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Welcome to our Blog! We hope you find some informative information. Please feel free to comment and ask questions. We look forward to your feedback.

Understanding Reverse Mortgages

 Reverse mortgage loans are like traditional mortgages that permits homeowners to borrow money using their home as collateral while retaining title to the property.Reverse mortgage loans don't require monthly payments.

The loan is due and payable when the borrower no longer lives in the home or dies, whichever comes first.Since no payments are made, interest and fees earned are added to the loan balance each month causing an increasing unpaid balance.Homeowners are required to pay property taxes, insurance and maintain the home, as their principal residence, in good condition.

Reverse mortgages provide older Americans including Baby Boomers access to their home's equity. Borrowers can use their equity to renovate their homes, eliminate personal debt, pay medical expenses or supplement their income with reverse mortgage funds.

Homeowners are required to be 62 years and older and meet the following requirements:

  • Own the home free and clear or owe very little on the current mortgage that can be paid off with the proceeds
  • Live in the home as their primary residence
  • Be current on all taxes, insurance, and association dues and all federal debt
  • Prove they can keep up with the home's maintenance and repairs

Payouts are based on the age of the youngest spouse. The younger the age, the less money can be borrowed. Reverse mortgages offer two terms ... a fixed rate or variable rate. Fixed rate HECMs have one interest rate and one lump sum payment. Variable rate loans offer multiple payout options:

  • Equal monthly payouts
  • A line of credit with access until the funds are gone
  • Combined line of credit and fixed monthly payments for a specified term
  • Combined line of credit and fixed monthly payments for the life of the loan

Traditional reverse mortgages, also called Home Equity Conversion Mortgage, HECM, are insured by FHA. There are no income limitations or requirements and the loan funds may be used for any purpose. The borrower must attend a counseling session about the HECM, its risk, benefits, and how much can be borrowed. The final loan amount is based on borrower's age and home value. FHA HECMs require upfront and annual mortgage insurance premiums but can be wrapped into the loan.

Proprietary HECM loans are not federally insured. Lenders create their own terms, including allowing loan amounts higher than the FHA maximum. Proprietary HECMs don't require mortgage insurance (upfront or monthly), which may result in more funds available. Proprietary reverse mortgages typically have higher interest rates than FHA HECMs.

Advantages

  • Create a steady stream of income during retirement
  • The proceeds aren't taxed or risk borrower's Social Security payments
  • Title and rights to the home are retained by the homeowner
  • Monthly payments are not required

Disadvantages

  • The loan balance increases over time rather than decreases as with an amortizing loan
  • The loan balance may exceed the property value eliminating inheritance
  • The fees may be higher than traditional mortgage loans
  • Any absence of the home for longer than 6 months for non-medical or 12 months for medical reasons makes the loan due and payable

More information is available about reverse mortgages from the Consumer Financial Protection Bureau or Federal Trade Commission or HUD.gov.

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Downsizing in 2020

Approximately 52 million or 16% of Americans are age 65 and over.It is easy to understand that some of them are thinking of downsizing their home because they don't need the same space they did in the past.

It can be liberating to divest yourself of "things" that have been accumulated over the years but are no longer needed.Moving to a less expensive home, could provide savings for unanticipated expenditures or cash that could be invested for additional income.

Savings can be realized in the lower premiums for insurance and lower property taxes, as well as, the lower utility costs associated with a smaller home.

Typically, owners downsize to a home to 2/3 to 50% of their current home's size.In some situations, it is not only economically beneficial, but their interests may have changed so that a different style of home, area or city might fit their lifestyle better.

The sale of a home with a lot of profit will not necessarily trigger a tax liability.Homeowners are eligible for an exclusion of $250,000 of gain for single taxpayers and up to $500,000 for married taxpayers who have owned and used their home two out of the last five years and haven't taken the exclusion in the previous 24 months.

Homeowners should consult their tax professionals to see how this may apply to their individual situation.For more information, you can download the Homeowners Tax Guide.

Call me at (406) 594-0610 to find out what your home is worth and what it would take to make the move to another home. 

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Another Source for a Down Payment

 Borrowing from a 401k, 403b or the cash value of life insurance policy is a common financial strategy.While taxpayers are not allowed borrow from either a traditional or Roth IRA, they can withdraw funds before age 59 ½ for specific purposes like a first home purchase, qualified higher education expenses or permanent disability without incurring a 10% penalty.

First-time home buyers can make a penalty-free withdrawal of up to $10,000 if they haven't owned a home in the previous two years.This would allow a married couple who each have an IRA to withdraw a lifetime maximum of $10,000 each, penalty-free for a home purchase.

In many cases, the money would be used for a down payment or closing costs.However, some buyers might consider this source to increase their down payment so they could qualify for a loan without mortgage insurance.

There is another condition where a taxpayer can withdraw money from their IRA without triggering the tax or penalty if it is returned to the IRA within 60 days.This can only be done once in a 12-month period.Unless you're certain you can redeposit the money in the strict time frame, the potential tax and penalties makes this a risky and expensive way to arrange temporary funds.

If the taxpayer qualifies for the penalty-free withdrawal, there may still be taxes due.Contributions to traditional IRAs are made with before-tax dollars and the tax is paid when the funds are withdrawn.Since Roth IRAs are made with after-tax dollars, there is no tax due when the funds are withdrawn.

Another interesting fact about this provision is that the taxpayer making the withdrawal can help a qualified relative which includes children, grandchildren, parents and grandparents.

Before withdrawing money from an IRA, taxpayers should get advice from their tax professional concerning their individual situation.

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Anticipating the Cost of a Home

The largest expenditure a buyer has when purchasing a home is the down payment which can range from zero for veterans or 3.5%, 5%, 10% and 20%.With mortgages come closing costs which can be another 2-4% and must be paid at settlement in cash.

Most mortgages require an escrow account to pay the property taxes and insurance when they are due.Generally, the lender will require one to three months of taxes and one month of insurance so they can be paid before the actual due date.

First-time buyers should be aware that they'll need this amount of funds available to purchase a home. Unlike tenants who are not responsible for repairs, homeowners are, and it is necessary to be able to pay for them when they're needed.

Newer homes will need less repairs and older homes probably, more.At some point, components like the furnace, air-conditioner and appliances will need to be replaced which could crush a homeowner's budget if they are not expecting them.

Homeowners should expect between one and four percent of the value of the home in annual repairs.The age and condition of the home and whether some of the items have been replaced will help assess the anticipated expenditures.

Components

Estimated Life

Dishwasher

9-10 years

Refrigerator

13 years

Furnace

15-25 years

Air-conditioner

8-15 years

Stove top

13-15 years

Oven

15 years

Compactors

6 years

Water heater

8-12 years

Faucets

15-20 years

A $175,000 home with 2% estimated repair expenditures would be $3,500 a year or about $300 per month.Some years, it may not run that much and other years, it might be more.By anticipating the maintenance expenses, a homeowner is more likely to handle things when they arise.

Another way to handle the risk of unexpected repair expenses would be to purchase a home warranty.For $500 -700 a year, repairs and sometimes, replacements will be handled by the protection plan.

Call me at (406) 594-0610 for a list of trusted protection plans available in our area. 

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Personal Finance Review

 Even if Benjamin Franklin never actually used the expression "a penny saved is a penny earned", the reality is that it has been a sentiment for frugality for centuries.He did say: "Beware of little expenses; a small leak will sink a great ship."At the end of the day, it is not about how much you make as much as it is about how much you keep.

The first step in a personal finance review is to discover where you are spending your money. It can be very eye-opening to have a detailed accounting of all the money you spend.Coffee breaks, lunches, entertainment, happy hour, groceries and the myriad of subscription services you have contribute to your spending.

This revelation can lead you to obvious areas where savings can be accomplished.The next step is to dig a little deeper to see if there are possible savings on essential services.

  • Get comparative quotes on car, home, other insurance.
  • Review and compare utility providers.
  • Review plans on cell phones.
  • Consider eliminating the phone line in your home.
  • Review plans on cable TV, satellite for unused channels and packages or receivers.
  • Consider entertainment alternatives for cable like Hulu or Netflix.
  • Review available discounts on property taxes.
  • Consider refinancing home ... lower rate, shorter term or cash out to payoff higher rate loans.
  • Consider refinancing cars.
  • Call credit card companies to ask for a lower rate.
  • Consider transferring the balance from one card to a new card with a lower rate and then, pay off the balance as soon as possible.
  • Review all the automatic charges on your credit cards ... do you need or still use the service?
  • Discover late fees that are regularly being paid and eliminate them.
  • Review all bank charges for accounts and debit cards; determine if they can be reduced or eliminated.
  • Pay your bills on time and avoid all late fees.
  • Monitor your bank account and avoid over-draft charges.
  • Some companies have customer retention departments that can lower your rates to retain your business.

A strategy that some people use is to report their credit cards as lost so new cards will be issued.When they are contacted by the companies to get a valid credit card, they can determine if the service is still needed.

The money you save can ultimately help you in the future for a rainy day, an unanticipated expense, a major life event or retirement.Cutting back now will give you more later, possibly, when you need it even more.Tennessee Williams said "You can be young without money, but you can't be old without it."

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an Investment Perspective on a Home

Looking for an investment that will turn $10,000 into $80,000 in seven years?Sound too good to be true?What if I told you that you could live in it every day during that seven years?Would that sound even better?

A $300,000 home purchased today on an FHA loan would have a $10,500 down payment.If it appreciated at 2% annually, which is less than the U.S. average, the future value of the home would be $344,606 in seven years.The unpaid balance on the loan would be $256,350 based on normal amortization which would make the equity in the home $88,256.

The annual compound rate of return on the down payment would be 35%.This number sounds so large, that you might start doubting the credibility of this example.

Looking at some alternative investments, a ten-year Treasury note is currently paying 1.73%.You can earn 2.1% on a ten-year certificate of deposit.If you could handle the volatility of the stock market and pick the right stock, you might earn 7-10%.

There really is no alternative investment that can earn the return that an owner-occupied home can offer while giving you the ability to live and enjoy the home during the holding period.

Even if you could find an investment that paid a good return, when you realize the gain, you'll be required to pay income tax, either at long-term capital gains rates or ordinary income.However, a person who has lived in a home for at least two of the last five years can exclude up to $250,000 of gain from their income if they are single and up to $500,000 of gain if the owners are married, filing jointly.

A home can certainly be a place of your own to feel safe and secure, to raise your family, share with friends and build memories.A home could be considered an emotional investment and one that pays big dividends.A home is also a financial investment not just for the reasons mentioned above but also because the equity can be accessed by doing a cash-out refinance or a home equity line of credit.

See what your investment might look like by using the Rent vs. Own and giving us a call at (406) 594-0610. 

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What's the Difference in Pre-Qualification and Pre-Approval?

Before looking for a home, you need to know how much you can afford. While you may have a number in your head, the lender has the final say. Securing a pre-approval from a lender helps make the home buying process easier and helps to avoid delays.

Many buyers confuse the terms pre-qualification and pre-approval. They mean two different things. In simple terms, a pre-qualification is an estimate of what you can afford. A pre-approval is a conditional approval based on the proof you provide.

The pre-qualification is a preliminary step some borrowers take to get a feel for what price home they can afford. Based on your income, assets, and estimated credit score, lenders can estimate what you can afford.

It's important to know, there's nothing binding about a pre-qualification. It's simply a starting point. When you are serious about buying a home, though, you want a pre-approval.

Before you shop for a home, meet with a recommended lender to get a pre-approval letter. Sellers and/or Realtors value this letter because it shows you are likely to secure the necessary financing and serious about buying a home.

Lenders meet with you in person to create the pre-approval. You'll provide the lender with all the following:

  • Permission to order your credit report
  • Paystubs, W-2s and/or tax returns to prove your income
  • Asset statements, investment statements or any other proof of assets
  • Proof of employment
  • Any other miscellaneous documentation required by lender

Lenders evaluate the documents and determine your conditional approval. The letter will state the mortgage amount you qualify for, the loan's terms, and any conditions the approval is contingent upon.

Normally, final approval is contingent on a fully executed sales contract of the property to be purchased, a satisfactory appraisal and clear title on the property.

Once a purchase contract is signed, the lender completes the underwriting on your loan. They will confirm that the property meets the necessary requirements. The lender will also re-confirm your income, assets, employment, and credit information before closing on the loan.

Securing a pre-approval prior to beginning the home buying process will give you confidence and can help your negotiations with the seller. Your REALTOR® can provide you more information in an Buyers Guide and recommendations of trusted lenders.

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Buy Your Retirement Home Now

Maybe you're not ready to move into it but that doesn't mean that you shouldn't take advantage of the present opportunities to acquire the home you want to live in during retirement. The combination of the low mortgage rates, high rental rates, positive cash flows and tax advantages can help you get it paid for by the time you're ready to move into it.

Your tenant could literally buy your retirement home for you. One idea would be to finance it with a 15-year loan that will have a lower rate than a 30-year loan and it will obviously be paid for in half the time. With every monthly rental check from your tenant, you make the payment on the mortgage which includes a portion that reduces debt and builds equity. Even if you don't have the home paid for by the time you retire, your equity will be larger.

Consider you sell your current home which could be paid for by then when you are ready to move into this retirement home . Taxpayers can exclude up to $500,000 of tax-free gain for a married couple. That profit could be used to fund your retirement.

Even if you don't retire to this home, it could be a placeholder to control the costs of the home you do move into. For example, you could buy a home in a destination location now, rent it out and build equity in it until you're ready to use it as your principal residence. That home would have kept pace with other homes in the area so that you would not be priced out of the market you want to retire to.

With home prices and mortgage rates certain to rise, this may be one of the best decisions you can make. We want to be your personal source of real estate information and we're committed to helping from purchase to sale and all the years in between.

Contact us if you'd like to talk about the idea or if you need a recommendation of real estate professional in another city. 

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A Good Time to Buy a Home

You may have noticed that REALTORS® seem to always think now is a good time to buy and they can usually justify it with solid reasoning.While it can be true in general, a good time to buy has more to do with the individual than anything else.There are four things to consider.

It is a good time to buy a home when you have good credit.Since the Great Recession and the housing crisis, lenders have been required to be sure that the borrowers have good credit.This actually benefits not only the lenders but the borrowers because no one wants to buy something that they cannot afford and run the risk of losing it to foreclosure.FHA has the most lenient FICO credit score of 580+.VA requires a little higher at 620 while Fannie Mae guidelines on conventional mortgages require a 700 score.

It is a good time to buy a home when you have a good job that gives you the income to qualify for the mortgage and the likelihood that you'll continue to be employed in the future.Two years of steady employment in the same industry with no significant gaps is a measure that lenders consider.

Lenders use qualifying ratios to make a determination.The total house payment, principal, interest, taxes and insurance, should not exceed 28% of the borrower's monthly gross income.Their total monthly debt including the house payment should not exceed 45% of monthly gross income.There is some flexibility in the ratios for the right circumstances.

It is a good time to buy a home when you have the available funds for the down payment and closing costs plus a little cushion for the unexpected.The down payments can range from 0% for VA loans to 3.5% for FHA and 3% to 20% for conventional.

In addition to the down payment, borrowers will have closing costs that can range from 2 to 3.5% depending on the loan type.It is possible for the seller to pay the buyer's closing costs but it needs to be negotiated in the sales contract.The lender's underwriter wants borrowers to have cash available for unexpected expenses related to the house and their normal living expenses.

It is a good time to buy a home when you have stability ... In addition to employment, stability applies to not moving soon, marital status, children and unanticipated expenses.Market or economic conditions could also affect stability.

So, the answer to the question "is it a good time to buy a home" depends on several things that are relative to the buyer.While it might be a great time to buy for one buyer, it may not be the best time for another buyer.

Make a self-assessment to the best of your knowledge on these issues and then, schedule an appointment for a live interview with a trusted mortgage professional to get their opinion based on what underwriting will look at.Call me at (406) 594-0610 if you'd like a recommendation.After you determine it is a good time to buy a home, it is time to meet with your real estate professional. 

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Time for a Toilet Upgrade

 Whether it is a cosmetic or a mechanical reason for upgrading a toilet, you may not know all the choices that are involved to choose the right one for your home.The current toilet may have cracks or leaks in the bowl or tank.It could be the aggravation of constant clogging or inefficient flushing.Maybe there is damage in the porcelain bowl or built-up mineral deposits that are clogging the inlet holes or syphon tube.

If frequent repairs have you on a first name basis with the plumber, it may be time to consider replacing the toilet.There are a lot of things to consider and the following list may help you sort through the choices.

  • Round, oval or compact oval ... There are two basic shapes of toilets: round and oval.The round bowl requires less space and are less expensive.The oval or elongated tend to be more comfortable but require more space from the wall than round ones.Most manufacturers produce a compact oval model also.
  • One-piece, two-piece and wall hung ... Manufacturers make one-piece models that mold the tank and bowl into one unit.These can be a little more expensive, but they take up less space.The two-piece with separate tank and bowl are more common.The wall hung requires less space and make the room look larger, but installation will be more expensive.
  • Height ... Standard toilet height is 15 inches.An alternative to the standard is a comfort height which is more like a chair at 17-19 inches tall.This can be an advantage for older and taller people as well as those with a mobility problem.
  • Trapway - The trapway is a channel from the bottom of the bowl to the drainpipe that also keeps gas entering the home from the sewer.While the trapway shows on the outside of most models, there are skirted or concealed models available for a more aesthetic appearance.
  • Single or dual flush ... Single flush toilets use the same volume of water each time it is flushed.Dual flush toilets have two options for flushing liquid or solid waste.This gives the user the ability to conserve water when appropriate.
  • Water per flush ... In an effort to save water, in 1995 the Department of Energy required toilets to use 1.6 gallons per flush.Since then, California and Georgia, increased the restriction to 1.28 gpf which saves 20% more water.
  • Gravity-feed or pressure assisted - For four hundred years, gravity has been used to move the water through a flushable toilet bowl to eliminate the waste.As water restrictions were added, pressure assisted toilets were introduced to assist the lower volume of water.A sealed cylindrical tank inside the ceramic toilet tank provides the additional pressure.These types of toilets are nosier than conventional flush types.

Once you've decided on what features are important, you can shop brands that fit your needs.If you're curious to what kind of a job it is to install it, there are lots of videos on YouTube that will show you in detail what to expect.Whether you do it yourself or hire a professional, you'll understand the process more.

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Interior Condensation Solutions

Condensation occurs when the air has too much moisture in it which is felt as high humidity.The water deposits on various surfaces that are cooler than the air itself.Several things can contribute to the high humidity such as cooking, dishwashers, clothes dryers, bathing and long showers.

If the home has a crawl space under the floor, inadequate ventilation or insulation can cause moisture in the home. There seems to be a difference of opinions about whether to vent or not vent. First, determine if you are having a problem and then, weigh the options available to find the best solution.

Condensation that forms on windows and other surfaces in your home can cause damage to window trim, frames, drywall, floor coverings and sub-floors as well and the interior framing.

To reduce condensation in a home, the moisture saturating the air needs to be reduced.Just as steam from a shower can fog a mirror, warm air holds more moisture.When the air cools, it releases the moisture.There are other things that can be done to reduce the moisture and the condensation.

  • Adjust humidifier
  • Bathroom and kitchen exhaust fans
  • Circulate the air; ceiling fans can help with this
  • Open windows to release warm air
  • Raise temperature
  • Add weather stripping
  • Window insulation kits
  • Storm windows
  • Move plants that release moisture in the air

The average life of a bathroom exhaust fan is about ten years with kitchen fans lasting about fifteen years.Regular cleaning can increase the life of the fans.Bathroom exhaust fans should be vented to the outside and should be run for 15-20 minutes after using the bath or shower to remove the moisture that causes mold and mildew.

Regulating the humidity in a home can protect against damage but it also promotes comfort in the form of breathing, relieving dry skin, sinus problems and sickness in general. Breathing is easier and the air feels more pleasant.

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Selecting an agent

When a whole lobster was presented at the table of a restaurant, the customer noticed there was only one claw on it.He asked what happened to the lobster and the waiter said, maybe he lost a fight with another lobster.The customer replied to the explanation by saying "then, bring me the winner."

There are approximately 1.3 million REALTORS® in the U.S.The July 2019 Existing Home Sales annualized about 5.4 million units with a listing side and a selling side that totals 10.8 million transactions.That means that the average number of units sold per agent is 8.

In any given market, 20% of the agents are selling 80% of the homes.260,000 agents are selling 8,480,000 or an average of 32 transactions sides.Some markets are dominated by 10% of these successful agents selling 90% of the market.If that were the case, 130,000 agents are selling 9,720,000 or an average of 75 transactions sides.

The question you should ask yourself is who do you want representing you in the purchase or sale of the largest asset that most people have?Do you want an average agent, or do you want a powerhouse agent who can provide you the best advice, avoid issues that can cost time, and maximize the results that you expect and deserve?

Finding the right property is listed as the most difficult experienced by buyers (56%), according to the Home Buyers and Sellers Profile, together with the paperwork (20%) and understanding the process and steps (16%) makes these the most important areas of expertise needed when evaluating your agent.

An agent provides valuable services for buyers and sellers during the transaction that can make a difference in finding the "right" home or buyer, negotiating the best terms, and closing on time.The answers to the following questions can help you decide who to work with in your next purchase or sale.

  • Describe your experience in real estate?
  • What are your personal sales stats compared to the market? (For sellers, list price to sales price ratio, days on market; for buyers, average # of houses shown and closure rate)
  • Describe your strategy to accomplish my needs?
  • Do you have references and/or reviews?
  • What makes you different than your competition?
  • Can you help me find the other professionals and vendors?
  • What is your fee and who pays it?

For more information, download the Sellers Guide and Buyers Guide. 

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Price It Right the First Time

The Internet has empowered all buyers with information and home buyers are no exception.The amount of information available to public includes details on size, condition, sales history, current inventory, recent sales, photographs, videos, school info, drive-times, entertainment and much more.

When a seller realizes that buyers are educated with facts, it becomes unlikely that they will pay more than a home is worth.

If a home is priced too high in the beginning, it may stay on the market longer than normal which could adversely affect the ultimate sales price.It is a natural reaction from people, personally or professionally, to assume that something must be wrong with a home that doesn't sell in a reasonable time for that market.

The seller is entitled to maximize the equity in their home and pricing it properly in the beginning is the best way to achieve that.Overpricing can reduce buyers activity because they assume that the best homes are purchased soon after they are offered for sale and if one has been on the market longer than normal, there must be a problem with it.Similarly, sales associates may come to the same conclusion.

After buyers have seen a few homes in a certain price range, they begin to expect similar amenities in each home they look at.If a home is overpriced, it will not compare favorably with the other homes that are being viewed.Sometimes, the buyer may even think that another home could be a bargain because it offers much more for the same price as the overpriced listing.

Shopping the market means looking at the homes that meet a buyers' wants and needs and selecting the one that gives them the most, whether it is in price or amenities.The overpriced listing doesn't compete well, and it extends the market time.There is a documented study that shows that the longer a home stays on the market, the lower the price will be.

It is essential that a seller receive factual information to price their home to compete favorably in the current market.Some of the obstacles can include:

  • Failure to objectively compare the current and sold homes with theirs
  • Neighbors who mislead the seller as to how much they got for their home
  • Fear of making a mistake and thinking they can start high and always lower the price
  • Loss of perspective because the seller is emotionally involved
  • Expecting the home to sell for more than fair market value because they need the money
  • Agents who will accept a listing at any price in order to tie up the property until the seller realizes the price is too high

What a seller paid for the home or the cost to rebuild it today do not affect market value.Neither does the amount spent by sellers on certain improvements that were made for their own pleasure and enjoyment.

It is unrealistic to expect a buyer to pay more than market value for a home.The seller sets the price of a home but the buyer determines the value.If the home is priced properly in the beginning, it is more likely to sell for a higher price, in a shorter period and with less problems. 

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What every homeowner should know about their property insurance

Insurance is required on a home by the mortgage company, but homeowners rely on it for peace of mind also.Unfortunately, people may not take the time to investigate their policy and what it covers until they need to file a claim, which could be too late.

While it may not seem like the best use of your time, an in-depth visit with your property insurance agent once a year could be valuable to you if you have losses and could increase your peace of mind.

The following are some questions you can ask your insurance agent:

  • What is the insured value of the policy and the replacement cost of your home?Insured value is the amount that would be paid for a total loss but replacing the home could cost more than that amount.
  • What is the deductible?Higher deductibles on the first amount of the loss are one way to lower the cost of the premium.It may sound good when you're having to pay for the policy but feel very different at the time you file a claim.
  • What does the policy cover? Typical policies cover fire, theft, vandalism and storms.Homeowner policies bundle personal belongings and some liability coverage.They can differ not only from company to company but from policy to policy.Be clear on what is covered.
  • What does it not cover? ... Some perils are usually not covered by policies like hurricane, flooding, power outage, rising water and earthquake.It can be confusing because a broken pipe might be covered but rising water from backed up sewer is not.
  • What is your anniversary date? ... Policies are usually written for one-year and should be renewed before they expire.Mortgage companies like to renew them a month before they expire so there will not be a lapse in coverage.That is why borrowers with escrow accounts for taxes and insurance must fund them accordingly.
  • Is it paid by an escrow account with the mortgage?New homeowners should verify that their house payment includes 1/12th the annual taxes and insurance so they will not be surprised with a large bill when they become due.
  • Does your policy include liability coverage? ... This covers claims made by third parties of bodily or property damage done by the insured.It could be as simple as a guest slips and injures themselves in your home.It is important to know the limits of liability and consider larger amounts especially, if you have a higher net worth or risk profile.
  • What is an umbrella policy? -This is a separate policy that increases the liability coverage above the limits of the homeowner's policy.It can be a relatively inexpensive coverage.
  • Are personal belongings included? ... Most homeowners policies include an amount toward personal belongings like furniture, rugs, housewares, and clothes.It may be expressed as a percentage of the overall policy.The question is: will it cover your belongings or does it need to be increased?
  • What is the process to file a claim? ... Most claims require proof of purchase or a current inventory of the home.Since most people don't have receipts except for big ticket items at best, the inventory becomes important.Videos, still pictures or a detailed list can help to satisfy this need.Click here for a digital Home Inventory.
  • Are there additional living expenses included? ... Some policies include temporary living expenses if you are displaced from your home.
  • Does a home office require additional insurance? ... Many homeowners work from their home and have special equipment that may not be covered normally.If you "meet and greet" people at home, ask about additional liability coverage.
  • Ask about floater policies on big-ticket items? ... Some items like jewelry, furs or collectibles need to be scheduled or covered on a separate policy.

Insurance is meant to give you peace of mind against possible losses that could financially harm you without it.Because insurance is very specific about what it does and does not cover, it is important that you have a good understanding of your policy.A policy is a contract between you and the insurance company, and it deserves due consideration. 

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Want to be a Landlord?

Real estate has consistently been one of the highest rated investments available to individuals. TV shows certainly make rentals look easy and you may even know someone who has made a lot of money with them. Possibly, the thought has crossed your mind that if they can do it, you can too.

Before you contract for your first investment, ask yourself some questions that could save you time and energy. Not all people have the time, the inclination or even the skill to manage property. Landlords need to be good business people who can maximize revenue and minimize expenses. If investors don't have the skills and talent to handle some of the repairs, they at least need to know reputable and reasonable service professionals.

Another important element is to be familiar with the state and local landlord tenant laws. You'll need to know what are allowable security deposits and where the money can be held. Knowing how long you have to return it to a tenant is important and what to do if you plan to keep all or part of it for damages done. It is important to know about the eviction process and how fair housing applies.

If you decide that you may not be cut out for being a landlord, it won't eliminate investing in rentals. It does mean that you will need to engage a property management company who is capable of dealing with all aspects of the process. The peace of mind and convenience will cost you a fee, usually a percentage of the rent collected. They can handle finding a tenant, doing the background check and writing the lease but there will be an additional fee for that service.

Even though your expenses will be higher with a property manager, with their experience, they should be able to help you lease the property for more money than you can get and will probably have service providers to do the work needed for less.

Occasionally, rental property requires out of pocket expenses for repairs and improvements which is like making another capital contribution. As equity builds in a rental property due to appreciation and principal reduction, the owner does have the option to take cash out of the investment either to pay additional expenses or to use any way the owner wants. Pulling equity out of a rental doesn't even trigger a taxable event.

Single-family homes and up to four-unit buildings offer an investor the opportunity to get a high loan-to-value mortgage at a fixed interest rate for 30 years on appreciating assets with tax advantages and reasonable control compared to other alternative investments.

Many investors like the fact that you can borrow to purchase a rental investment where many other investments require cash. The use of borrowed funds can create an advantage called leverage. Assume you paid cash for a $100,000 home that generated $7,000 income after the rent was collected and expenses were paid. Divide the value of the home into the income and it would earn 7%.

If you decided to put an $80,000 mortgage on it at 5% interest, the interest expense would be $4,000 leaving only $3,000 income. However, at that point, you'd only have $20,000 invested in the property. Divide the cash invested into the income and the rate of return would increase to 15%.

This is a simple example of leverage showing that borrowed funds can increase an investor's yield on a property.

Rental property can be an excellent investment when it is treated like the business that it is. Knowledge of the investment will reduce the risk and enhance the opportunity to make a profit. Some investors consider their rental income as "mailbox money" because each month, they go to their mailbox and they have money being sent to them by their tenants. The benefits of rental property can easily outweigh risk involved.

Contact me for more information on rental properties and the option to be the landlord or to delegate it to a property manager. 

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Money You Saved for a Down Payment

 Occasionally, buyers who can qualify to purchase a home decide to "take a break" and wait to purchase a home.When the focus of buying a home is relaxed, other uses for the money that was going to be used for the home are considered.

Maybe they think how much fun it would be to have a Sea Doo or a motorcycle or a new car.It is amazing how many people would like to buy a home but either don't have the down payment, the income or the good credit to make it possible.

Instead of spending the money, consider investing the money for two years until the time is right to buy a home.Let's look at putting the money in a certificate of deposit that earns 2% or in the stock market that could average a 5% return.

Assume you were purchasing a $295,000 home on a FHA loan with 3.5% down payment.The $10,325 would grow to $10,742 in the CD which isn't a big increase but at least it is safe and secure, and it will be available when you're ready.

If the same amount were invested in a safe stock or mutual fund that earned 5%, it would grow to $11,383 in the same two-year period.It earns more but there is more risk involved.

Your Best Investment

CD

Stock Market

Home

Cash to Invest

$10,325

$10,325

$10,325

Wealth Position

$10,742

$11,383

$38,871

Profit Taxed as

Ordinary Income

Long-term capital gains

§121 exclusion applies

Alternatively, if you invest the same amount in purchasing a home that appreciates at 3% a year, the equity would be $38,871 two years from now.The dramatic increase is due to leverage, being able to control a large asset with a small amount of cash.The appreciation is based on the purchase price not the down payment.

Another factor is that there is principal reduction with each payment that is made.

Make your own projections with Your Best Investment.

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Steps in Home Buying Process

 The process of buying a home can be different based on the price range and whether a mortgage is needed.While some things are different, others are similar regardless of price, financing or local customs.

Each year, the National Association of REALTORS® surveys buyers and sellers who have purchased or sold in the previous twelve months in order to identify the process and steps taken.It provides a lot of information for the people who will be going through the process now and in the near future.

44% of all buyers looked online for properties for sale.This might be considered a logical first step to determine the prices of homes in certain areas and what features they offered.

17% of all buyers stated that their next step was to contact a real estate agent.In another REALTOR study, it is reported that 87% of all buyers purchased their home through a real estate agent or broker.Buyers identify a wide range of services the agents offer that is considered valuable in the purchase of a home.

The next step identified by most buyers is to look online for information about the home buying process.In many cases, agents share this information in their first substantial meeting but since it is identified as the third highest steps taken by buyers, some people may not be getting adequate information from their agents or they are verifying the process as explained to them.

The fourth step identified by buyers is to contact a bank or mortgage lender.The position this step takes place is interesting because many real estate professionals suggest that it be one of the first things buyers should do.The reason is to find out how much mortgage they can qualify for, so they are looking for homes in the right price range.This can save a lot of time and frustration.

The three next highest steps included driving by homes and neighborhoods, talking with a friend or relative about the home buying process and visiting open houses.

The buyers in this study mentioned that they depended on several sources for information during the home search.The most frequently used were online website, their real estate agent, mobile search device, open houses and yard signs.

The three most difficult steps listed were finding the right property, the paperwork and understanding the process and steps.

You can download a Buyers Guide that has a lot of interesting information.We have an array of Financial Apps that can provide insight on things like Rent vs. Own, Mortgage Payment and Your Best Investment.And of course, I'd be happy to schedule an appointment with you to go over all these things and talk to you about finding your next home.Call me at (406) 594-0610.

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Invest in Equity Build-up

Equity build-up could be one of the biggest advantages to buying a home.There are two distinct dynamics that take place to make this happen: each house payment applies an amount to reduce the mortgage owed and appreciation causes the value of the home to go up.

It is easy to make a projection based on the type of mortgage you get and your estimation of appreciation over the time you expect to own the home.Even conservative estimates can produce impressive results.

Let's look at an example of a home with a $270,000 mortgage at 4.5% for 30 years and a total payment of $2,047.55 payment including principal, interest, taxes and insurance.The average monthly principal reduction for the first year is $362.98. If you assume a 3% appreciation on the $300,000 home, the average monthly appreciation is $750 a month.

The total payment of $2,047.55 less $1,112.98 for principal reduction and appreciation makes the net monthly cost of housing, excluding tax benefits, $934.57.If this hypothetical person was paying $2,500 in rent, it would cost them $1,565.43 more to rent than to own.In the first year, it would cost them over $18,000 more to rent.

Together, the items in this example contribute over $1,100 to the equity in the home .This is one of the reasons a home is considered forced savings.By making your house payments and enjoying increases in value, the equity grows and the net cost of housing decreases by the same amount.

In this same example, the $30,000 down payment grows to $133,991 in equity in seven years.While this is equity build-up, the extraordinary growth is attributed to leverage.Leverage is an investment principle involving the use of borrowed funds to control an asset.

To see what your net cost of housing and the effect of leverage will have on a home in your price range, see the Rent vs. Own.If you have questions or need assistance, contact me at (406) 594-0610. 

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America Still Considers Real Estate the Best

35% of respondents, in a recent annual Gallup poll that dates back to 2002, identified real estate as the best long-term investment option compared to 27% who identified stocks.

The top choices included real estate, stocks, savings accounts and gold.Even with the remarkable prices of the different U.S. stock indices recorded in 2019 through April and May, homes have the highest confidence in the minds of the respondents.

This seems to be based on the stability of the housing market and the expectation that home prices will continue to rise.Homeowners build equity from both appreciation as well as reducing principal with each payment made. These same factors exist for investors of rental homes in predominantly owner-occupied neighborhoods.

Real estate has another dynamic working to produce favorable investment results due to leverage.Leverage occurs when borrowed funds are used to control an asset.When the borrowed funds are at a lower rate than the overall investment results, positive leverage occurs which can increase the yield from an all cash investment.

Gold and savings accounts must be funded with cash.The maximum borrowed funds allowed for stocks is 50% and generally, at a rate higher than typical mortgage rates.

Homes are a particularly attractive investment because you can enjoy them personally by living in them.The interest and property taxes are deductible and gains on the profit are excluded up $250,000 for single taxpayers and $500,000 for married taxpayers filing jointly.

Many people consider an investment in a home for a rental property an IDEAL investment: Income, Depreciation, Equity Build-up & Leverage.

If you have questions or are curious about the process, contact me at This email address is being protected from spambots. You need JavaScript enabled to view it. or (406) 594-0610.

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Determining Property Type

The Internal Revenue Service considers four different types of real estate. Specific types of properties have benefits based on their classification. The determination does not depend on the property itself as much as it depends on how the property is used and what the owner's intentions are.

Principal Residence ... a principal residence is the place a person lives or expects to return if they are temporarily away from it. It could be a single family, detached home or condominium or a duplex, tri-plex or four-unit. The owner(s) can deduct the qualified mortgage interest and property taxes on the schedule A of their tax return. There is a capital gains exclusion on profit of up to $250,000 for a single taxpayer and up to $500,000 for a married taxpayer.

Income Property - is improved property that is rented or leased to tenants as opposed to using it personally. It can include houses and condos, apartment buildings, office complexes, shopping centers, warehouses and other commercial buildings. Depreciation is allowed on the improvements. For property held more than one year, the profits are taxed at long-term capital gains rates. This type of property is eligible for a tax deferred exchange.

Investment Property ... can be raw land or improved property that is not rented or leased. This property is not subject to depreciation. If the property is held for more than one year, the profits are taxed at long-term capital gains rates. It is also eligible for a tax deferred exchange.

Dealer Property ... this type of property is primarily considered inventory because the intention is to sell it without intentionally holding it for more than a year. It could be new construction such as a home builder. It could be an investor who buys a property and expects to sell it for more. There is not a requirement to make improvements. The profits on dealer property are taxed as ordinary, "sweat of the brow" income. Dealer properties cannot be exchanged.

A second home is like a principal residence in that you can deduct the interest and property taxes on your Schedule A, up to the limits. A second home, as well as a principal residence, can be rented out up to 14-days a year without threatening the status of the property. Seconds homes are not eligible for exchange because personal use properties are not allowed. A second home is not a principal residence and profits are taxed like an investment property. If you own it for more than a year, it is taxed at long-term capital gains rates.

Vacation homes are rented for more than 14 days a year and are like income property but with some additional rules that apply. If your personal use is 14 days or less or 10% of the time it is rented, your expenses can be deducted in excess of income. If you use it for more than 14 days or more than 10% of the number of days it is rented, it is considered personal use and your expenses are limited to the amount of income collected with no losses being deductible.

Taxpayers can strategically change the property type based on their intentions. A principal residence can be converted to income property. Dealer property could become a principal residence. A rental property could become a principal residence.

Professional tax advice is always recommended to be able to understand the information and how it applies to your specific situation. 

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