Home Buyers Getting More Conservative?

 

Borrowers tend to fall into two camps:  Conservative buyers who are willing to pay more now for not having the risk of payments going up later, and the rest who focus almost solely on the monthly payments, asking "what is the smallest payment that will get me into a house?"

 

Both groups are shying away from short-term adjustable loans.

 

For conservative borrowers, the chance that the payment could increase beyond their comfort level is a very real and unwelcome possibility.  They prefer the certainty of a fixed-rate 15- or 30-year mortgage.

 

For buyers intent on getting the smallest possible monthly payment, adjustable rates are no longer automatically the ideal.  Payments can go up and the ability to refinance in a few years is not a sure thing anymore.

 

Which camp do you find yourself in right now?  We'd love to hear your commment below.

 

 

 

Why Some Sellers May Get a Break From the IRS

 

Most people who sell their home after having owned it for at least two years don't have to pay federal taxes on their gain.  A sale in less than two years after the purchase, however, often triggers some sort of tax hit.  But even owners who need to sell in less than two years may qualify for special relief if they had to sell because of "unforeseen circumstances," according to a 1997 law.

 

The general rule is that you can exclude a gain of as much as $500,000 if filing a joint return with your spouse, or as much as $250,000 if single or filing separately, under certain circumstances.  To be eligible for this full exclusion, you typically must have owned your home, and lived in it as your primary residence, for at least two of the five years prior to the sale.  This rule applies only to a main residence, not a vacation home.

 

Even if you can't meet the two-year tests, you still may be eligible for a reduced exclusion if you had to sell because of "a change in place of employment," health reasons or "unforeseen circumstances."  An IRS publication offers a general definition of unforeseen circumstances as "the occurrence of an event that you could not reasonably have anticipated before buying and occupying your main home."

 

Talk to your tax accountant or advisor to see whether you might qualify under the "unforeseen circumstances" ruling, or see the IRS Publication 523 for more information.

 

Think you might qualify for such an exception?  Post your comment here and we'll try to get an answer for you.

 

 

 

How and When to Bid Low on a Property

 

With prices stagnant or falling and inventory up in many markets, home sellers are no longer automatically turning up their noses at offers that come in far below their asking price.

 

Buyers who make offers asking for deep discounts still risk offending sellers to the point where they quash any deal.  Some real estate professionals suggest that before making an aggressive offer, some homework is in order.  Buyers might want to effectively explain why the price of a home should be lower.

 

Here are some guidelines on how — and when — to make an aggressive bid:

 

1. Learn how motivated the seller is to make a deal.

 

• Certain sellers are going to be more willing than others to negotiate a low offer — and there are several reasons which might indicate more leeway on price.
   
• If the sellers have already purchased another home and that sale has closed, they're usually more likely to be willing to make a deal.
   
• If the property has been on the market for a long time, sellers will be interested in entertaining any offers.
   
• Overall local market conditions also play a role.  Is the market sluggish, or is it still a hot or competitive market?

 

2. Make your case with hard facts.

 

According to Jon Boyd, an Ann Arbor, Michigan broker and president of the National Association of Exclusive Buyer Agents, "When you're making the offer, if you justify that offer with outside data, then it's much less likely to be perceived as being an insult or [the buyer] not as serious."  When putting together an aggressive offer for a client, Mr. Boyd doesn't just hand the seller a purchase agreement with the price the buyer is willing to pay — he creates a cover letter explaining exactly where that number came from. 

 

In addition to citing comparable sales in making the offer, it also could be important to include details regarding the amount of inventory in the immediate surrounding area, he says.

 

3. Prepare for the possibility of rejection or negotiation.

 

Dick Gaylord, president elect of the National Association of Realtors and a broker in Long Beach, California says he warns buyers making very low offers that the seller might refuse to negotiate.

 

Danielle Kennedy, a real-estate sales coach and author based in Pacific Palisades, Calif., advises sellers not to think of a low offer as an insult but as "a sign of interest."  It "begins the dialogue regarding the purchase of your house," she says.

 

Have you made an offer on a property that you (as the buyer) thought may have insulted the seller due to the low offer?  Have you (as a seller) received a "low-ball offer" from a potential buyer?  We'd love to hear your comments either way.

 

 

 

How Not to Lose Your Home to Foreclosure

 

The most obvious way not to lose your home to foreclosure is by always making your payment on time.  That's a given, but sometimes, things happen.  As a growing number of borrowers fall behind on their mortgage payments.  If you fall into this ever-growing category of homeowners, the smartest move you can make is to contact your lender.

 

These days, there's more incentive for companies to work with borrowers to avoid foreclosure: Regulators and lawmakers, prompted by troubles in the mortgage market, are encouraging companies to assist troubled borrowers.

 

Major lenders in the subprime mortgage market have agreed to a set of principles calling for servicers to try to modify loans before the interest-rate reset if borrowers will be unable to afford the new payments, among other actions.

 

Lenders also have a financial incentive to keep you in your home: They can lose tens of thousands of dollars for each loan that goes into foreclosure.

 

Contacting your lender before your situation seriously deteriorates will improve the chances that you keep your home. Consider this: Half of borrowers whose homes go into foreclosure never talk to their servicer.  How crazy is that?

 

Call your loan servicer:  By doing so, you can try to arrange workout options that will keep you in your home. A lender may be able to modify the loan to make it more affordable in the long term.

 

The very LAST THING you should do is just not contact anyone and continue to get further and further behind on your mortgage payments.

 

We welcome your comments or reaction to this advice.  If you have any experience in this category, or advice for any other readers at this site, please leave your comment below.

 

 

 

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Fed Move Eases Panic

 

The Federal Reserve's recent move to encourage bank lending has helped ease some of the panic in financial markets, but the underlying problems that led to the seizing up of credit are still there - and obviously won't disappear overnight.

 

The credit crisis escalated last week, forcing the Fed to cut its little used discount rate - the rate it charges member banks for temporary loans - a rare move for the central bank.

 

The Fed's decision to cut the discount rate was designed to get banks lending again and reassure the market - and so far that appears to be working.  But for borrowers, the real move to watch is the one when the Fed takes on its more closely watched fed funds rate, a key short-term rate that influences rates on a variety of consumer loans.

 

Some analysts said it looks more likely now the Fed will cut this rate to keep the credit crunch from becoming a drag on economic growth when it next meets on Sept. 18, or even earlier if there's further turmoil in the credit markets.  The fed funds rate now stands at 5.25 percent.

 

We'd love to hear your comment.  Did the move by the Federal Reserve do ANYTHING to boost your confidence in a sagging economy?  Leave your comment below.