Protecting Your Credit
One of the “big” three credit bureaus recently announced that a massive hack has exposed the personal information of up to 143 million people. To add perspective to that statement, that is about two-thirds of American credit card holders or close to half the population of the United States. Part of protecting your credit is being vigilant and making it difficult for thieves to steal your identity.
If you suspect you are a victim of identity theft, an initial step is to place a fraud alert on your account. Contact one credit reporting company (Equifax, Experian or TransUnion), tell them you are an identity theft victim and ask the company to put a fraud alert on your credit file. Confirm that the company will contact the other two companies.
The initial fraud alert will make it harder for an identity thief to open accounts in your name. The alert lasts for 90-days and it can be renewed.
A more severe precaution called a credit freeze restricts access to your credit report. A credit freeze makes it more difficult for thieves to use your identity to apply for loans or credit cards in your name.
By contacting each of the three credit reporting agencies separately, you can request a temporary freeze. This would prevent them from providing credit information without both your explicit permission and a PIN that temporarily lifts the freeze.
Unlike the fraud alerts, the agencies may charge you a fee for instituting the freeze in addition to another fee to lift the freeze each time.
A credit freeze will not affect your credit score. If you are in the process of buying a home, contact your loan officer and discuss the decision you are considering. If you will be making a mortgage application in the near future, you can temporarily lift the freeze for the lender you are using.
A trusted mortgage professional is a key team member in purchasing a home. Making an appointment with them is one of the first steps along with determining your real estate professional. Contact us to get a recommendation of a trusted mortgage professional.
To request a credit freeze, you can do it online or by phone:
Equifax – 800-349-9960 | Experian – 888-397-3742 | Trans Union – 888-909-8872
For more information, see Credit Freeze FAQs at the Federal Trade Commission.
It is important to personally monitor your credit reports through annual credit report.com to discover any unusual activity.
Investing on Your Side of the Fence: Is The Grass Greener?
The grass tends to look greener on the other side of the fence. Maybe that’s why some people invest in things they don’t understand. It has been said that the grass is just as hard to mow on the other side of the fence so stay with what your most familiar.
Single-family homes used for rental property give a person a chance to invest in something they understand: a home. They also have distinct advantages over other types of investments.
An investor can borrow up to 80% of the value at fixed interest rates 30 years. The financing creates leverage so that the investor can benefit from the increase in value of the home not just the down payment.
It is reasonable to expect that the home will appreciate while providing tax advantages and practical control that are not available with many other investments. Low housing inventory in many markets has caused rents to increase and low new home growth will make it difficult to keep up with demand.
Consider a $150,000 home purchased for cash that would rent for $1,500 per month. With $18,000 income and allowing for property taxes, insurance and maintenance, it is still reasonable to expect $10,000 net income. There would be an 8% return on investment without considering tax savings or future appreciation compared with 5-year CDs paying less than 2.35% and a 10-year Treasury yield at 2.13%.
An added bonus is the amortization that occurs on the loan as the principal is reduced with each payment. It becomes a forced savings account that increases the equity and isn’t taxable until the property is sold.
The reasonable control has a lot of appeal to many investors who find the volatility of the stock market unacceptable and don’t want the risk associated with alternative investments. Please contact me if you’d like to know more about available opportunities.
Deductible Dilemma: Managing Insurance Premiums
The purpose of insurance is to shift the risk of loss to a company in exchange for a premium. Most policies have a deductible which reduces the amount of the claim that is paid by having the insured share in the first part of the loss.
In the process of managing insurance premiums, policy holders often consider higher deductibles to lower the premium. Lower deductibles mean less money out of pocket if a loss occurs but also results in higher premiums. Higher deductibles result in lower premiums but require that the insured bear a larger part of the loss.
A small fire in a $300,000 home that resulted in $2,500 of damage might not be covered if the policy holder has a 1% deductible. If the homeowner can afford to handle the cost of repairs in exchange for cheaper premiums, it might be worth it. On the other hand, if that loss would be difficult for the homeowner, a change in the deductible could be considered.
Homes in high-risk flood areas with mortgages from federally regulated or insured lenders require additional flood insurance. However, each homeowner needs to assess the risk of being able to financially sustain a flood loss on their home when flood insurance is not required. The recent events in south Texas and Louisiana are evidence that the unexpected can happen.
It is important to review your deductible and discuss risks with your property insurance agent so that you’re familiar with the amount and make any changes that would be appropriate before a claim is made. The FEMA website has information and frequently asked questions about flood insurance.
Your Home’s Equity Could Be the Answer
A home equity line of credit, HELOC, is a mortgage loan made to homeowners to be used on an as-needed basis. A lender, such as a bank, will approve a borrower for a specified amount based on the equity in their home and all the necessary paperwork is signed to authorize the loan.
The line of credit amount is available to the borrower and no interest is due until some or all the money is used. When the money is paid back, the line of credit is again available in full to the borrower.
The specifics of the repayment will depend on the HELOC lender. It may require interest only or it may require amortized payments of principal and interest.
The proceeds from a HELOC can be used to make improvements on the home or anything else such as medical expenses, college tuition or unexpected expenses or other liquidity issues.
Unlike personal credit card interest, the interest on a HELOC may be tax deductible. Your tax advisor will be able to let you know about your situation.
Rates and fees can vary widely on HELOC loans. Borrowers should shop around, compare and get recommendations before deciding on a lender.
Which Value Do You Want? That Depends On The Question
What your home is worth depends on why you ask the question. It could be one value based on a purchase or sale and an entirely different value for insurance purposes.
Fair market value is the price a buyer and seller can agree upon assuming both are knowledgeable, willing and unpressured by extraordinary events. This value is generally indicated by a comparable market analysis done by real estate professionals.
Insured value is determined for insurance coverage. Homeowner policies typically have replacement clauses in them and the cost of demolition, new construction and the added complexities of matching existing construction could exceed the cost of new construction.
Investment value is based on the income it can generate during its useful life. This value is dependent on what kind of yield an investor requires to capitalize the value over time. The formula for this is to divide net operating income by the capitalization rate required by the investor.
The assessed value of a home is used to determine the property taxes the owner must pay. This value is determined by the responsible state government agency.
Homeowners are generally more familiar with their home’s market value. Since it can be lower than the replacement cost, owners should review the insured value with their property insurance agent periodically.
There can be a surprising difference in each of these separate values. It is important to know the purpose that it is going to be used for the value.
Shorter Term – More Savings
Whether you’re refinancing your current home or buying a new one, something worth considering is a 15-year loan rather than a 30-year term. The payments will be a little higher but you’ll get a lower interest rate and you’ll build equity much faster.
Let’s look at an example of a $300,000 mortgage with the choice of a 30-year term with a 3.92% rate compared to a 15-year term with a 3.2% rate. The payments would be $682.28 higher on the shorter term but the equity would be considerably higher even after you adjust for the higher payments.
Another benefit is that the shorter-term loan creates a forced savings situation where the savings on longer-term loan might end up being spent rather than being saved and invested. A conscious decision to pay more in payments could pay big dividends in the future.
Home Energy Aware: Where Does Your Money Go?
After the mortgage payment, the largest homeowner expense is for utilities and the major component is energy. Contributing factors include air leaks, insulation, heating and cooling equipment, water heaters and lighting.
Computers, monitors, TVs, cable and satellite boxes, DVRs and power adapters are spinning your electric meter even when they’re not being used. Even though they only represent a small percentage of a home’s total energy consumption, about 3/4 of the electricity is used when the products are turned off.
Unplugging devices can actually make a difference in the size of your electric bill. Plugging several of these offenders into a power strip with a single on/off switch may make the task easier. Most computers have options to put them into sleep mode or even turn when not in use.
For more information on real estate matters, contact Rick Haskell of The Haskell Team
(207) 400-2908 or by email at email@example.com.
Home Safe Home
Home is a place you should feel safe and secure. Sometimes, we take it for granted and unfortunately, we do need to remain vigilant about things we do that could compromise our safety. Here are a few tips to consider:
- Everyone loves an inviting home including burglars. Make sure it looks occupied and is difficult to break in.
- Always lock outside doors and windows even if you’re only gone for a brief time.
- Lock gates and fences.
- Leave lights on when you leave; consider timers to automatically control the lights.
- Keep your garage door closed even when you’re home; don’t tempt thieves with what you have in your garage.
- Suspend your mail and newspaper delivery when you’re out of town or get a neighbor to pick it up for you.
- Posting that you’re out of town or away from home on social networks is like advertising your home is unprotected.
- Equally dangerous could be allowing certain social network sites to track your location.
- Don’t leave keys under doormats, in flowerpots or the plastic rocks; thieves know about those hiding places and even more than you can think.
- Trim the shrubs from around your home; don’t give criminals a place to hide.
- Use exterior motion detectors and yard lighting.
- Have an alarm system and use it when you leave home and go to bed.
- Put 3 ½” deck screws in door plates and door hinges.
- Have good deadbolts on all exterior doors.
- Exterior doors should be solid core.
For more information, contact Rick Haskell of The Haskell Team at 207-400-2908 or by email at firstname.lastname@example.org
Other People’s Money for College: There May Be Another Way
Consider the goal of funding a child’s college education in the future. If “other people’s money” in the form of a college scholarship is not a possibility, there still may be another way to use some “other people’s money.”
A $25,000 investment into a mutual fund paying 5% would earn $1,250 in the first year. Alternatively, the $25,000 as a 20% down payment to purchase a $125,000 rental home appreciating 3% a year would have gone up by $3,750 or three times that of the mutual fund in the first year.
The mutual fund’s growth depends on the value of the money invested. Rental real estate benefits because a 20% down payment controls a much larger asset because you’re using “other people’s money.” Leverage allows the investor to profit not only from the amount of cash invested but from the value of the investment.
With a 20% down payment and current interest rates, a typical rental would have a positive cash flow. In ten years, the equity could be $75,000. On the other hand, the $25,000 initial investment in a mutual fund earning 5% annually would only grow to about $40,000 in the same 10 years. It would require an additional $2,700 each year to reach the same $75,000 value.
Leverage is just one of the many benefits that make rental real estate the IDEAL investment for college savings. Whether you are saving for higher education, retirement or wealth accumulation, consider rental real estate. Using single-family homes as investments are attractive to many because homeowners have a better understanding than many other investments and self-management is a possibility.
To learn more about the college benefits of owning rental real estate, or the many benefits of investment properties, contact Rick Haskell of The Haskell Team at 207-400-2908 or by email at email@example.com
Assumptions are an Alternative
In the late 80’s, both FHA and VA began requiring buyers to qualify to assume their mortgages. The main reason there haven’t been many assumptions in the past 25 years is that interest rates have been steadily going down and if a person has to qualify, they might as well do it on a new loan and get a lower interest rate.
Based on projections by Fannie Mae, Freddie Mac, the MBA and NAR, rates for the second half of 2017 and 2018 are expected to be higher. When interest rates on new mortgages are higher than the rates of assumable FHA and VA mortgages in the recent past, it becomes more advantageous to assume the existing mortgages.
FHA and VA loans originated with lower than current interest rates have great advantages for buyers and sellers.
- Interest rate won’t change for the qualified buyer
- Lower interest rate means lower payments
- Lower closing costs than originating a new mortgage
- Easier to qualify for an assumption than a new loan
- Lower interest rate loans amortize faster than higher ones
- Equity grows faster because loan is further along the amortization schedule
- Assumable mortgage could make the home more marketable
An Assumption Comparison can help determine the savings and financial benefits of an assumable mortgage with a lower rate.