The Atrium Condominiums in Arlington Virginia

The Atrium in Arlington VA is an upscale condominium building located in the Rosslyn neighborhood at 1530 Key Boulevard.

With beautiful Potomac River and Georgetown views, the Atrium offers a contemporary style unlike anything in the area – waterfall in the lobby – floor-to-ceiling windows – glass elevators!

Built in 1986, this modern and stylish condominium building boasts 350 units on 13 stories. The location is just blocks from the Rosslyn Metro station, right around the corner from markets such as Target and Safeway and less than a block or two from popular restaurants such as Kona Grill, Starbucks, Pho 75 and Heavy Seas Alehouse.

The complex is set away from nearby freeways but has easy access to Interstate 66. The Francis Scott Key Bridge is within five or six blocks.

Read full article for floor plans and condo prices...

Ballston Row Community in Arlington VA

Ballston Row Community in Arlington VA is the sister to Buckingham  Commons which sits on the other side of George Mason Drive and Henderson Road. It is 2 minutes to the future Ballston Quarter, the exciting redevelopment program which has been approved by Arlington County and includes the Ballston Common Mall renovation. Upon completion, there will be a new plaza and mews, a new mixed-use building (residential and retail) with a total of 22 storeys and 405 units with ground floor retail space occupying 51,000 square feet.
Expect Ballston and these immediate surrounding developments to explode with even more popularity!

They join the many condo complexes and retail and shopping interspersed with the metro stations making Ballston a magnet for the young professionals and singles who have embraced the urban living lifestyle.

Ballston Row community allow for move-up opportunities from condo living without having to leave the area and being able to continue to enjoy all that Ballston offers in a more lavish fashion.

The well-laid out community has as its borders George Mason Drive, Henderson Road, Upton Street and 3rd Street.
There are 68 townhomes in Ballston Row which shares its small park with The Madison Apartments at Ballston.

Read more about Ballston Row...

Avoid Wasting Time

“If you waste my time, don’t expect me to hang out with you very long.” This could have been said by a buyer or seller or a real estate agent. Time is valuable and no one wants to waste their time.

Most people can’t put their lives on-hold while they’re trying to buy or sell a home. Whether they have a family, a couple or single, life continues and the time constraints of moving can become burdensome.

Your agent is committed to helping you save time while making the experience memorable. They know the process and the potential problem areas and can help you move through them.

To preserve your time and your agent’s, please consider the following:

• If your plans to buy or sell change, let your agent know.
• Be on time for appointments or if it is necessary, cancel them with as much notice as possible.
• Get pre-approved through a trusted mortgage professional.
• Cooperate with your loan professional by providing all requested documentation.
• Don’t wander into builder or REALTOR® open houses without your agent. If you find yourself in that situation, immediately notify them that you have an agent.
• Only talk to the other party through your agent until after closing.

Your agent is working to help you meet your goals. Things work best when it’s like a partnership where each party mutually respects the other and their resources including their time.

Picture This!

Listing photos may be one of the most important marketing efforts that lead to a potential buyer.

Nearly, all buyers use the Internet during the home search process. They usually start looking at homes online before they contact an agent. It’s far more efficient to screen properties by looking at the pictures that have been posted than to make appointments with each homeowner, drive all over town and waste a lot of time looking at homes that would never meet a buyer’s criteria.

• There needs to be enough pictures of a property to adequately represent the home; most websites allow for at least 24 and more may be needed if it is a large home.
• Take horizontal shots to accommodate the format of most listing websites.
• The pictures should be well-lit so that it is easy to see all of the features of the room. Natural light is preferred over the limitations of flash.
• They should be taken with a wide-angle lens so that you can see the majority of the room in one picture.
• Large rooms can be taken from different angles to give the buyers a different perspective.
• Rooms should be set if not staged prior to taking the pictures so they will give the buyer an idea of what the room might look like with their own things in it.
• Arrange pictures in website to help buyers visualize the floorplan as if walking through it.
• Think about using a tripod; professionals do to absolutely hold the camera still.
• They should definitely not be “photoshopped” to modify factual elements like removing power lines.

Everyone occasionally takes a great picture but it doesn’t make them a photographer. Since the photography can be one of the most important marketing efforts, consider using a professional photographer to show the home to its best advantage.

How Will It Feel?

It has been said that change is the only constant. Most of the financial experts have been expecting interest rates to increase along with home prices. While homes, in most markets, have definitely seen increases over the past five years, the mortgage rates today are actually lower than they were a year ago.

If the interest rates were to increase by 1% over the next year while homes appreciated at 6% during the same time frame, a $250,000 home would go up by $15,000 and the payment would be $211.53 more each month for as long as the owner had the mortgage. The increased payments alone would amount to $17,769 for the next seven years.

When facing a decision to postpone a purchase for a year, a legitimate question to ask oneself would be: “how will it feel to have to pay more to live in basically the same home a year from now?”

It is easy to understand that if the price of a $250,000 home goes up by 6%, it increases the price by $15,000. A slightly more difficult concept to realize is that if the interest rate were to go up by ½%, it is approximately equal to a 5% increase in price. A 1% increase in mortgage rates would approximately equal a 10% change in price. This means that if a home goes up in price by 6% and the interest rate goes up by 1%, it is equivalent to the price of the home going up by a little more than 16%.

Use the Cost of Waiting to Buy calculator to estimate what it might cost to wait to purchase based on your own estimates of what interest rates and prices will do in the next year.

Increase the Chance of Being Accepted

While all contracts must have certain required elements, mutual assent, consideration, capacity and legality, there are some things that increase its chance of being accepted.

The seller generally wants the highest possible price with the fewest inconveniences in the shortest period of time. In the same way, the buyer generally wants the lowest possible price with the fewest inconveniences in the shortest period of time.

The perspective of the principal can change depending on how these different parts of an agreement are structured.

• Offer Price - While the price of the home seems to be the major point of contention in a home negotiation, the seller’s net proceeds and the buyer’s mortgage payment may actually be more critical.
• Financing - 86% of buyers financed their recent home purchase as opposed to the 14% who paid cash. Some financing has higher fees than other types of financing and in some instances, sellers must pay the additional charges on behalf of the buyer.
• Concessions
  • Seller-paid closing costs – paying all or part of a buyer’s closing cost requires less cash outlay for the purchaser and makes it easier or more appealing for them to buy the home.
  • Seller-paid buydown – prepaying interest to the lender on behalf of the buyer gives them lower payments for the first one, two or three years even though they must qualify at the note rate of the fixed-rate mortgage.
  • Personal property – seller may agree to include existing or new personal property like washer, dryer or refrigerator.
  • Improvements – seller may agree to make modifications to the existing condition of the home like floor covering, countertops, appliances, painting or other things.
• Earnest Money – more money gives the seller a sense that the transaction is more likely to close while putting the least amount at risk is generally, more appealing to the buyer.
• Timing – depending on which party is more flexible, sometimes an earlier or later closing or a position on occupancy can be an offsetting consideration that can balance the differing terms.
• Contingencies or lack thereof – requirements that must be satisfied before the contract can be closed.

The training and experience of a skilled negotiator can benefit both buyers and sellers to save time, avoid difficulties and bring all parties to an agreement. Your real estate professional should be able to help you structure a good offer and negotiate a win-win situation.

The Right Questions are Key

Asking the right questions will lead to the answers that help you determine which agent to use for one of the largest investments that most people make…the purchase or sale of their home.

Rudyard Kipling wrote the verse “I keep six serving men, they taught me all I knew; their names were what and why and when and how and where and who.” Prefacing your questions with one of these words can help you get the information you need to make a good decision about the REALTOR® you use.

• How long have you been selling homes and is this your full-time job?
• What designations or other credentials do you have?
• How many homes did you and your company sell last year?
• What is your average market time compared to MLS and your top competitors?
• What is your sales price to list price ratio?
• When will you report to me on the progress of my transaction?
• Who can you recommend for service providers like mortgage, inspections, repairs and maintenance?
• Why do you want to work with me?
• Where are the biggest opportunities to expose my home to the largest market?
  

Finding the right person to represent you is a little like the person who ordered a lobster dinner at a restaurant. When the waiter brought out the meal, the lobster only had one claw. The customer asked why it only had one claw and the waiter said: “I don’t know; I guess it was in a fight.” The customer looked at him and said: “then, bring me the lobster who won.”

Opportunity Can Disappear

In the last few years, some people who were unable to sell their homes, rented them instead. The market has improved in most places and the home may easily sell now and possibly, for a higher price.

Even though the opportunity to sell in the near future might not change, there could be another opportunity that could quickly disappear for some homeowners.

Most homeowners are aware that there is a capital gain exclusion on the profits of a principal residence of up to $250,000 for single taxpayers and $500,000 for married taxpayers filing jointly. The rule requires that you must own and use the home as your principal residence for two out of the last five years.

A homeowner can rent their home for up to three years and still be eligible for the exclusion. As an example, if they had owned and lived in it for two years and then rented it for two and a half years, they would need to sell and close the transaction before the remaining six months expired.

If there was a $200,000 profit in the home that didn’t qualify for the exclusion, a 15% long-term capital gain tax of $30,000 could become due depending on the tax bracket of the owner. With some careful planning, the tax could be avoided. Awareness of the time frames and the right team of tax and real estate professionals could save a considerable amount of the homeowner’s equity.

Retirement Funds for Home Purchase

For the person who has good credit and income but not enough money for the down payment on a home, their qualified retirement program could offer them some help. The rules are different depending on whether it is a 401(k), a Roth IRA or a traditional IRA.

Up to half of the balance of a 401(k) or $50,000, whichever is less, can be borrowed by the owner at any age for any reason without tax or penalty assuming the employer permits it. There can be specific rules for loans from 401ks that would determine the repayment; interest is usually charged but goes back into the owner’s account. You can consult with your HR department to find out the specifics.

A risk in borrowing against a 401(k) comes if your employment ends before the loan has been repaid. The loan may have to be repaid with as soon as 60 days to keep the loan from being considered a withdrawal and subject to tax and penalty. Even if you continue with the same employer, failure to repay the loan could be considered a withdrawal also.

Roth IRA owners can withdraw their contributions tax-free and penalty-free at any age for any reason because the contributions were made with post-tax income. After age 59 ½, earnings may be withdrawn as long as the Roth IRA have been in existence for at least five years.

Traditional IRAs have a provision for first-time buyers which include anyone who hasn’t owned a home in the previous two years. A person and their spouse, if married, can each withdraw up to $10,000 from their traditional IRA for a first-time home purchase without incurring the 10% early-withdrawal penalty. However, they will have to recognize the withdrawal as income in that tax year. For more information, go to IRS.gov.

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

If you want more information to clearly understand the issues involved relative to your specific situation, talk to your tax professional or consult www.IRS.gov.

Choose a Lower Tax Rate

During campaign season, it is not unusual to hear a candidate criticized because they make a lot of money but pay little in income tax. While it might not seem fair, taxpayers are allowed to arrange their affairs so that they minimize the amount of tax paid.

Salary, wages and commissions, along with interest and dividends are taxed at ordinary income rates which can range from 10% to 39.6%. However, capital gains rates, for property held more than 12 months, are much lower ranging from 0% to 20%. Taxpayers in the 25-35% brackets pay LTCG rates of 15%.

The profit on rental property enjoys the lower long-term capital gains rates as compared to the profit on “flipped” property which is taxed at ordinary income rates.

Investments in rental homes generate income, provide depreciation for tax shelter, have equity build-up due to the amortizing loan, leveraged growth due to the borrowed funds and appreciation. The profits could be considerably higher than alternative investments and the profits taxed at lower rates.

The advantage is available to people who understand the tax laws and choose to arrange their activities so they pay a minimal amount of tax. The advantage is available to all taxpayers, not just the rich. In fact, implementing these types of strategies could lead to an increase in wealth.

Consider having this discussion with your tax professional.

Increase Your Marketability

The seller has three tools available to affect the marketability of their home: price, condition and terms. Price is the easiest to adjust for the competing properties, amount of inventory or market conditions. However, lowering the price is not necessarily the best decision when trying to maximize the proceeds of sale.

If a home is in poor or outdated condition, updating can be done to make it show favorably with other homes that are currently on the market. Sometimes, sellers rationalize not doing the work by saying they believe the buyers would rather make their own choices. The truth is that most buyers are using all their resources to get into the home and will have to live in its present condition until they can save enough to make the changes they want.

Another reason to go ahead and invest the money and effort into improving the condition is that it is difficult for buyers to imagine the home any other way than its current condition. When comparing one home to another, buyers will sometimes refer to a home as the “stinky house” or the “old kitchen” which may put it at a disadvantage.

While price and condition are the main things that control the marketability, terms can be equally effective. Terms relate to financial considerations made by the seller to induce a buyer to make a decision to purchase their home.

Seller-paid points or closing costs, interest rate buy downs and owner-financing are examples of terms that may increase the marketability of a home because of the additional benefits they offer to buyers.

An example could be that a seller will carry a 10% second lien so that the buyer can get an 80% loan and avoid the expense of mortgage insurance. The seller gets most of their equity plus a fair interest rate on the loan that doesn’t have to be tied up for 30 years like the first mortgage.

Increasing the marketability of your home is a great conversation to have with your real estate professional especially to help you get the highest price in the shortest time with the fewest problems. Just be aware that not all agents may be as creative as some.

If you're going to play, GET IN THE GAME

If competition is a buyer’s biggest concern, for goodness’ sake, get in the game. In a new survey of close to a thousand home buyers conducted by Redfin, affordability is still the number one concern but due to low inventories, competition from other buyers is moving its way up the poll.

26% identified affordability while 19% mentioned competition and 15% mentioned low inventory as their respective top concerns.

To win, athletes study the competition to come up with a plan and buying a home is not different.

1. Ask what terms are important to the seller before you write the offer.
2. Once you decide to make an offer, do it as fast as you can, hopefully, to be the only one the seller is considering.
3. Make a good (or possibly, your best) offer in the beginning; you may never get a chance at improving it. In highly competitive situations, offer above the list price.
4. Attach your pre-approval letter from a respected lender. This means you’ll need to get pre-approved before you even think about writing an offer.
5. Have your lender call the listing agent to reassure them of your ability to qualify.
6. Include a higher than normal amount of earnest money to show you are serious.
7. Eliminate unnecessary contingencies.
8. Write a personal, hand-written letter telling the seller what you like about their home and why you want it. Consider including pictures of your family.
9. Minimize seller expenses paid for the benefit of the buyer.
10. Shorten inspection times.
11. Don’t ask for personal property.
12. Be flexible on closing dates to accommodate the seller’s move.

Once you find your dream home, don’t take a chance on losing it. Write a winning offer that will be good for both the sellers and the buyers.

Your Tenants Will Send Your Kids to College

Parents, with children getting closer and closer to entering college, may also be feeling stress because they haven’t saved enough for tuition and other expenses. It’s estimated that the average cost for the 2015-16 school year is $32,405 for private colleges, $9,410 for state residents of public colleges and $23,893 for out-of-state residents.

If you started saving the year your child was born, you’d have to save $4,608 per year for 18 years at 5% to accumulate $129,620. If you waited until they were 10 years old, you’d have to save $13,574 per year to have the right amount. Saving enough can be difficult if you have a lot of time but if you only have a short time to meet your goals, it can seem impossible.

Student debt is one way to handle the tuition but many parents are reluctant to saddle their children with the obligation. Currently, there is more than $1.2 trillion in outstanding student loan debt to 40 million borrowers with an average balance of $29,000. Some economists suggest that this debt is delaying would-be buyers from making their first home purchases.

There is another way to pay for the education by making an investment in a rental property. Rents are continuing to rise, homes in owner-occupied neighborhoods are appreciating and the leverage due to borrowed funds can be a huge help in building the equity to pay the tuition.

Rent the home and maintain its condition over the years. As the loan amortizes and the value increases, the equity will grow. When your student is ready to start college, you'll actually have several options.

You can sell the property; pay the tax on the gain at the reduced capital gains rate and fund the education. Another option would be to refinance and take the proceeds to pay for the tuition. This would allow you to continue to own the asset but would free your equity. Under current tax laws, it is a non-taxable event.

In effect, your tenants are paying to send your kids to college.

The Obvious Alternative Investment

Rental homes can be a natural alternative investment choice for homeowners because they are already familiar with houses. Maintenance on a rental is not that much different than on your personal home. The same plumbers, painters and other workmen can be used to make repairs.

Single family homes offer an investor high loan-to-value mortgages at fixed interest rates for long terms on appreciating assets with defined tax advantages and more control than other investments.

1. High loan-to-value mortgages – most investments require that you pay cash but rental properties can be purchased with 20% down payment.
2. Fixed interest rates – most commercial loans are based on a floating rate such as prime interest plus one or two percent compared to real estate loans as fixed rates for the term.
3. Long terms – commercial loans are generally short-term such as six months or a year with the possibility of being renewed for another six months or a year unlike real estate where a 30-year mortgage is commonplace.
4. Appreciating assets – real estate has a long-term history of going up in value.
5. Defined tax advantages – many investments are taxed as ordinary income but rental real estate enjoys a non-cash deduction called cost recovery, the profits from sale are taxed at lower long-term capital gains rates or may be eligible for a tax-deferred exchange.
6. Control – rental homes don’t require partners and afford the investor more options than investing in mutual funds and other traditional investments.

The demand for good rentals is strong and the rents continue to go up in most markets.  There are people who choose not to buy or cannot buy a home who would prefer to live in a single family home rather than an apartment.

7 Out of 50 Could Save Money

It is estimated that seven million out of 50 million homeowners could save money by refinancing their existing mortgages. Obviously, if the replacement mortgage has a lower rate than your existing one, you will save money.

If you bought a home before 2011 and are paying mortgage insurance, you should investigate refinancing to eliminate that requirement. Even if you don’t get a lower interest rate, the savings could amount to hundreds of dollars a month.

If a home you purchased since 2011 has appreciated enough, it could easily justify refinancing to eliminate the required mortgage insurance. Most loans don’t require mortgage insurance if the loan-to-value is 80% or less. There are some programs for 90% mortgages that don’t require mortgage insurance. It is certainly worth investigating with a trusted mortgage professional.

Continuing to pay mortgage insurance that could be eliminated is like having a broken cell phone and continuing to make the monthly payments for something you can’t use and don’t need.

If your current mortgage is several years old, instead of getting a new 30 year mortgage, you might consider a 15-year term. The money you save with a lower interest rate could help you to retire your loan in a shorter time so that your home would be paid for.

You may never stop paying for some improvements

You've saved the money and are ready to pay cash to build a new pool for your home.  However, that's just the beginning of your soon to be increased expenses which will include maintenance, higher utilities and higher taxes.

Homeowners obviously benefit by a larger equity when their home increases in value due to appreciation.   A not-so-obvious effect that will also more than likely take place is that their property taxes will increase.  In most cases, a property's assessed value is generally tied to market value to calculate the property taxes based on the tax rate for that year.

Similarly, a homeowner can affect the value of their home by making capital improvements.  Some small items may never be recognized by the taxing authority but items that require a permit, certainly are brought to their attention.  Items such as a fence, roof, remodeling, windows, new rooms or swimming pools can easily increase the assessed value of a property.

Most states have an established time frame in which to challenge the current tax assessment for that year.  The process is relatively simple and doesn't require professional representation.  It generally involves showing that there is an error which has overstated the value or that current comparable sales indicate a lower value.

If you'd like more information or need the comparable sales data, please let us know.  We would be happy to help you investigate the possibility of lowering your property taxes.

Your home may be worth a lot more than you think

Real estate lost a lot of value during the recession but most areas have rebounded considerably.  In some cases, the homes are worth more than they were before the housing bubble burst.

The dynamics are classic for this type of market: inventories are low, mortgage rates are low and demand is high.  All price ranges are on the rise with some at an even higher rate because the short supply is causing competition among buyers.

Another reason many homeowners' may have more equity is simply not staying current with what is going on in the market.  In a recent FNMA study, it indicates that 23% of owners believe they have negative equity in their home when actually, it is 9%.  37% believe they have greater than 20% equity in their home when actually 69% of homeowners do.

Even if you're not planning to sell your home, knowing the value helps you understand your financial position better.  The interest on home equity debt up to a $100,000 limit is tax deductible and can be used for any purpose.  Owner's commonly refinance to eliminate mortgage insurance, consolidate mortgages, pay off higher interest rate debt like credit cards or student loans or to buy out an ex-spouse's equity.

Be aware that an automated value model like Zillow Zestimates uses algorithms to determine a price and while it might be in the ballpark, AVM results may only be accurate about 20% of the time.  A comparable marketing analysis or broker's price opinion will be more accurate due the subjective approach that will be used by an agent with personal experience in the area.  An agent will consider factors like condition, floorplan, marketability and demand.

Temporary Buy Down

There is an infrequently-used mortgage program available that could be the solution to a buyer's or seller's problem.

A temporary buydown is fixed rate mortgage that the seller has prepaid interest at closing to lower the payments for a number of years.  The borrower must qualify at the note rate but gets the benefit of lower payments for the early years.

A 2/1 is a common buydown that the first year's payment is calculated at 2% lower than the note rate and the second year's payment is calculated at 1% lower than the note rate.  The third through thirtieth years' payments are the note rate.

Let's set the scene.  A buyer is using their available cash for down payment and closing costs to get into the home.  They'd like to put their own touches on the home when they move in but may not be able to for a year or two since most of their cash was used.

In this example, a $250,000 home is purchased with a 3.5% down payment and a 4% mortgage for 30-years.  Normally, the principal and interest payment would be $1,151.76 for the full 30-year term.  If the seller will pay the lender $4,736 at closing, it can be applied to pre-pay part of the interest for the first two years.

The first year, the buyer's P&I payment will be $891.71 for 12 months based on a 2% interest rate or 2% lower than the 4% note rate.  It is $260.06 lower per month in the first year.  The second year, the buyer's P&I payment will be $1,017.12 for the next 12 months based on a 3% interest rate or 1% lower than the 4% note rate.  It is $134.64 lower per month in the second year.

A bonus for the buyer will be that the cost of the buydown paid at closing by the seller becomes prepaid interest that is deductible by the buyer in the year of purchase.  The buyer gets lower than normal payments for the first two years and a sizable tax deduction.

This type of program can be very beneficial to a seller who wants to offer terms to improve the marketability of their home rather than lower the price.  The challenge will be explaining it to not only potential buyers but even agents who are not familiar with this program.

102 HUDSON ST S ALEXANDRIA VA - OPEN HOUSE

102 HUDSON ST S ALEXANDRIA VA - OPEN HOUSE

Tips for Buying Rentals

Buying rental property can be an excellent decision and the better informed you are, the more likely you'll have favorable results.  The following suggestions can help you with your decisions.

Real estate is a long term investment affected by supply, demand and the economy.  It isn't an investment that is easily converted to cash.  The costs to acquire and dispose of real estate are sizable and need to be spread over years to minimize their effects on the rate of return.

Invest in average price homes or slightly below average price to appeal to the broadest market not only when you are renting but later on when you sell it.  The average price is relative to the market you are in and those specific prices.

Lower-priced homes will rent for more relative to higher-priced homes.  There is an inverse relationship between rent as a percentage of the price.  As the price increases, the rent as a percentage of the price decreases.  For example, a $200,000 home might rent for $1,750 a month or 0.88% where a $400,000 home might only rent for $2,250 a month or 0.68%.

Choose predominantly owner-occupied neighborhoods because when you sell the home, it will appeal to a homeowner who will most likely pay a higher price for the home.  Homes in predominantly tenant-occupied neighborhoods tend to sell to investors who pay lower prices and will not be emotionally involved with the purchase.

Purchase a property with the idea of selling it in mind.  You may be able to get a property for a bargain price today but if it is due to a functional obsolescence like a bad floorplan or not enough bathrooms, that problem will still be there when you're ready to sell the property.  Identify what the problem is and what solutions are available.  The property may rent fine in that condition but before you sell, it will need to be corrected.

Get the home inspected before you purchase it.  Having the property checked out can save thousands in unanticipated expenses. 

Consider getting a home warranty on your rental.  The annual premium can limit the out of pocket expenses for repairs and maintenance.

Risk can be minimized by understanding the investment and what is involved in the acquisition, operation and disposition.  For the typical homeowner, rental property is something that they can relate to because of the similar attributes of the home they live in.

How Earnest Are You?

"If I tell you it's going to rain, you can put the buckets on the porch." If you grew up in the south, you may have heard this expression when a person is testifying to the veracity of his word. If you know a person and/or their reputation, you know whether you can trust their word or not.

However, with a stranger such as a buyer, the seller doesn't know whether they'll live up to the terms of the contract or not. Buyers submit earnest money along with a contract to demonstrate their commitment to the terms of the offer.

The more earnest money that the buyer deposits indicates to the seller a higher level of commitment to the contract. Except for stated contingencies in the sales contract, if the buyer fails to close on the sale, the earnest money may be forfeited. Significant earnest money makes the seller feel more secure that the contract will close.

There certainly are a lot of things that can dictate how much earnest money is appropriate. Local customs, price of the home and type of mortgage can all help to determine the proper amount. In some areas, it may be common for it to be 1-5 percent of the purchase price. In other areas, it might be a specific amount like $1,000 to $10,000 depending on the sales price. It really comes down to whatever the buyer and seller agree is the proper amount.

Another strategy is to put up an adequate amount initially until you get through the inspections or contingency period and then, to put up an additional amount when the contingencies have been removed.

The earnest money demonstrates the buyers' sincerity in making the offer and proceeding according to the agreement so the seller can take their home off the market and start making plans to move and give possession of their home. Ultimately, both parties want to close as anticipated according to the contract and the earnest money helps facilitate that.

Components of a Credit Score

Credit scores are used by lenders to measure the credit worthiness of borrowers. While there are several different companies that offer scores, the FICO, Fair Isaacson Corporation, is the model that is used most often.

There are five key components that determine the overall score or rating. The most emphasis, 35% of the overall score, is placed on payment history which reflects whether the borrower paid on time and as agreed by the terms of the credit. Being late, missing payments or going into default would have adverse effects on this part of the score.

The second largest component, 30%, is credit utilization or the amount owed in relation to amount available. A person might have a $4,000 outstanding balance on available credit of $20,000. This would be a 20% ratio and would be considered acceptable. Owing $15,000 on $20,000 of available credit would be a 75% ratio and would negatively affect this part of the credit score. FICO says people with the best scores average around 7% credit utilization.

The length of time each account has been open and the account’s activity determines 15% of the total credit score. By having a longer credit history, the credit provider has a better indication of the borrower’s long-term financial behavior. Having an open account without activity doesn’t offer a provider much information.

New credit and types of credit each account for 10% of the total score. New credit can adversely affect a score because it is a new obligation without history of how it will affect the borrower’s ability to repay all of their liabilities. Types of credit include both revolving and installment debt. A good mixture of each can indicate less risk for lenders.

The combination of all five areas make up the total score which lenders use to determine credit worthiness. Another confusing issue is that all credit scores are not mortgage credit scores. This particular score determines not only whether the lender will make a mortgage but at what interest rate.

The best place to get your credit score if you’re planning on purchasing a home is from a trusted mortgage professional. This person will be able to suggest things to improve your score if necessary. Buying a home is one of the largest investments in most people’s lives; it is really not a do-it-yourself activity.

More Money in Your Paycheck

A homeowner’s tax savings benefit is generally realized when they file their federal income tax return after the money has been spent for the interest and property taxes. Some people look forward to the refund as a means of forced savings but some people need to realize the savings during the year.

It is possible to adjust the deductions being withheld from the homeowner’s salary so they realize the benefit of the savings prior to filing their tax returns in the form of more money in their pay checks. Employees can talk to their employers about increasing their deductions stated on their W-4 form.

By increasing the exemptions or deductions, less is taken out of the check and the employee will receive more each pay period. If a person over-estimates their exemptions and therefore, underpays their income tax, they might incur interest and would have additional tax to pay when they filed their tax return.

Buyers considering this strategy should seek tax advice and discuss it with their human relations department at work. Additional information is available on the Internal Revenue Service website about Completing Form w-4 and Worksheets.

Postponing a Purchase

You might be surprised how many people contact real estate offices because they want to buy a home but they don’t have the down payment or the credit to qualify. Occasionally, an agent will be working with someone who does have the down payment and credit but for whatever reason, decides to postpone the decision to purchase now for some point in the future.

It’s not uncommon that once they’re out of the market, the money starts burning a hole in their pocket and they end up buying a boat or a motorcycle or some other thing that cannot positively affect their lives and security the way a home does.

If the money had been put away somewhere safe like a certificate of deposit, it wouldn’t earn a lot but it would be there when they decided the time was right to buy a home. $8,750 would grow to $9,286 in three years in a 2% CD.

For the person who could tolerate a little more risk, they might consider investing in the stock market. If you found a mutual fund that would earn 7%, at the end of the same three year time frame, the $8,750 would have grown to $10,719.

Alternatively, if the would-be buyers used the same amount to purchase a $250,000 home that appreciated at only a modest one percent, the equity in the home at the end of the same three year period would be $29,597.

The dynamics of earning appreciation on the value of the home rather than just the down payment combined with the amortization of the mortgage makes the equity in the home almost three times greater than the mutual fund. If you used a 2% appreciation, the equity would be over $37,000 in the same period.

Obviously, there are legitimate reasons for postponing the purchase of a home. An important thing to remember is to safeguard the hard-earned down payment so it is ready when you are to buy in the future.

Worth the Effort

“Anyone may arrange his affairs so that his taxes shall be as low as possible...” While Judge Learned Hand was talking about federal income taxes, it can be applied to property taxes as well.

States have a process of assessing the value of a property based on a number of things that can include size, amenities, location and what the owner paid for the property. Most states make adjustments to that value annually. Once it has been published to the owner, there is a process available for those who disagree with the value.

1. Learn the assessment process and what the filing deadlines are to apply. Since different states have different requirements, it is important to know the process in your area.
2. Obtain your assessment records – they may be available online and you can find out how your value was determined. Check for mistakes in square footage, bedrooms, amount of land, etc. Then, verify if the comparable sales in the neighborhood support their position or not. Your real estate agent can be valuable in this area.
3. Proceed to make your case from the lowest to the highest level necessary. It isn’t necessary to hire someone to represent you. Sometimes, just talking to employees at the tax assessor’s office may be enough. If not, there is a process for a hearing where you present your evidence and so does a representative from the assessor’s office. If this still doesn’t give you the remedy you want, you may need to proceed to the courts.

Challenging your assessment really isn’t an adversarial position. Their job is to assess a fair value and your job is to pay the least amount of taxes. Whether it be an employed assessor or a voluntary board, they have a job and they appreciate being treated professionally and courteously.

Keep this last thing in mind: the people you’re presenting your case to have the ability to lower your taxes.

Leverage - A Maximum Advantage

Leverage gives the user a maximum advantage whether it is physically lifting a large object or rapidly building equity in a home. In the case of the home, the high loan-to-value mortgage allows the profits made to be greater than simply the cash invested.

A $250,000 home can be purchased on a FHA loan with a 3.5% down payment of $8,750. If the home appreciates at 2% a year, in seven years the equity will grow to $75,920 due to the appreciation and the amortization of the mortgage. That would be a remarkable 36.2% rate of return.

It is estimated that homeowners have a 45 times higher net worth than renters. Since the obvious difference is that renters don’t own a home, owning a home is a distinct advantage. The leverage that allows a borrower to control a much larger asset with a small down payment gives them a return on the much bigger asset than on just the down payment.

Another interesting contribution is the forced savings that occurs with each payment made on the mortgage. A portion of the payment is applied to principal so that the loan will be paid in full by the end of the term, usually 30 years. The amortization on the 4% mortgage example from above has approximately $4,300.00 paid in the first year to reduce the principal which increases the owner’s equity in the home.

For people who have the necessary funds for the down payment and good credit, buying a home can be a financially stabilizing event. While research on the Internet can provide valuable information, there is no substitute for having a face-to-face meeting with a trusted professional to determine your specific facts.

Digital Showings

Ask any real estate professional if they have sold a house without the buyer having physically seen it and they’ll most likely tell you they have. While it may have been an unconventional sale, it is more prevalent today than it was twenty or even ten years ago.

The digital world of the Internet has changed the process of buying a home. It is evolving as people have become more comfortable with the reliability of the information available.

Getting in a car and driving around all day looking at homes that may or may not fit your needs or wants is not productive for buyers or the agents.

The quality and the quantity of pictures has dramatically improved in the last twenty years. Buyers and agents alike can view a property online and get a fairly accurate idea of the condition and layout of home and whether it warrants a physical visit. Videos can “walk” you through the house to be able to assess if the floorplan will work for you.

The 2015 Profile of Home Buyers and Sellers reports 89% of all buyers cited an online website as an information source with real estate agents being a close second at 87%. 42% of all buyers looked online for properties for sale as the first step taken during the home buying process.

Interestingly, 87% of buyers in 2015 purchased their home through a real estate agent or broker compared to only 68% in 2001. The agent services deemed most valuable to buyers were help finding the right home to purchase (53%) and help to negotiate the terms of sale (12%) and the price (11%).

A challenge for sellers is to understand that the digital showings are a critical part of today’s process. They save time and money for both buyers and sellers and are convenient because they can be done at any time of day and from anywhere. The difficulty is the seller’s feelings of inactivity when they believe their home is being shown frequently.

Agents can share statistics that show a variety of digital activity like number of unique visitors, length of time spent on the listing site as well as the other features that were accessed. 65% of all buyers walked through the home they purchased after they viewed it online.

Pay Yourself First

The principle to pay yourself first has been referred to as the Golden Rule of Personal Finance.

The concept is that one of the first checks you write each month is for your own savings. The rationale is that if there is no money left after a person pays their bills, there is nothing to contribute to savings or investments that month.

By establishing a priority to save, a person realizes that the balance of their monthly income must cover living expenses and other discretionary spending. This is a much different strategy than saving what is left over from monthly expenses and other spending.

Many financial experts have likened an amortizing mortgage to a forced savings account because a portion of each payment is applied to the reduction of the principal amount owed. Some homeowners have taken that concept further with a shorter term mortgage to build equity faster.

In the example below, a $250,000 mortgage at 4% interest is compared with two different terms. The 30 year mortgage would have payments of $1,193.54 each month with the first payment having $360.20 being applied to the principal. Each payment would have an increasingly larger amount applied to the principal.

The 15 year mortgage would have payments of $1,849.22 each month with the first payment having $1,015.89 being applied to the principal. The $665.68 difference in payments goes toward reducing the loan amount and acts like a forced savings.

A homeowner might opt for the longer term and intend to put the difference in the two payments in a bank savings account each month or make an additional principal contribution to pay the mortgage down. However, as any person responsible for paying household bills knows, there will always be something that comes up that could hijack your intentions.

By committing to the shorter term mortgage, a borrower is committing to make the higher payment each month and the benefit is that it will reduce your principal balance faster.

Homeowner Advisory

Similar to an annual wellness physical, homeowners should consider an annual review of the financial elements of their home. It’s particularly valuable based on the fact that their home and its equity is generally, one of their largest assets.

• List of similar properties recently sold and currently available
• Information on challenging property tax assessment
• Refinance Analysis to:
  • lower your rate
  • shorten the term
  • make improvements
  • eliminate mortgage insurance
  • remove a person from the loan
  • eliminate credit card debt
  • combine loans
  • take cash out of the equity
• Equity Accelerator to retire the mortgage within a specific period of time
• Repairmen and contractors recommendations
• Information on rental property opportunities

We’d be happy to provide this information at no obligation as part of our on-going commitment to providing homeowner information, both in general and specifically, to our contacts. It is part of a long-term strategy whereby we hope to earn your loyalty and referrals when you do need our services to buy or sell.

It's a Big Difference

Let’s say that you just won $8,750 on a lottery scratch-off ticket. You’ve decided to be frugal and invest the money and have decided on three alternatives: buying a certificate of deposit, a mutual fund or use the money as a down payment for a $250,000 home.

To compare the three alternatives, let’s look at the equity in each one three years from now.

The certificate of deposit can be invested at 1.3% in today’s market and you believe you can reasonably earn 5% on a mutual fund. You expect the home to appreciate at three percent a year.

The certificate of deposit would be worth $9,096 at the end of three years and the mutual fund would be worth $10,129. However, the equity in the home at the end of three years would be $45,204. That is a four time’s higher yield on the home.

One of the main reasons for the big difference is that the buyer benefits from leverage: the use of borrowed funds to increase the results. The $8,750 down payment is controlling a $250,000 investment. The appreciation is determined by the price and not merely by the cash invested. Another factor is that the loan balance is smaller at the end of five years than originally borrowed due to amortization.

There are certainly other factors to consider such as maintenance and other expenses but when the financial benefits are as strong as they are, it certainly deserves a much closer investigation. One of the first things to consider is whether the borrower can qualify for a mortgage and the only satisfactory way to be certain is to get pre-approved by a trusted mortgage professional.

Use the Your Best Investment calculator to make your own projections.

Is Understanding Costing You Money?

People tend to fear what they don’t understand. Homeowners understand fixed rate mortgages and remember the horror stories of people who lost their homes because they could no longer afford them when their adjustable rate mortgages went up.

Interest rates on fixed-rate mortgages have been so low for enough years, that borrowers haven’t even given much consideration to an adjustable rate mortgage. Changes in the way adjustable rate mortgages are now made make them much safer for borrowers who understand how they work but also know they’ll only be in the home for a limited period of time.

Adjustable rate mortgages can go up or down according to an index that the lender has no control. The amount that can be adjusted is limited by caps for each period and for the life of the loan. While there are different periods for ARMs, the most popular lock the first period for five to seven years and then, can adjust annually after that.

One quick and easy way to determine whether an adjustable may be a viable alternative to a fixed would be to determine the maximum payment adjustments possible to find out when the savings from the early years are exhausted which would be the breakeven point. If the borrower is certain they’ll move prior to that date, the ARM will definitely provide a lower cost of housing.

The breakeven point for a $250,000 mortgage would be 8 years 3 months comparing a 2.9% 5/1 adjustable-rate with 1 and 5 caps to a 3.8% fixed-rate mortgage. In the initial five-year period, the payments on the ARM would be $124.32 lower and the unpaid balance would be $3,522 less than the fixed-rate to make a total savings of $10,981.

Whether you’re buying or refinancing, get some good advice from a trusted lending professional about the adjustable-rate alternative. If you’re only going to be in the home a short time after the mortgage is made and your tolerance for risk allows you to feel comfortable, the ARM may be the best choice for you. Check out this ARM Comparison to use your own numbers.

What's That Smell?

Homeowners may be totally unaware that their home has an unpleasant odor. It can be unrecognizable to them but immediately apparent to visitors on entering the home.

Candles, aerosol spray or even chocolate chip cookies can’t get rid of the smell. To eliminate the odor, the source of the smell first has to be removed and then, the affected areas can be treated.

Cigarette smoke is particularly offensive to people.  It is very common for buyers to refuse to even consider looking at a home where smoking is allowed. This odor permeates the air in a home and soaks into carpets, furniture, drapes, clothing and even the building materials like drywall and cabinets.

Pets may be considered part of the family but it is still a problem when the animals are not adequately house-broken. Urine isn’t just absorbed by the carpet but also the padding and in some cases, the subflooring. Sometimes, walls and floors have to be treated and sealed before painting and new floor covering can be installed.

If a casual friend doesn’t want to hurt your feelings about the jeans you’re wearing, you can bet the ranch that they won’t tell you about the odors in your home. You’ll need to rely on your closest friends to tell you the truth or maybe your mother-in-law.

Remember to Get Your Annual Credit Report

You are probably aware that Federal law entitles you to a free copy of your credit report annually by each of the three credit bureaus: TransUnion, Experian, and Equifax. By regularly looking at each of these reports, you can determine if there are any errors on them and be aware of your credit worthiness.

Instead of ordering all three at the same time, experts recommend that you stagger them throughout the year. This will let you look at your credit at three different times during the year instead of only once a year.

An easy way make this happens on a timely basis is to set a recurring appointment on your digital calendar whether it is on your phone, your email program or a contact manager. Make the appointment to order a free credit report from www.AnnualCreditReport.com a recurring event to take place every four months. You’ll order one report from each of three companies once a year.

You can record that date and the bureau you ordered the last report in the appointment’s note section so that you’ll have a history and won’t try to order the same report twice in one year.

This isn’t just for people who are trying to clean-up their credit. This procedure allows you to monitor your credit to be sure that your report is accurate. You might even discover that someone is illegally using your good credit.

It's Your Advantage

Technology has certainly streamlined the home buying process and introduced things that help purchasers make better decisions. Buyers have enthusiastically embraced video tours, digital signatures and the enormous amount of information available about a home, neighborhood, schools and neighbors.

The ironic thing is that buyers are ignoring the one single thing that can help them secure the “right” home. Talking to a lender or using a financial calculator is not pre-approval.

Pre-approval requires written verification on employment and income and ordering a credit report for the purpose of obtaining a mortgage. A mortgage credit score is different than what a person might see from credit reporting websites. 

Pre-approval gives buyers the confidence to know the amount they can borrow which can result in bargaining power when dealing with a seller or competing against another offer. Transactions can close quicker once a buyer has been pre-approved.

If any issues are discovered in the initial process, the purchaser and lender will have more time to correct them compared to trying to get it done during the loan approval period as stated in the sales contract.

Most lenders best interest rates are only available to the best borrowers. You might get approved on a loan but at a higher rate than you expected which could make a significant difference in the monthly payments.

The “right” home without financing will never have the buyer’s address. Getting pre-approved with a trusted mortgage professional is one of the first steps in the buying process. It can definitely be an advantage that will benefit you in negotiations and ultimately, during the time you own the home.

Early Burnout Could be Good

Most of us understand the expression "burning the candle at both ends" to mean working so hard that you burn yourself out. Normally, that wouldn’t be a good idea unless it is intentional.

If the candle is your mortgage and the strategy is to get it paid off early, being “burned out” would be a good thing. One end of the candle would be your regular mortgage payments and the other end would represent additional principal contributions.

Since the Great Recession, lenders have been reporting a higher than normal number of borrowers getting shorter term mortgages not only when they purchase the home originally but when they refinance them also. It seems like the mindset of America’s homeowner has shifted a little from the belief that they will always have a house payment.

The extra $100, $200 or $500 in your checking account isn’t earning interest. Additional principal contributions with your regular payments on a fixed rate mortgage will save interest, build equity and shorten the term of the mortgage.

Wealth management is about making financially wise choices. If having your home paid for by retirement age is one of your goals, making extra contributions regularly could get you there. Use this Equity Accelerator to see how it will affect your loan.