Foolish Money Mistakes to Avoid

With April Fool’s Day rapidly approaching, what better time to discuss foolish money mistakes? We make lots of them, from budgeting errors to tax mistakes to investment blunders and everything in between.  So, let’s start with these five — as they pertain to housing:

1. Trying To Time The Market

Granted, some of us can’t buy a home because we don’t have good credit and can’t get financing. Many others, though, are stubbornly waiting for prices to drop further.  Timing the market, as such, is problematic because a housing bottom is only going to become apparent after the fact. Are you so risk-adverse that you’re missing the big picture here?  Home affordability is off the charts right now (Nationwide, home values are down 24% below their 2007 peak), and mortgage rates, while they have been ticking up lately (See next item.), remain at historic lows.  It’s a combination you don’t see often.

2. Fixating On Home Prices Only

We can’t emphasize this enough: prices are just one factor in how much a home will cost per month.  Mortgage rates are the other.  While still below where they were a year ago, rates are starting to rise as the economy improves. In fact, they recently topped 4%.  That’s up from 3.88% just two weeks ago, and is the highest level since late October. Some economists say rates are likely to keep rising throughout 2012 and into 2013, so even if home prices keep dropping, higher mortgage rates could counteract that, closing your window of opportunity.

3. Not Knowing Your Credit Score

This number is readily accessible so if you’re in the market for a loan, find out where you stand! To get your FICO score (a score used by most lenders), go to myfico.com ($19.95).  Other (free) options include creditkarma.com, creditsesame.com, and quizzle.com. Or, use Zillow’s credit score estimator (free).

4. Failing To Research Loan Options

A survey by Zillow Mortgage Marketplace shows that borrowers are spending twice as much researching a car purchase as they are home loans – five hours versus ten, respectively, even though the average cost of a home is about five times more than the average costs of a car.  Really now.

5. Overlooking Savings Of Doing A Refinance

An estimated 14 million creditworthy Americans, reluctant to refinance for any number of reasons, are overpaying their mortgages by an average of $471/month. By refinancing, these homeowners could save nearly $57,000 over 10 years.

Vera Gibbons is a financial journalist based in New York City and is a contributor to Zillow Blog. Connect with her at http://veragibbons.com/.

How To Buy An Investment Property With Your IRA, Retirement Funds

Are you ready to become a real estate investor and purchase your first rental unit…but, your money is tied up in your retirement accounts?

No worries, the self directed IRA to the rescue!

Using a self directed IRA you can buy something other than stocks, bonds and mutual funds, REAL ESTATE! Raw land, houses, condos, commercial properties and even mortgage notes — you can use an IRA to broaden your portfolio.

While home prices still haven't hit bottom nationally, demand is starting to grow, especially for distressed properties on the low end of the market.

Large scale investors, like hedge funds and other private equity firms are rushing in with cash on hand, and that gives them the upper hand in competition for these properties.

So how does an individual investor, without extra cash lying around, get in? 

Retirement funds!

It may sound risky, but with strong rental demand and relatively little supply of single-family homes, it could be far less risky than the stock market. That's because your gains are largely coming from rental income, not home appreciation, which is why this works so well in today's market.

The catch is that you have to do it through what's known as a self-directed IRA. Not a lot of firms do this, but some do: Guidant Financial, Sterling Trust, IRA Resources and PENSCO are a few. The firms act as custodian of your self-directed IRA, holding the property and dealing with all associated expenses.

“I’m generating close to $80,000 on $140,000 investment after expenses, it’s pretty much a no brainer,” says Pregel, who used a self-directed IRA.

This type of IRA does carry restrictions. The property must be used purely as an investment, with all the income going directly back into the IRA. The owner may not occupy the home or even use it as a vacation property. The owner can manage the property, doing maintenance and supervising the renting, or can hire a rental management company which would be paid for out of the IRA.

It is also possible to get a mortgage through the IRA, but it has to be what's called a non-recourse loan.

"It’s a loan that can only seek the property, the collateral, as its sole recovery, if the property goes into default, so you as an individual can’t sign up to guarantee the loan," says Rodriques. The IRA is not just purchasing the property, but it is responsible for liabilities and payments.

All this may sound complicated, but some say it's worth the extra time and energy. With a rising number of foreclosed properties coming to the market this spring, and banks far more willing to do short sales on troubled loans, opportunities are everywhere!

By: Diana Olick
CNBC Real Estate Reporter

A Guide To Taxes As A Homeowner

Hey there, homeowner! We’re happy you’ve got a slice of the American dream, and you’ll get the tax breaks that go along with it. In fact, some of these tax incentives apply to even a second home. Ooh la la!

Whether you bought, sold or just happily lived in your home this year, we’ll walk you through some of the tax stuff you need to know.

Just skim the “If you …” headers to find the sections that affect you.

If You Paid Interest On Your Mortgage …

You should have received a form 1098 from your lender, which will tell you how much mortgage interest you paid. You can deduct 100% of your mortgage interest and property taxes, as long as your loan is less than $1 million, ($500,000 if you are married and filing separately). If it’s over that, the IRS will limit your deduction. But here’s the catch: You have to itemize in order to claim the deduction. This is a choice that takes a little math and thought. But basically, you calculate your total itemized deduction, compare it against the standard deduction and then take the higher deduction.

You can also deduct late payment charges (please don’t consider this an incentive to pay late) and pre-payment penalties.

If You Paid Property Tax …  (Hint: You Did)

The property tax you pay each year is deductible. Usually these property taxes are paid as part of your monthly loan payments, so you can find that information on the annual statement from your lender. Real estate taxes can be deducted on federal returns even though they may not be deductible in the state where the property is situated.

If You Had A Loan Forgiven …

Depending on the time of debt, if a lender canceled it, you could be taxed as though that canceled debt were income. For example, if you had a mortgage of $10,000, paid $2,000 and the bank canceled the rest, you would be taxed as though you had $8,000 of income.

However, thanks to the Mortgage Debt Forgiveness Relief Act of 2007, the IRS will not charge income tax on a canceled debt. That means if you got a loan modification, short sale or foreclosure on your primary residence, you won’t be hit with a tax bill for it. This applies to up to $2 million in debt ($1 million if you are married, filing separately), that you took on to:

 Buy your primary home

Improve your primary home

Refinance the loan for your primary home  

This will only be in effect through 2012, so if you are considering a loan modification or other cancellation of debt, try to fit it in this year if possible.

If You Made Energy-Efficiency Improvements To Your Home …

The Nonbusiness Energy Property Credit is for homeowners who made energy-efficient improvements such as installing insulation, new windows or furnaces. For 2011, you can get a credit worth 10% of the cost of the qualified efficiency improvements you made. You can claim up to $500 over your lifetime.

What if your electricity comes from your own green sources? You should check out the Residential Energy Efficient Property Credit. This credit gives homeowners 30% of what they spend on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines and fuel cell property. No cap exists on the amount of credit, except for fuel cell property.

If in this coming year you decide you want to go green for your home, the IRS suggests that you check for a certification statement that the item is eligible for a tax credit before you purchase. This can normally be found on the packaging or the company’s website. Full details are available on Form 5695.

If Your Home Was Damaged In A Disaster …

If your home was damaged by a disaster like a tornado or fire, you might be able deduct the amount that wasn’t reimbursed by home insurance. To do so, you need to know your AGI. Then multiply that by 10%, and subtract that and $100 from the amount of damage not reimbursed.

Example: Let’s say your home sustained $20,000 in hurricane damage, but you were only reimbursed $10,000 by your insurance company. $20,000-$10,000 = $10,000 in unreimbursed damage. Your AGI is $70,000, so $70,000 x 10% = $7,000. $10,000 – $7,100 = $2,900 in deductible damage.

Special Note: Should You Take The Home Office Deduction?

Provided you are actually eligible for the home office deduction (learn more so you don’t get audited), deducting the expense could either be a smart decision or a poor one. That’s because once you claim that home office, it doesn’t count as part of your private residence anymore. When you sell your house sometime down the line, you’ll either make a profit or a loss. If you make a profit, the value of your home office will be taxed as a capital gain, at a maximum rate of 25%, costing you money. If you make a loss selling your home, you can deduct the value of the home office as a loss, making you money.

How the math works out for your depends on your situation, so it’s smart to talk to your tax preparer before you deduct your home office.

If You Paid Closing Costs …

Any origination fees that you paid your mortgage lender at closing are deductible, even if your lender paid the closing costs. You can find the exact figures on your HUD-1 settlement statement, which you received from your escrow provider or title attorney at or just after closing. If you can’t seem to find it, contact your real estate agent or mortgage broker to request it.

If You Paid Property Taxes …  (Hint: You Probably Did)

Like we explained above, usually your property taxes are paid to your lender as part of your loan. But if you bought your house this year, you probably paid your fair share of the property taxes upfront. You can find out how much you paid on your settlement documents, and deduct it.

If You Paid Mortgage Discount Points …

When you pay a “point” toward your mortgage, that means you paid the equivalent of 1 percentage point of your loan upfront at closing in order to get a lower interest rate. This doesn’t go to pay off your loan, but it can save you money in the long run, which is why people do it. If you paid mortgage points, you can deduct them if:

• The loan is secured by your primary residence
• The loan was used to buy, improve or build the home
• Paying points is a common practice in the geographic area of your new home
• The points are calculated as a percentage of the loan principal
• The points are clearly outlined on the buyer’s settlement statement, and
• The amount of cash you put into the purchase of your home (including down payment, closing costs, etc.) is at least equal to the amount you were charged for the points you paid on the loan

If you paid points to refinance your home instead of buying or improving your home, you deduct a portion of what you paid each year, spread out over the life of the loan. For example, if you paid 1,000 in points to refinance a 10-year loan, then you could deduct $100 each year.

If You Took Out A Personal Home Equity Loan …

What if you took out a home equity loan to pay for something other than your home, like tuition or home improvements? Well, it depends. Part or all of the interest you pay on that loan could be deductible for up to $100,000, or $50,000 if you are married filing separately. Here’s how the math works when it comes to tuition:

Let’s say your home is worth $200,000. You currently have a mortgage worth $150,000. So your home is worth $50,000 more than the mortgage. If you take out a home equity loan to pay for tuition, then you can only deduct the interest on $50,000 of that loan. That number would be the same whether you took a loan out for $60,000 or $200,000—you can only deduct interest on $50,000 of that loan.

If you find yourself getting hit with the alternative minimum tax (AMT), then you cannot deduct any portion of the interest on a home equity loan when calculating AMT.

However, if you used that $60,000 loan to build a shed and install a pool, you can deduct all of the interest whether or not you fall under the AMT. That’s because you used the loan to improve your property.

If You Made A Profit On Your Home …

If you sold your house for more than you paid, you technically made what is called a “capital gain.” Usually capital gains are taxed, but the gain you made on your home—up to $250,000 ($500,00 for married couples filing jointly)—is exempt from income taxes. You just need to have:

• Owned the property for two years, and
• Lived in it for two out of the last five years before you sold it

If you don’t meet these requirements, all is not lost. If you had to sell your home because of:

• Death
• Divorce or legal separation
• Job loss that qualifies for unemployment compensation
• Employment changes that made it difficult for you to meet mortgage and basic living expenses
• Multiple births from the same pregnancy
• Damage from a natural or man-made disaster
• “Involuntary conversion” by a local government under eminent domain law, for example …

Then the IRS will cut you some slack and only tax your gain partially. Learn more at the IRS website.

Also, if the gain you made is more than $250,000 (or $500,000 if you’re married filing jointly), dig around and see if you can find the receipts for any home improvements you made. That will establish the cost basis for the home as higher. For example, if you bought your home for $300,000 and made $50,000 in improvements, then sold it for $600,000, you can deduct that entire amount ($600,000-$350,000 = $250,000). If you hadn’t included those improvements, you would have been taxed on that extra $50,000 that exceeded the limit.

This post originally appeared on LearnVest.com on Feb. 15, 2012 and was written by Alden Vick. It is republished with permission from the Harris Real Estate University. Although we have provided this information for you, we are not tax professionals. We recommend that you speak with a professional tax preparer or accountant for additional guidance and advice. 

Letting Go By Getting Away!!

Letting go by Getting Away: An Overview of the Mind & Body Benefits of Vacations

Remember summer vacations when you were a kid? The anticipation of the last days of school and, even better, the seemingly endless days of summer stretched out before you? How would you like the thought of owning an affordable get-a-away spot that is located close to home??

Now imagine having that feeling today, or at least a slice of it, as you anticipate a long weekend or an even longer two weeks away from work.

We have just the solution for you!! We have three new listings in the Cal-Shasta Community at Lake Nacimiento that is located just 45 minutes from downtown Paso Robles. Click on the individual addresses to view the links and information for the properties at: 9410 Lion Lane, 3950 Nob Hill Road, and 4975 Loop Road

Been awhile since you’ve gone on vacation, you say? You’re not alone! More than one-third of U.S. adults do not always take all of their vacation days, according to travel Web site Expedia’s annual “Vacation Deprivation” survey.

Perhaps it’s because 38 percent of us regularly work more than 40 hours a week, according to Expedia, or maybe we’re too ambitious, too afraid of being replaced, or are just have a hard time indulging in relaxation -- even though we should.

Vacations are Good for You!

There’s a reason why vacations feel so good, and it’s that they are good for us in so many different ways. On a health level, vacations are like preventive medicine, allowing you to de-stress your body and mind before they blow.

"Workplace stress can take its toll. In order to maintain a strong state of mental health, the human body needs a release and a source of replenishment," says Dr. Dorothy Cantor, president of the American Psychological Foundation. “An ideal vacation should eliminate stress, encourage relaxation and provide opportunities for rejuvenation, making the benefits of the experience immeasurable."

From a career perspective, while many employees fear taking a vacation will set them back, the opposite is actually true. Vacations are necessary for you to be productive and efficient at work. In fact, according to a study by the Families and Work Institute, employees who are overworked (i.e., those who do NOT take vacations) are more likely to:

• Make mistakes

• Be angry at their employers and colleagues who don’t work as hard

• Have higher stress levels

• Feel symptoms of clinical depression

• Neglect themselves and report poor health

Relationships also stand to benefit from the time away. When’s the last time you gazed into your partner’s eyes as the sun set in an exotic locale? Created irreplaceable memories exploring a new city together? Showed your kids a bit of a culture they’ve never seen? Can’t remember? It’s time to cash in your vacation days.

How to Make the Most of Your Time Off

The point of a vacation is to relax and enjoy yourself, yet many of us get so bogged down with the details, the expectations and the mindset of having the “perfect” trip that we created undue stress. In fact, a full 50 percent of Americans say they need two days to “unwind” from their vacations, and the other 50 percent need even longer, according to the Families and Work Institute study.

Purchasing an affordable vacation home may be just the solution!! Contact us today to discuss the listings that we have at Cal-Shasta!

Click on the individual addresses for links to the properties at: 9410 Lion Lane, 3950 Nob Hill Road, and 4975 Loop Road

Foreclosure Or Short Sale ... Do You OWE Taxes?

10 Facts Regarding the Mortgage Debt Relief Act of 2007
A tax tip from IRS.gov

Canceled debt is normally taxable to you, but there are exceptions. One of those exceptions is available to homeowners whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012.

The IRS would like you to know these 10 facts about Mortgage Debt Forgiveness:

1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.

2. The limit is $1 million for a married person filing a separate return.

3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.

4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.

5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.

6. Proceeds of refinanced debt used for other purposes — for example, to pay off credit card debt — do not qualify for the exclusion.

7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.

8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions — such as insolvency — may be applicable. IRS Form 982 provides more details about these provisions.

9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.

10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit www.irs.gov. IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments, is also an excellent resource.

You can also use the Interactive Tax Assistant available on the IRS website to determine if your canceled debt is taxable. The ITA takes you through a series of questions and provides you with responses to tax law questions.

Finally, you may obtain copies of IRS publications and forms either by downloading them from www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

Form 982
Form 1099-C
Publication 4681

We do not give accounting or legal advice, but refer you to the appropriate professional. Remember that all of the web page addresses for the official IRS website, IRS.gov, begin with http://www.irs.gov. Don’t be confused or misled by Internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is http://www.irs.gov/.

Top 10 Things to Know Before Buying Your Home

#1: Just because it's a buyer's market doesn't mean you should buy right now.

You've probably heard that current housing market conditions make it a great time to buy a home. It's true -- affordable homes, historically low interest rates, and the homebuyer tax credits have encouraged many people to purchase their first places. But that doesn't automatically mean it's the right time for you to buy a home. You don't want to be stuck with a house you're not really ready for, so don't let the market dictate your decision. Before buying a home, ask yourself some questions to determine if the timing is right: Do you have a good credit score? Is your job secure? Can you stay put for a few years, at least? If the answer to these questions is "no," it might make more sense to wait until your life and finances are more stable. When that time comes, homeownership will be much more manageable and enjoyable.

#2: The cost of owning a home is more than just the purchase price.

As if a monthly mortgage payment isn't enough, there are several monthly fees and expenses you'll need to be prepared for when you become a homeowner: insurance, property taxes, utilities and maintenance, to name a few. When you add them all up, these costs can make owning a home significantly more expensive than renting. However, the costs of homeownership are bearable -- people pay them every day. You may just need to tweak your home buying strategy to bring them in line with your budget. Rather than buying the biggest, most expensive house you can afford, considering scaling back the size of the home you shop for to make the whole package more affordable.

#3: Programs are out there to help first-time buyers.

A sizeable down payment is never a bad investment: It gives you instant equity in your home, a lower monthly payment and a way out of paying dreaded private mortgage insurance. But if you can't scrape together enough cash to put 20 percent down, you don't have to give up on homeownership. There are many federal, state and local programs geared toward helping first-time homebuyers with down payments, interest rates and loan terms. The Federal Housing Administration offers many valuable resources, the most popular of which is the HUD 203(b) loan. FHA lenders provide 97 percent of financing, and most closing costs can be included in the loan.

There's also the HUD 203(k) loan, which offers a solution for a typical fixer-upper dilemma: Traditional lenders won't pay for the property until the repairs are complete, but buyers can't start repairs until they own the house. This FHA loan appraises the handyman special to estimate the cost after renovations, then gives you the money for the property and repairs.

#4: Foreclosures and short sales present great deals, but proceed with caution.

There's been a lot of buzz around the foreclosure and short sale markets lately, and for good reason: Many homebuyers have gotten great deals on these types of properties. However, buying a foreclosure or short sale can come with a number of pitfalls, making them a risky choice for first-time buyers. For starters, foreclosures are often sold "as-is," meaning the bank will not pay for any repairs. Since maintenance is not always a top priority for homeowners facing foreclosure, these properties may need a significant amount of work, adding hidden costs to the purchase price.

The transactions -- particularly when it comes to short sales -- are also lengthier and more complicated than a typical home purchase. Plus, average homebuyers have to compete with seasoned real estate investors, who often make attractive all-cash offers. But if you stumble upon a great deal, a buyer's agent or real estate attorney who specializes in foreclosures can walk you through the process.

#5: Getting pre-approved for a loan gives you more buying power.

Before you start perusing listings and touring houses, be sure you have a pre-approval letter in hand. A pre-approval letter, which proves that a lender has conditionally offered you a specific mortgage, is important for several reasons: First, it establishes your maximum purchase price, so you don't shop for homes above your price range. Second, it shows sellers you're serious about buying and allows you to make an offer as soon as you see a home you're interested in. Finally, if you get pre-approved by several lenders (which you should), you can compare interest rates and terms to find the best deal.

#6: Good school districts boost property value.

Even if you don't have kids, buying a home near sought-after schools can help with resale. That old real estate adage -- location, location, location -- really is true. The most important aspect of a home's value is the neighborhood it's in, so shop for homes in the best areas you can afford. If you're priced out of the neighborhoods you want to be in, look for the area's fixer-uppers. These homes will need work, but they'll have built-in property value.

#7: You may be able to access your tax credit upfront.

If you're thinking about buying a home (or even if you're not), you've probably heard plenty about the federal housing tax credit -- a tax allowance of up to $8,000 for first-time homebuyers and $6,500 for repeat buyers. However, you may not know that it's possible to access your tax credit upfront, rather than waiting to claim it on your tax return. HUD is now allowing "monetization" of the tax credit, meaning buyers using FHA-insured mortgages can apply their anticipated tax credit toward their home purchase immediately, rather than waiting until they file their income taxes to receive a refund. The credit can be used for certain down payment and closing cost expenses.

Prospective homebuyers who believe they qualify for the credit are also allowed to reduce their income tax withholding, therefore increasing their take-home pay. This money can then be applied to a down payment on a home.

#8: Not all real estate agents represent buyers - WE DO!!

You may think all real estate agents are looking out for your best interests as a homebuyer, but this isn't always the case. There are two types of agents: listing agents, who represent sellers and help them get the best price and terms for their properties, and buyer's agents, who represent buyers and protect their interests during the negotiating and closing processes. An agent can be both a listing agent and a buyer's agent, and sometimes one agent will represent both the buyer and the seller in the same transaction. This scenario -- called "dual agency" -- creates a difficult situation where the agent is forced to balance the interests of both the buyer and the seller.

If it all seems quite complicated, that's because it is. Real estate representation is a tricky subject with complex laws that vary from state to state. For your first time buying a home, you may feel more at ease working with an exclusive buyer agent. This type of agent never takes listings, therefore eliminating any possible conflicts of interests with sellers.

#9: Doing your homework can help you make a competitive offer.

Before you make an offer on a home, you need to crunch the numbers to figure out the property's market value. While precisely pinpointing this number is tough, it's not a total guessing game either. Have your agent do a "comparative market analysis." He or she will compare the home you want to buy to recently sold homes in the area with the same square footage, construction, age and other characteristics. The CMA will show you what buyers were willing to pay for similar homes in the neighborhood, giving you a good starting point for shaping your own offer.

#10: Hire a home inspector

When you fall in love with a home, you may be prepared to do anything to get it. You may even be tempted to make an offer without getting a home inspection or an appraisal. Don't do it! For such a momentous purchase, you want to know exactly what you're getting into and have an escape route in place if things don't go as planned. That's where contingencies come in. If the home has an irresolvable flaw, it doesn't appraise for the purchase price, or your lender refuses to fund your loan, having contingencies on your contract gives you the right to cancel the transaction. 

By: HGTV Front Door