Refinancing Your Mortgage

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Make the most of your home investment Ask Our Broker

A Buyer is Seeking Payment For a Tax Increase on My Old Townhouse. Is That Valid?

Pinch Pennies and Prepare to Buy BY PIPER NICHOLE CTW Features

IT’S EXPENSIVE TO BUY A NEW home. Down payment, closing costs, mortgage, interest and taxes all add up to a hefty sum, which is why it’s important cut costs wherever you can. Following are shoppersavvy tips to help you save money when home buying.

Q: I sold my townhouse last year. At closing, they deducted $813 for taxes. The taxes then nearly doubled, my buyer sold the house to another person and this second buyer is contacting us regarding the payment of the tax difference. Should I pay for this?

GET CREDIT UNDER CONTROL

A: When you sold your property, the closing agent likely charged you $813 because you had lived in the property for part of the year but the property taxes had not yet been paid.This is a typical adjustment at settlement and not an issue. That taxes went up also is not an issue; that happens routinely, often because when a property is sold a new and higher value is established. As to the second buyers, I can see no reason why you would owe them anything. You did not sell to the second buyers; they should take up the matter with their sellers. If they think they have a claim against you, tell them to send it to you in writing and then show it to a legal clinic or attorney.

A new and higher value is established when a home is sold

Q: A dear friend just offered to spot me some money to buy a house and try to fix it up and flip, the thought being there are so many foreclosures in my state that we can find a distressed property, add a bit of value and sell it for a decent profit. Also, I’ve been dealing with a broker I met at a seminar. The thing that troubles me is that all the houses listed have these really quick closing clauses, or they want hard money instead of conventional financing. Is there a way for someone with some extra cash to take advantage of the foreclosure market in a reasonable, sober, conservative way?

A: Before going further, you need to look with care at those “many foreclosures.”Are foreclosures really a bargain when compared with like properties in the same neighborhood after you consider repair costs, mortgage interest, buying and selling costs and taxes? What is it that you will do to add value to a foreclosure? If the property cannot be sold, can it be rented? At what rate? If you must sell at a loss, will you bear the entire liabilSee ASK OUR BROKER, Page 2

Happy home: Even the slightest drop in your interest rate can lower your mortgage payments and save you money.

Finessing Your Financing Refinancing your mortgage can make a big dent in your monthly payments. Here’s what you need to know BY CHARLES SCUTT CTW Features

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few years back, before home mortgage interest rates gradually went up and the real estate market leveled off, refinancing was all the rage. Now, with market rates falling slightly, a large number of adjustable-rate mortgages scheduled to adjust this year and spring home-buying market in full swing, refinancing is on the rebound. But whether or not this is the right time for you to refinance will depend on a careful examination of your unique financial situation, say the experts. “There are three main reasons why most people consider refinancing: to take money out of

the equity built up in their homes, to lower their monthly payments or to be able to pay off their mortgages more quickly,” says John Turner, president of DebtHelp.com, Columbus, Ohio. “Refinancing can be beneficial for anyone whose mortgage interest rate would be reduced even a little bit. Even a slight drop in the interest rate can translate into lower monthly payments.” Whether the current climate is favorable for refinancing will depend on the interest rate, the terms of the loan and how long you plan to remain in your home, says Bob Walters, chief economist for Quicken Loans, Livonia, Mich. “Don’t base your decision

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purely on the rate,”Walters says. “A good rate in a bad mortgage is still a bad mortgage.You’ll want to pay close attention to terms to make sure you are in the right mortgage for your situation. “The biggest trend we are seeing is people with ARMs moving into a fixed-rate mortgage,” says Walters.“There are nearly $1.1 trillion in ARMs that will reset this year, and people are taking advantage of the fact that they can get a fixed-rate mortgage in the low- to mid-6-percent range.” Another ideal reason to refinance, says Walters, is if you initially had to take a higher-interest mortgage due to credit issues. “Look to see if you credit score has improved enough to qualify

See FINANCING Page 2

You biggest money saver when buying a home is improving your credit.The easiest path to good credit is to make all your payments on time and in full.As you get close to applying for a mortgage and purchasing a home, be sure to obtain a copy of your credit report; you can obtain a free copy from www.annualcreditreport.com. Correct any mistakes as soon as possible. If there are mistakes on your report when you go to apply for a mortgage, it may result in a poor interest rate or prevent you from obtaining the mortgage. “Lenders price their services according to risk,” says Maxine Sweet, vice president of consumer education for Experian, Costa Mesa, Calif., one of the major credit-reporting agencies along with Equifax and Trans Union.“The higher your risk, the more likely you won’t pay as agreed.” Good credit can translate to more attractive terms, says Sweet, such as a higher limit or lower down payment.

PREPARE BY PRE-APPROVAL Getting pre-approved for a loan means that a lender has verified your income, assets and credit report, says Teesie Howell, senior loan officer for National City Mortgage, Glen Allen,Va.All that’s left is an appraisal, which will tell you how much you’re able to borrow. Pre-qualification is only an estimate of what you can afford. “[Homebuyers] have to be comfortable in what they pay,

See PINCH PENNIES Page 2

IS THE PRICE RIGHT

PINCH PENNIES Homebuying how-to’s CONTINUED FROM PAGE 1 regardless of what they can qualify for,” says Howell.“We see the two extremes.We have people who come in that don’t understand why they can’t qualify for X sales price and X payment when we tell them they qualify for less.Then, we have the opposite; we tell them they qualify for X and they’re like, I don’t want that much of a payment.”

Make sure you get a comparable market analysis from the Realtor you are working with. You will see what area homes are selling for and if the home you are interested in is accurately priced.

LET THEM WOO YOU Keep in mind seller incentives to entice you to buy, such as: a home warranty for a year, flexible closing date/move-in arrangements, help with closing costs, remodel allowance, as well as amenities and conveyances, such as wish appliances will be left behind.

immediate mortgage payment, says Brock. For example, closing toward the end of June would make the first payment not due until August 1. Closing toward the end of the month limits the amount of days interest will be charged for that month; you would pay interest for the whole month if you close on the first. It’s a common saying that buying a home is one of the largest investments you will make in a life-time, but that doesn’t mean you can’t save money doing it!

DON’T MAKE MISTAKES

Every bit of information helps. If you are a first-time homebuyer, you can contact your local state housing authority or find listings of first-time homeowner and down-payment assistance programs for each state.

SET A GREAT CLOSING DATE Faye Brock, broker/owner of Century 21 Brock & Associates, Wilmington, N.C., typically closes her homes somewhere between the 20th and 25th of each month. Closing toward the end of the month means there’s no

Don’t blow your chance at obtaining a loan or a great rate by drastically changing your income or making a large purchase. Kathi Frank, a Realtor with RE/MAX-The Woodlands & Spring,The Woodlands,Texas, offers 10 tips to prevent a financial flub: • Don’t change jobs, become self-employed or quit your job.

FINANCING Little goes a long way

include fees for the appraisal, attorney, title company, insurance, taxes, credit check and various lender fees.The new monthly payment would be $1,498.88, yielding a monthly savings of $164.38.To recoup the $5,000 in refinance costs, this borrower would need to remain in their home for at least three years, Cahalan says. However,“if your reasons to refinance are for debt consolidation or to draw cash out for investments or home improvements, then the two rules of thumb don’t really apply,” says Cahalan.“It can sometimes be a better choice to simply obtain a home-equity loan rather than refinance your current first mortgage,” depending on its rate and the amount of additional funds you would need. A borrower should start the refinance process by carefully comparison shopping, says DebtHelp’s Turner. Find out the current market rates in the newspaper, on the Internet or from a mortgage lender or broker. Get referrals from friends or family

members who are happy with their current lenders. Before calling lenders, check your credit report thoroughly for errors. “The next step is to begin contacting lenders and finding out who can put you in a mortgage that will best meet both your current and future needs and goals,” says Quicken’s Walters.“Be sure to pay close attention to the terms of the loan.A loan that is an eighth of a percent cheaper but … adjusts monthly is worse than paying that slightly higher interest rate and having the security of knowing your rate is fixed for a set length of time.” Above all,“never take a loan with a prepayment penalty,” Walters says.“It limits your ability to take advantage of changes in the interest rate environment or to be flexible with your mortgage should your needs change.” Refinancing with your current lender “can often be a great way to save money on closing costs or get a better rate,” says Eric A. Jacobs, a broker and principal with Jericho Title Services,

GET A LITTLE EXTRA KNOWLEDGE

CONTINUED FROM PAGE 1 for a mortgage with a lower interest rate.” Ron Cahalan, a Gilbert,Ariz.based mortgage lending analyst, says that the two general rules of thumb for refinancing are: First, the rate should be at least 1 percent less than your current interest rate. Second, you should expect to remain in your current home for no less than four years from the time you refinance. “These are important considerations due to the costs of refinancing versus the payment of interest cost savings,” he says. Cahalan offers a hypothetical example: Borrower A has a current mortgage of $250,000 owed at a 7-percent interest rate, equating to a principal-and-interest payment of $1,663.26. He can refinance for 6 percent today, incurring about $5,000 in total refinance costs, which typically

• Don’t buy a new vehicle. • Don’t excessively use credit cards or carry a balance. • Don’t spend the money you set aside for closing costs. • Don’t omit debts or liability from your loan application. • Don’t buy furniture for your new home. • Don’t originate any inquiries into your credit, such as applying for new credit cards. • Don’t make large deposits without first checking with your loan officer. • Don’t change bank accounts. • Don’t co-sign for another person’s loan. PIPER NICHOLE is the author of the upcoming book “Buying a House on a Shoestring” (Career Press).

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Hollywood, Fla.“If your payment history with your lender is great, call them first to see if they have any special offers and whether you qualify.Then, call them last to see if they can beat whatever other rates and programs you’ve found.” Additionally, be cautious of noclosing-cost refinances, says Turner.“This does not mean that the costs are waived completely but rather that they have been absorbed elsewhere. No-closingcost refinances usually necessitate higher interest rates, but sometimes the costs of the fees are included in the actual loans instead. In any case, you likely will end up paying closing costs but not in the way you’d expect.” Lastly, be aware that it is becoming more difficult to refinance than it has been in the past, says Turner. Some lenders are implementing stricter standards for loan approvals, and those who are approved may face less desirable terms and conditions.

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Ask Our Broker CONTINUED FROM PAGE 1

ity for all loans and fees or will the loss be shared with other investors? Why limit yourself to foreclosures? You will have a farwider range of choices if you consider all properties in your local area. It’s possible that buying foreclosures may well be a good option. However, you are best served by speaking with a number of real estate brokers to get a range of views and hiring one to act as your buyer broker.Also, for your protection, do not sign any paperwork until an attorney of your choice has reviewed it.

Q: My boyfriend and I bought our first house in 2006. We are both owners of the house, and both our names appear on the title. However, the mortgage is only in his name. What does this mean for my tax deductions? How do I report interest paid on the mortgage and taxes paid on purchase of the home?

A:The IRS has several standards that must be met before mortgage interest may be deducted. One requirement is that “you must be legally liable for the loan.You cannot deduct payments you make for someone else if you are not legally liable to make them.”The question then is whether or not are you responsible for the mortgage-interest bill. Imagine if you separated from your boyfriend.You would have an interest in the property because you’re on the title. The property is security for the loan, so if it was sold the mortgage would be repaid from the proceeds of the sale. In a sense, you’re ultimately responsible for the loan. Would your credit suffer if your boyfriend did not make payments? It’s not your loan, but your property could be foreclosed.Who is getting the lender’s 1098 interest-reporting form? Can you claim an interest deduction if no payments have been recognized by a lender? Not likely, if at all. Matters would change, of course, if you married or your name was added to the loan.The first option is a personal matter, while your lender would welcome the second. Each option has pros and cons. Both you and your boyfriend should sit down with a tax professional.As well, because you jointly hold title to a major asset and are not yet married, you both should get a will and living will. © CTW Features Need real estate advice? Peter G. Miller, author of “The Common-Sense Mortgage,” would love to hear from you. Send your questions to [email protected].