. Put together by the editors of the now defunct Budget Living Magazine, Home Cheap Home is a guide to inexpensive improvements to your home. How inexpensive? Well that depends on the project. Whether you need a new lampshade or a new kitchen, this book is full of ideas for how to do it with style for less.

They take a room-by-room approach - living rooms, kitchen and dining, bedrooms, bathrooms, home office, and outdoor living. For each room they do 30 - 40 pages of vignettes of clever spaces with details about the style, storage, design, and color that makes the space work. Some of these ideas are truly retro, maybe even bohemian, in style. Others have the feel of Pottery Barn or Restoration Hardware, so there's something for everyone.

One of my favorite ideas is on page 85 in the Kitchen and Dining section where they suggest making a shiny stainless colander into a pendant light fixture. Do I need a pendant light fixture in my kitchen? Not at all. But I want one like that anyway!

And since the cheapest improvement involves using stuff you already have, Home Cheap Home spends a few pages on improving the flow of your home by re-arranging your existing furniture and re-purposing unused items. Cheap and green, what could be better?

I believe this little gem is out of print, but fear not! If you visit Amazon.com and enter Home Cheap Home in the search box, you'll see that there are many used copies available, some for as little as $4... a steal for so many good ideas.

Great Listing In Inman Park

What should I Read? Mrs. Dunwoody's Excellent Instuctions for Homekeeping

This handy little reference book was a wedding gift (Thanks, Ms. Dembrowski!). Written by Miriam Lukken of LaGrange Georgia, it is full of timeless wisdom for keeping a clean, comfortable, and hospitable home. Do I practice all the advice in the book? Please. I don't even have time to take my own advice. But, I recommend it for anyone living on their own for the first time, or anyone who's parents were domestically challenged and therefore didn't pass on any wisdom of their own.

The book is full of both poetry and the nitty-gritty details of managing a household. One one page you'll see a recipe for homemade rat poison, on the next a poem by Shakespeare on the importance of sleep. But isn't that the reality of homekeeping? I only have to think of my own family Christmas celebration to know that this is true. Just moments before I embraced my octogenarian grandparents with Christmas joy, I was on the floor of my kitchen trying to keep the turkey grease from staining the grout. Yes. I washed my hands.

My favorite parts of the book have to do with hospitality: Change the sheets on your guest bed the day that your guests arrive, as our sense of smell is heightened in new environments. When your guests depart, wave until they are out of sight.

But I also love the little gems of practical wisdom scattered throughout the book: keep a safety pin near the kitchen sink so that when you take of your jewelry to do dishes you can pin them to your clothes. How brilliant is that?

A word of warning to my feminist friends, you might find this a little antiquated in terms of gender roles. But keep in mind that Mrs. Dunwoody, our narrator, is writing from the summer of 1866, so think of it more as a case study in southern hospitality, if that helps you enjoy it. Don't let that stop you from sharing it with a young man moving into his first apartment or dorm room. If he only reads the chapter entitled, "Miss Sallie Anne's Splendid Directions for Laundry," it will have been worth it.

This hard-cover book is available on Amazon for about $15.

Can I still decorate if my house is on the market?

Yes. Just be strategic. Here's a great article from Re/Max times about that very topic. If you're not sure whether or not you've gone too far, I'd be happy to come take a look. It is better for me to tell you that your Christmas Tree is blocking the flow from the entry way, than for another agent to tell me that her buyer thought your house was too small!

Selling During the Holidays: Go Easy on Decorations

Are your clients hoping there will be a Sold sign in their yard this holiday season? RE/MAX Northern Illinois Regional Director Jim Merrion and several Associates from his region offer thoughts on how to advise sellers against going overboard with holiday decorations.

"Layering on lots of holiday decorations inside and outside the house is one way to attract attention, but not necessarily the best way," Merrion says. "When it comes to holiday decor, restraint is the best approach. It's not that sellers shouldn't decorate for the holidays, but you don't want the seasonal touches to obscure the intrinsic appeal of the home."

The flip side of too much holiday decor, according to Merrion, is the impulse among some sellers to take their home off the market during the holidays because buyers are less active.

"It's true that fewer buyers are active during the months of November, December and January than at other times of the year, but those buyers who are in the market are usually quite serious about finding a home quickly," Merrion says. "Otherwise they, too, would be doing other things at this time year. Just a handful of showings during the holiday season can be more productive than a dozen showings in spring. Remember, it may take only one showing to generate a sales contract."

So what advice can Associates give sellers to improve the chances of offers landing in their holiday stockings?

1. Select and place the Christmas tree carefully so that it doesn't overwhelm the room.

"A tree that's too big for the room it's in really creates problems by making the whole house look small in comparison," says Paul Wells, Broker/Owner of RE/MAX of Barrington in Barrington, Ill. "If it's my listing, we spend time talking about the tree. I urge my sellers to make sure their tree fits comfortably in the room. A tree can look relatively small out at the Christmas tree lot, but then look huge when it's in a house."

2. Outside the house, use restrained yet festive exterior decorations to welcome visitors. An elegant wreath hung on the front door may be preferable to an inflatable snowman.

3. If you have traditional holiday decorations you want to display inside your home, think about putting away some of your non-holiday things so that rooms don't look cluttered. In the room where the tree is placed, consider removing some furniture rather than just rearranging it.

"It's really a matter of moving ahead and using your home as you normally would," said Louise Clark, Broker/Owner of RE/MAX Property Associates in Morrison, Ill. "Buyers understand that families live in the homes they visit - they make allowances for that - so sellers can have presents under the tree and lights in the yard. Still, the house needs to look neat, and you don't want the decorations to be a barrier that makes it difficult for buyers to get a good look at things, such as room dimensions, traffic patterns, window views and other important factors."

4. Use holiday decor to draw attention to the strongest features of the home. If there's a beautiful mantelpiece, use one or two eye-catching decorations to highlight it, but don't hide it under a layer of garland. Instead, use the garland to frame windows that offer an attractive view of the yard or the skyline.

5. Winter tends to be a dark time of year, so keep plenty of lights on inside the house when buyers are coming. Also, leave the drapes or blinds open, especially during daylight hours, so that the home seems as bright as possible.

6. Sharing a little holiday hospitality with buyers can be a good strategy, especially during an open house in December.

Michele Rossi of RE/MAX Accord in Bloomingdale, Ill., reports that at holiday open houses, "we roast almonds with a sugar cinnamon coating. The smell is intoxicating, not to mention that it tastes wonderful, too. We wrap the almonds in cheesecloth tied with a festive ribbon to give to buyers who stop in. We also offer a cup of hot wassail made with a great old recipe."

A final thought for sellers at this time of year, Merrion says, is to avoid making buyers feel like they're intruding.

"Even though the sellers are celebrating the holiday season, they need to convey the impression that they're serious about selling their home," he says. "They need to keep the front walk clear of ice and snow, and make sure the kitchen and baths look their best for showings. They probably won't see that many buyers this time of year, but those they do see are great prospects, so they must do their best to impress them."

What's Up With Mortgage Rates?

This came from David Osborne with Ashford Funding. I have worked with David before and can recommend him highly. Clearly he is staying ahead of the curve with the latest in the mortgage industry.

Fed Moves to Encourage Banks to Lend at 4.5% Interest Rates

Several news sources and the front page of the Wall Street journal today discussed the Treasury’s plan to spur the housing market byOffering low interest mortgages, possibly as low as 4.5% interest. Before we all go out and spread BAD information, here is what is known now:

• The proposal is still being discussed, and nothing has been finalized.
• The Wall St journal suggested, that even if this does happen, it probably won’t be until after Bush leaves office…Jan, Feb or later.
• The Wall St journal article said that the 4.5% rate would be for PURCHASES ONLY, not REFINANCES; the intent of the program is to spur NEW home sales.
• These loans would not be indexed with the 10 yr bond, but would be a special TBill offered to banks at a low rate, e.g. 3% in order to allow them to fund at 4.5%.
• I recommend to start shopping now, prequal them withtoday’s interest rates, and work with a lender that could float them down before closing if this does occur.

So, I know that my buyers are thinking, "I'm going to wait for this to happen to buy so that I can get a phenomenally low rate." But, keep in mind that if/when this happens, lots of like-minded buyers are going to come out of the woodwork. At that time the balance of power could shift to the bold home owners who are braving the market. It's never been more important to talk to a mortgage professional who has your file ready to go when you find the right home.

Let me know if you have any questions about this. If I can't answer your question, I'll put you in touch with one of my preferred lenders who are extemely knowledgeable of the market and offer excellent service.

Should I try to buy a foreclosure property?

This is the best Q and A I've seen on the highs and lows of buying bank-owned properties. This article appeared in The Georgia Real Estate Report, November 2008.

BUYING BANK-OWNED PROPERTIES PAINFULLY SLOW BUT POSSIBLY REWARDING

By John Adams

Last week we talked about the flood of bank-owned homes that have clogged up the residential resale market both nationally and locally. These "post-foreclosure" houses are the harvest of the exotic financing instruments and the loose lending guidelines of recent years.In many cases, the buyers intended to make the payments, but were overwhelmed by dramatic jumps in interest rates as their adjustable loans reset. Unable to pay the required sums monthly, these owners may have tried to sell. But with little or no equity in the homes, their efforts were to be in vain.

After a meaningless foreclosure auction where no investors even attended, these homes were deeded back to the lenders, who list them with local real estate professionals for sale. Banks call these houses REO properties, which stands for "real estate owned."

Yes, the savvy real estate buyer can pick up a bargain, but it's important to be cautious when shopping for these "bank-owned" homes.Here are some questions I am often asked:

Q: What's the difference between making an offer on a "bank-owned" house as opposed to a typical resale home? A: The primary difference involves recognizing the challenges of dealing with an institutional seller.For starters, a traditional seller would first get their house in clean, ready to sell condition. Only then would they open the doors to the public. Further more, most sellers expect a buyer to request a comprehensive inspection, and are not surprised when a buyer requests compensation for needed repairs.In contrast, banks expect to sell their REO properties "as-is," and they almost never agree to make repairs or put the property in any condition other than the way it is. The bank will likely grant your request for an inspection, but will almost certainly decline any request for improvements.

Q: Are all these REO houses in extremely poor condition? A: Some are in almost perfect condition, while others are completely unfit for human habitation.In addition to being poor sellers of real estate, banks have a bad habit of being poor property managers during their period of ownership.Because the house is vacant, it attracts vagrants and homeless people who move in and semi-occupy the house. In cold weather, these occupants may build fires in the fireplace to keep warm, and they sometimes break up kitchen cabinets to use as firewood.In addition, as time goes by, these homes often sink into much worse condition. Thieves steal copper pipes and copper wiring to sell for recycling, and air conditioning compressors disappear overnight. Even so, the banks hope to sell these homes "as-is."

Q: How do I go about making an offer on one of these houses? A: Here is the next hurdle. When looking at a typical resale house, you can expect the seller to respond to your written offer in hours. They may counter, but today's seller takes every offer seriously, hoping for an eventual meeting of the minds.Banks do things differently.When you submit a written offer to a bank, they frequently demand proof from your bank that you have sufficient funds on hand to close the transaction. This must be submitted before the bank will even look at your offer.Another frequent requirement is acceptance of multi-page addendums freeing the bank from any liability for the condition of the property involved.Even after all that, my experience is that most banks have trouble finding anyone with the actual authority to make a decision on selling the house. While some lenders are better than others, it is not unusual for offers to sit on the table for a week or more before someone at the bank gets around to responding.

Q: Any other pitfalls to watch out for when buying from lenders? A: First, know that this seller is unwilling to give you a General Warranty Deed for the property when you buy. They will insist on delivering title by Limited Warranty Deed, thus preventing you from involving the bank in future title problems. To remedy this shortcoming, it is especially important that you purchase the optional Owners Title Insurance policy from the closing attorney. Also, when selling REO houses, most lenders insist that you pay for settlement costs, and further require that the closing take place in the office of the seller's attorney. If you want legal representation (and you do), you will have to pay for your own attorney to review all your documents and advise you directly. In my opinion, that is money well spent.

Q: It would seem that the banks would be anxious to sell these properties, and would want to streamline the process, making it easy for buyers. Why all the roadblocks? A: Banks and lending institutions are heavily regulated, and have internal rules and regulations that must be followed. In addition, its part of a corporate culture permeating the world of banking. Banks just aren't set up to sell real estate. They protect our savings and process our checks and loan us the money we need most of the time, but marketing real estate is just not one of their strengths.

Q: What about buying government-owned houses from HUD? Is that any easier? A: Unfortunately, it's worse. The government has its own procedure for selling, involving a prioritized bid period during which only owner-occupants may bid. And even if you intend to live in the house, you must accept it in as-is condition.The bottom line in buying any foreclosed property is to make sure you protect yourself at every step, and have your attorney review all documents with you carefully before you sign anything.

What's the scoop?

There's a lot of weird information flying around! In the same day last week I read in Business Week that Atlanta is the 10th fastest selling market in the country, AND then in the AJC I saw that the average home in Atlanta is taking 8 months to sell. How do you weed out the truth and what it means for you?

First, be careful about any news that isn't directly related to sales of properties comparable to your home. National statistics, and even local statistics, can be completely innapropriate for your home's unique situation.

Second, call me. I promise to be honest about what your home will sell for, and what it will take to get your home sold. I don't want either of us wasting our time trying to sell it if we can't get what you want for it. On the other hand, there's is absolutely no way to tell what your home will sell for until I look at comparable home SALES.

Third, read this article from the cheif ecomomist for the National Association of Realtors. Is he biased? Probably. Realtor's are naturally optimistic people! But, there's a lot of truth here, even if he's looking for the silver lining. He's debunking 10 real estate myths, and each myth is followed by a tip from frontdoor.com.

Lawrence Yun, chief economist of the National Association of Realtors, debunks 10 commonly held beliefs about the current housing market, and FrontDoor.com offers 10 related tips.

1. Peak-to-trough home price declines to date have been about 20%. Wrong. Measurements of home price declines can be skewed depending on which homes in which markets are being measured. For instance, the Case-Shiller Index, which indicates that home prices are down 20%, is heavily skewed towards homes with subprime loans and other distressed home sales. These troubled homes have experienced a steeper decline than home prices in general, says Yun, adding that both government data based on loans backed by Fannie Mae and Freddie Mac and data from the National Association of Realtors suggest much more modest price declines. TIP: If you’re selling your home, the best thing to do is price your home right.

2. The much smaller number of new homes now under construction indicates the dismal outlook for the housing market. Wrong. The inventory of homes on the market is very high, so the last thing we need now is more new homes being built. Home builders have cut back sharply on production, which will help lower inventories and stabilize prices. The builders have done exactly what market forces are dictating under current conditions, Yun says. TIP: With many new homes completed but not sold, you can find great opportunities.

3. Even when the housing market recovers, home price growth will be only 4 to 6% per year — much less than historical average returns for the stock market. Most buyers put less than 20% of their own money into a home purchase; this borrowing power can translate to a greater rate of return. This is how Yun explains it: Home price appreciation historically has been about 1 to 2 percentage points higher than consumer price inflation, which translates into about 4 to 6% per year. But this growth rate cannot be viewed as a rate of return like the stock market. The reason is that most people do not buy a home for all cash, instead making a cash down payment and borrowing the rest. The leverage this borrowing creates can magnify returns — and losses. If price growth returns to historic norm, the price growth of 4% can easily turn into 20 to 30% rate of return if the home buyer makes a down payment of 10 or 20%. TIP: Get the fundamentals right when investing in real estate.

4. Impending baby boomer retirements and moves to small homes will cause a glut of homes on the market. Wrong. The first edge of the baby boomers has reached 60 years of age and the massive bulk of that generation will soon go into retirement, but far from trading down, many of these older homeowners are keeping their homes or moving to ones of comparable size. And even if more boomers do sell their larger homes in the years ahead, Yun points out, the rapidly growing U.S. population should absorb the inventory of existing homes on the market. TIP: Active seniors can find a retirement community that caters to their needs and interests.

5. The federal government takeover of secondary mortgage companies Fannie Mae and Freddie Mac is a bailout that will cost taxpayers bundles. Too soon to tell, says Yun. It’s conceivable that taxpayers may have to cover some losses. It’s also possible that the government takeover will result in no loss of taxpayer dollars. Even if taxpayer funds are used, the bailout would be preferable to the global economic problems that would have occurred if Fannie and Freddie had gone belly up. TIP: Uncle Sam is “bailing out” homeowners facing foreclosure. Find out more about the Hope for Homeowners plan.

6. The Federal Reserve controls mortgage rates. Wrong. Yun explains: The Fed’s activities influence mortgage rates but don’t directly control them. What the Fed sets is a very short-term interest rate called the Federal Funds Rate. Mortgage rates are determined by global savings as well as credit spreads and inflationary pressures. Over the past two years, the Fed has raised the Fed Funds Rate to 5.5%, and then cut it deeply to around 2%. All the while, the 30-year mortgage rate has averaged in the 6 to 6.5% range. TIP: Today’s rates don’t look bad compared to the 10% we saw in the early ’90s and 17% in the ’80s.

7. It’s the wrong time to buy. Wrong. All real estate is local. For those who are financially and mentally ready to buy, there has never been a better time to be a buyer in many markets. An abundant selection of homes and historically low interest rates give buyers an edge over sellers. The recently passed $7,500 federal tax credit for first-time home buyers creates an added incentive. For someone with a long-time horizon, Yun says, there is very little worry about home values since homes have historically provided a solid foundation for wealth accumulation. TIP: Compare the pros and cons of renting vs. buying to see what makes sense for you.

8. It’s the right time for everyone to buy. No. All real estate is local, and everyone is unique. Someone who is not emotionally or financially ready should not be forced or induced to join the rank of homeowners, even when a market presents good buying opportunities. Potential homeowners clearly need to understand that the decision to move up to ownership requires sacrifices, like saving up for down payment and elevating their credit scores. Homeowners who lose their home to foreclosure serve no one’s interest, Yun adds. TIP: Take a good hard look at your financial status and create a homeowner’s budget to see if you’re ready to buy a home.

9. It’s a terrible time to sell. Wrong. In markets where home sales are picking up strongly, a seller can easily get an offer if the property is priced correctly. Also, Yun says, for those looking to trade-up, selling low on an existing home is more than offset by buying the new move-up home at a lower price. When the market recovers, home price appreciation on the traded-up home will bring bigger bang for the buck. TIP: Homebuyers want bargains in this market. If you price your home much lower than your competition, you might end up with a bidding war.

10. With the advent of the Internet, more and more homes are being sold by owners (FSBOs), and real estate practitioners are becoming obsolete. Nope. According to Yun, the share of home sellers who choose to go it alone when selling their home has actually decreased from about 20% in the late 1980s to about 12% today. Even after these sellers successfully complete a transaction, only 4 in 10 say they would sell their next home without the assistance of a real estate professional. TIP: You don’t have to sign a listing contract to talk to a Realtor. Ask family and friends for referrals and interview a few. You might even get some free advice.

What's the problem?

Interesting article. Every lender I talk to says, "I can still make loans! Have your buyers call me!" So if you're thinking about real estate but don't think you can buy now, please let me put you in touch with one of my favorite lenders so you'll know for sure.


Survey Shows Consumers Still Believe Real Estate Is a Good Investment

RISMEDIA, Oct. 22, 2008-OptHomeTM, an online resource for empowering homeowners, buyers and sellers to make smart decisions for all their homeowner needs, released comparison findings from consumer confidence surveys, conducted during Q2 and Q3 2008, that indicate the majority of consumers still believe in the value of real estate as an investment.

Fielding several hundred responses by homeowners in mid-June 2008, one-third (74%) of all respondents said they felt real estate was still a good investment. Comparatively, even with the collapse of Wall Street and the economic crisis making headline news, when the same group of consumers was surveyed again this month, results remained unchanged.

With the nation teetering towards recession, one thing remains clear-consumers still hold a fundamental belief in the importance of home ownership and the American dream which cannot be dampened by the greed of Wall Street. What is at issue for the consumer are the logistics of how to make that happen in today’s economy.

The OptHome survey also revealed that 74% of all buyers and sellers believe the number one challenge facing a home buyer today is obtaining a mortgage, compared to 61% in June-indicating a correlation between the 13% slide in consumer confidence and the global financial crisis as it relates to home ownership. Conversely, 41% of consumers believe the biggest challenge facing a home seller today is setting a realistic price for their home, down from 53% in June — followed by a growing concern they will have to sell their home for less than they owe on their mortgage (25% vs. 21%).

“Consumers are starting to come to grips with the challenges they’re facing, but there are some very bright spots in the real estate industry” said Dave Sears, OptHome co-founder and chief strategist. “Thanks to the Housing Bill, there are incentives for first time buyers - including a sizeable tax credit. And mortgage rates are expected to remain low to help resuscitate the industry, making it a good time for financially sound consumers to take advantage of the market’s surplus and very affordable prices.”

For more information, visit www.opthome.com.

What's up with this tax credit?

Thanks to James Williamson of Fairfield Mortgage for this summary of the Tax Credit program for 1st time home buyers*. To get in touch with James, click on the Fairfield Mortgage link in the upper left hand corner of my blog.

Time Is Running Out on the $7500 Tax Credit Created as part of the Housing and Economic Recovery Act of 2008, the tax credit was enacted in July of this year to encourage home buying. It is only temporary. Retroactive to homes bought on or after April 9, 2008, the tax credit will expire in July, 2009. Here are the nuts and bolts you need to know about the credit:

How does it work?
The tax credit is actually a 15 year interest-free loan where the buyer will repay 1/15th of the loan each year via a tax credit against any Federal income taxes owed. Thus, with a $7500 limit, the maximum payment each year would be $500. The repayment begins two years after the credit is taken. Furthermore, if the homeowner sells the home during the 15 year period, he/she has to repay the balance of the loan from the profit of the home sale (if there is insufficient profit, then the remaining payback would be forgiven).

What's so great about a tax credit?
A tax credit is more valuable than a tax deduction, but most people don't know there's even a difference. A tax credit reduces the actual amount of tax due. A tax deduction only reduces the amount of taxable income. For example, if your client owed $3,000 in taxes for 2008, but qualified for the full $7,500 tax credit, it would cancel the entire amount he owes and still leave $4,500 which he would receive as a tax refund!

*Who qualifies for the tax credit? The credit is for first-time home buyers as well as anyone who hasn't owned a home in the past three years that can meet the income requirements. Single taxpayers can claim the full credit with incomes up to $75,000 and married couples up to $150,000. This credit is available for owner-occupied U.S. properties.

How much is the tax credit? The tax credit goes up to 10% of the purchase price of a new or existing home up to a limit of $7,500.