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Make the most of your home investment

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Ask Our Broker Pinch
Pennies
and Prepare
to Buy
A Buyer is Seeking Payment BY PIPER NICHOLE
CTW Features
For a Tax Increase on My
IT’S EXPENSIVE TO BUY A NEW
Old Townhouse. Is That Valid? home. Down payment, closing
costs, mortgage, interest and
Q: I sold my townhouse last year. At taxes all add up to a hefty
closing, they deducted $813 for taxes. sum, which is why it’s impor-
The taxes then nearly doubled, my tant cut costs wherever you
buyer sold the house to another person can.
Following are shopper-
and this second buyer is contacting us savvy tips to help you save
regarding the payment of the tax differ- money when home buying.
ence. Should I pay for this?
GET CREDIT UNDER CONTROL
A: When you sold your property, the closing agent likely You biggest money saver
charged you $813 because you had lived in the property when buying a home is
improving your credit.The eas-
for part of the year but the property taxes had not yet iest path to good credit is to
been paid.This is a typical adjustment at settlement and make all your payments on
not an issue. time and in full.As you get
That taxes went up also is not an issue; that happens rou- close to applying for a mort-
tinely, often because when a property is sold a new and gage and purchasing a home,
higher value is established. be sure to obtain a copy of
your credit report; you can
As to the second buyers, I obtain a free copy from
can see no reason why you
would owe them anything.
A new and www.annualcreditreport.com.
Correct any mistakes as soon
You did not sell to the sec-
ond buyers; they should
higher value as possible. If there are mis-
takes on your report when
take up the matter with is established Happy home: Even the slightest drop in your interest rate can lower your mortgage payments and save you money. you go to apply for a mort-
gage, it may result in a poor
their sellers. If they think
they have a claim against when a home interest rate or prevent you
from obtaining the mortgage.
is sold
Finessing Your Financing
you, tell them to send it to “Lenders price their servic-
you in writing and then es according to risk,” says
show it to a legal clinic or attorney. Maxine Sweet, vice president
of consumer education for
Experian, Costa Mesa, Calif.,
Q: A dear friend just offered to spot me some one of the major credit-report-
money to buy a house and try to fix it up and flip, Refinancing your mortgage can make a big dent in your monthly payments. Here’s
ing agencies along with
the thought being there are so many foreclosures in what you need to know Equifax and Trans Union.“The
my state that we can find a distressed property, add higher your risk, the more like-
a bit of value and sell it for a decent profit. Also, I’ve BY CHARLES SCUTT the equity built up in their purely on the rate,”Walters says. ly you won’t pay as agreed.”
CTW Features homes, to lower their monthly “A good rate in a bad mortgage is Good credit can translate to
been dealing with a broker I met at a seminar. The
payments or to be able to pay off still a bad mortgage.You’ll want more attractive terms, says
thing that troubles me is that all the houses listed

A
few years back, before
have these really quick closing clauses, or they want home mortgage interest
hard money instead of conventional financing. Is rates gradually went up
there a way for someone with some extra cash to and the real estate market leveled
take advantage of the foreclosure market in a rea- off, refinancing was all the rage.
sonable, sober, conservative way? Now, with market rates falling
slightly, a large number of
adjustable-rate mortgages sched-
A: Before going further, you need to look with care at uled to adjust this year and spring
those “many foreclosures.”Are foreclosures really a bargain home-buying market in full swing,
when compared with like properties in the same neighbor- refinancing is on the rebound. But
hood after you consider repair costs, mortgage interest, whether or not this is the right
buying and selling costs and taxes? time for you to refinance will
depend on a careful examination
What is it that you will do to add value to a foreclosure? of your unique financial situation,
If the property cannot be sold, can it be rented? At what say the experts.
rate? If you must sell at a loss, will you bear the entire liabil- “There are three main reasons
why most people consider refi-
See ASK OUR BROKER, Page 2 nancing: to take money out of
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 pay-
ments.”
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
to pay close attention to terms to
make sure you are in the right
mortgage for your situation.
“The biggest trend we are see-
ing 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 refi-
nance, says Walters, is if you ini-
tially 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
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 bor-
row. 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

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PINCH PENNIES
Homebuying how-to’s
CONTINUED FROM PAGE 1
regardless of what they can quali-
fy for,” says Howell.“We see the
two extremes.We have people
who come in that don’t under-
stand why they can’t qualify for
X sales price and X payment
when we tell them they qualify
for less.Then, we have the oppo-
site; we tell them they qualify for
X and they’re like, I don’t want
that much of a payment.”
GET A LITTLE EXTRA KNOWLEDGE
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 pro-
grams for each state.
FINANCING
Little goes a long way
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 per-
cent less than your current inter-
est 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 consid-
erations due to the costs of refi-
nancing versus the payment of
interest cost savings,” he says.
Cahalan offers a hypothetical
example: Borrower A has a cur-
rent mortgage of $250,000 owed
at a 7-percent interest rate, equat-
ing 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
IS THE PRICE RIGHT
Make sure you get a compara-
ble 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, flexi-
ble closing date/move-in arrange-
ments, help with closing costs,
remodel allowance, as well as
amenities and conveyances, such
as wish appliances will be left
behind.
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
include fees for the appraisal,
attorney, title company, insur-
ance, taxes, credit check and vari-
ous lender fees.The new month-
ly 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 consolida-
tion or to draw cash out for
investments or home improve-
ments, 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 mort-
gage,” 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 news-
paper, on the Internet or from a
mortgage lender or broker. Get
referrals from friends or family
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 buy-
ing 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
Don’t blow your chance at
obtaining a loan or a great rate
by drastically changing your
income or making a large pur-
chase. Kathi Frank, a Realtor with
RE/MAX-The Woodlands &
Spring,The Woodlands,Texas,
offers 10 tips to prevent a finan-
cial flub:
• Don’t change jobs, become
self-employed or quit your job.
members who are happy with
their current lenders. Before call-
ing 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 mort-
gage 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 know-
ing 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 mort-
gage 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,
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• 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).
© CTW Features
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 no-
closing-cost refinances, says
Turner.“This does not mean that
the costs are waived completely
but rather that they have been
absorbed elsewhere. No-closing-
cost refinances usually necessi-
tate 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 refi-
nance than it has been in the
past, says Turner. Some lenders
are implementing stricter stan-
dards for loan approvals, and
those who are approved may
face less desirable terms and con-
ditions.
© CTW Features
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 far-
wider 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 protec-
tion, 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-report-
ing form? Can you claim an interest deduction if no pay-
ments 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 peter@ctwfeatures.com.