Why home ownership makes sense financially

A recent Harvard Study (The rent crisis is about to get a lot worse) conducted to explore the cost and benefit of renting vs buying found that the number of  households which could be spending at least half of their income on rent could increase 25% (increasing to 15 million households) over the next decade.

Eric Belsky is Managing Director of the Joint Center of Housing Studies at Harvard University. He also currently serves on the editorial board of the Journal of Housing Research and Housing Policy Debate. Last year he released a paper on homeownership - The Dream Lives On: the Future of Homeownership in America. In his paper, Belsky reveals five financial reasons people should consider buying a home.

Here are the five reasons, each followed by an excerpt from the study:

1.) Housing is typically the one leveraged investment available. 


“Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.”

Rents are going through the roof!

Rent costs are rising quickly!

Single family rentals account for 13% of the overall housing stock (up from 9% in 2005) and rents are heating up!  Rents are higher than they should be given the underlying real estate values. 

As a result of the higher cost of rent relative to overall household income, first time home buyer's who have now entered the market (first time home buyer home purchases are the highest this year since 2009) are discovering the value of purchasing rather than renting. 

With appreciation in home values ticking along at 4% per year nationally (and regionally 6-8% and higher in some hot selling neighborhoods), coupled with historically low interest rates, and home financing is once again available to home buyer's with good credit, reasonable debt obligations and little or no down payment. 

Purchase a home today because all the stars are lining up!

With after tax rates for home financing in the 3% range, home buyer's today are using their home purchase as a financial leveraging tool and will payoff debt that has a higher interest rate, like credit cards, student loans, department store cards and car loans, and paying off their mortgage LAST.


If a home purchase can again be viewed as an investment (steady appreciation) and as a financial leverage tool (payoff higher interest rate debt first and your mortgage last), the only thing we need to add to the equation is a beautiful house to buy for fun and financial success to begin!

Call Marty Qualls at 801-540-5108 for help with any of your mortgage questions.   

What are Japanese Candlesticks? Why are they important?

I watch the bond market, stock market, futures, inflation, unemployment, housing demand, refinance and home purchase activity, world news, national news, political developments, gas prices and yes, I even watch the weather for signs of what the market will be doing in the future.

Giving reliable advice to my clients as to whether they should LOCK or FLOAT their interest rate when they have a mortgage application with me is a major goal of mine.  Their decision (based on my advice) has long term consequences and if they (and I) choose wisely so that they can maximize their investment return on their mortgage.

A mortgage is another form of investment strategy, but this is a whole blog post to come in the future.  I look forward to talking about the value of a "Big FAT 30 year mortgage" in a future Blog Post.

But today, what I want to talk about is what I use to gauge what is going on in the market TODAY, right this moment, and is something available to me and it's called "Japanese Candlesticks".  I would like to explain why this is valuable and important to me AND to my clients who are relying on my expertise and guidance,

What you see below is today's Japanese Candlesticks Chart (4%, 30 year bond yields) and it is showing lots of green "candles".  Green is Good!  It means that mortgage rates are improving or the market is favorable.  The last green candle on the far right of the chart (right next to the S1 in the blue box) is today's market activity.

Tomorrow's rates should (unless the market changes dramatically overnight or in the early hours of trading in New York tomorrow morning) be about the same, possibly better than they were today.

Yesterday's rates were worse than today's (the red candle shows a lower price, higher mortgage rate than today's), and so forth backwards.  Over the past 17 trading days the rates have been close to, above or just below the best rates in 17 months (best since May 8, 2013).

The S2 line, below the candlesticks, is the FLOOR of SUPPORT and with the rates close to this floor, if the bond prices begin to break below this floor, like happened yesterday for two hours, we COULD see the mortgage bond prices begin to deteriorate and we could see these great rates go away  (go up!) and this could be forever or temporarily, that is the gamble of NOT taking advantage of rates today.  

Call me today if I can help with analysis for your mortgage refinance or purchase.  :)

FHA Streamline Refinance-Great way to improve your rate or lower your payment

With mortgage rates at the best they have been for 15 months and the impending exit of the Federal Reserve from purchasing bonds (October, 2014 is the proposed date for tapering the bond purchase program), now may be the best time to consider an FHA streamline refinance.

The Streamline refinance program couldn't be simpler!  There is no appraisal required and the savings in monthly payments can be substantial especially if the current loan has been in existence for 5 years or more.

Information needed to begin to look at FHA streamline refinance options:

• Origination date of current loan
• Payment coupon or online payment information readily available-escrow payment, monthly mortgage insurance amount, balance of loan is on the payment coupon or online screen

Taking advantage of a lower interest rate or monthly payment savings can be something to take a look at to benefit person financial wealth with analysis of mortgage payment and payoff of higher credit card or installment loan debt.  

Also to be considered would be an increase in personal savings rate (into 401k, 403b, growth stock mutual funds, etc) with a decrease in the size of mortgage payments.  

Paying off your mortgage is a different kind of investment

As I read this article I thought of how many of my clients pay extra toward their mortgage each month in hopes of getting their mortgage paid off sooner rather than later.  8 out of 10 of my clients have regularly paid extra principal payments for most of their mortgage term.

I also thought of my fellow Business Network International friends who state in their biographies of what their #1 goal is.  The majority say that their burning desire is "to be debt free!". 

Considering the real desire of those I help and what my friends and family tell me, I found the following article interesting because it brings a great argument to the table about, "Why should we (or why should we NOT) payoff our mortgage.   

I share formulas for early mortgage payoff.  They are simple and my clients like to hear how to payoff their mortgages early,  They like the idea.  I like telling them how to make it happen.  It makes me happy that I told them about how to do it and they really like the idea of paying off their mortgage early.  Best of all?  Paying off your mortgage early is easy, it just takes discipline.

BUT here I beg the question, "Why should a mortgagee payoff their mortgage early?"  When you have a mortgage, there are tax benefits and tax savings.  Returns on a well diversified stock portfolio have a historical return of 9-12%. Why pay off early when your interest rate is sub 6%?  Lots to think about before jumping into an accelerated Mortgage payoff schedule. 

Here is the article to continue the argument for holding onto your mortgage as a GOOD (if not GREAT Investment): Should I payoff my mortgage early?

10 Common Errors Home Owners Make When Filing Taxes

By: G. M. Filisko
Published: January 25, 2011
Don’t rouse the IRS or pay more taxes than necessary—know the score on each home tax deduction and credit.  Here's 10 "sin's" that will rouse the IRS...

Sin #1: Deducting the wrong year for property taxes
You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some taxing authorities work a year behind—that is, you’re not billed for 2010 property taxes until 2011. But that’s irrelevant to the feds.
Enter on your federal forms whatever amount you actually paid in 2010, no matter what the date is on your tax bill. Dave Hampton, CPA, tax manager at the Cincinnati accounting firm of Burke & Schindler, has seen home owners confuse payments for different years and claim the incorrect amount.

Ten Secrets to Savings: Write down your goals

Cheap is chic, frugality is in fashion, and Americans have sworn off their spending addiction. In a replay of 2010, their top resolution for 2011 is to save more money, according to the American Express Spending & Saving Tracker. But a funny thing happened on the way to the bank: Americans fell off the wagon. This year, consumers aim to save an average of $2,600, a far cry from their average goal of $14,000 in 2010. The reason: many of them didn't meet their ambitious savings target.

That doesn't surprise me. I've always believed that the trick to saving money is just that – a trick. You don't have to strike it rich on Wall Street, win the lottery or even earn a six-figure salary to build a comfortable savings cushion. You just have to play mental tricks on yourself to stay focused on spending less and keeping more cash.

7 Tax Tips for Your 2010 Return

7 Tax Tips for Your 2010 Return 3/2/2011 11:13:00 AM These breaks could boost your refund -- or reduce what you owe. ...Read the rest of the story

Wrong House in the right neighborhood? FHA 203k Loans Part 2

Click on the link below for an excellent video about how great the FHA 203k loan is if you would like to buy a home needing repairs.  Call me and I can go over the program in detail.

I have a support team who does 203k loans ALL DAY LONG! 

My processing, underwriting, and closing team are experts at what they do.  THIS is the formula and secret to having a GREAT 203k loan experience!  

Marty Qualls, your 203k loan expert!  

http://tbwsdailyshow.com/2011/03/02/203k-home-improvement-loans-part-2-of-2/

Points or no Points? Worksheet included!

Points or No Points?

WHEN IT COMES to mortgage points, it pays to keep score. Be warned, though: It can get tricky. The term points has multiple meanings in the mortgage world.

Mortgage points can refer to loan origination fees (fees charged by the underwriter) or discount points (also known as loan discounts). The worksheet below focuses on discount points, which represent 1% of the total loan amount. By paying a discount point, you can lower your interest rate. Consider it prepaid interest.
In general, you can knock off about 1/4 to 1/8 of a percent off your interest rate for each point you pay
says Keith Gumbinger, vice president of mortgage information provider HSH Associates.

It's springtime: Top 12 low cost DIY Home Improvements: Return on Investment

Cleaning and De-Cluttering for a $200 cost which has an increase in home value of $1700 for a whopping 872% Return on Investment!

Landscaping $320 cost, $1500 return on home value, 473% ROI.   Does updating electrical makes sense if you are contemplating selling?  How about lightening and brightening?

See what 1000 Realtors recommend:  Top 12 home improvements survey

Homeownership Rate Hits 10 Year Low. Watch Out for Rent Inflation

Homeownership Rate Hits 10 Year Low. Watch Out for Rent Inflation

Posted to: MND NewsWire
Monday, January 31, 2011 3:10 PM

Forward this email:  Send a copy of this story to someone you know that may want to read it.

The Census Bureau has released its survey of Residential Vacancies and Homeownership for the fourth quarter of 2010. 
Homeowner Vacancy and Rental Vacancy statistics are from the Housing Vacancy Survey, which is a supplement to the Current Population Survey. The homeowner vacancy rate is the proportion of the homeowner inventory which is vacant for sale. The rental vacancy rate is the proportion of the rental inventory which is vacant for rent. A housing unit is vacant if no one is living in it at the time of the interview, unless its occupants are only temporarily absent. In addition, a vacant unit may be one which is entirely occupied by persons who have a usual residence elsewhere.
Quick Recap.....
Total Housing Units in the United States:  130.85 million vs. 130.19 million in Q4 2009
How Many Are Occupied: 112.45 million (85.9% of total) vs. 111.37 million in Q4 2009

• How Many Are Owner-Occupied: 74.78 million (57.2% of total) vs. 74.81 million in Q4 2009
  

FHA Suspends 90 Day Flipping Rule for 12 Months

HOUSING: Feds suspend anti-flipping rule

On Feb. 1, the Federal Housing Administration will place a one-year moratorium on its anti-flipping rule, which will allow buyers with FHA-backed loans to purchase homes that have been held for less than 90 days, officials said Friday.
The move will open a new pool of homes to first-time homebuyers who have been losing bids to cash buyers, but shouldn't have much effect on home prices, analysts said.

Keep warm air INSIDE this winter!

Keep old man winter’s cold hands out of your pocketbook

  By TERRI BENNETT    McClatchy Newspapers

     The winter chill is preparing to take a bite from our bank accounts. We’ve all heard that “winterizing” our homes will help keep utility costs down and is easier on the environment.    

Here’s a short list of options that are simple to do, and which will yield the most immediate results.

   • Reverse the direction of your ceiling fans. This is one of the simplest ways to keep warm air moving inside your home.    In the colder months, your fan blades should turn in the clockwise direction to force warmer air collecting at the ceiling down toward the floor. You can tell that the blades are turning in the wrong direction for the colder months if you feel a breeze pushing down on you when standing directly under the fan.      
 
•Another smart place to check for leaks is in your attic. First, make sure the attic door itself is insulated and seals when shut. As for the actual attic space, if you can see the ceiling joists, you probably need more insulation. And, if your fireplace is more ornamental rather than functional, use a chimney plug to prevent warm air from escaping.     

• Windows and doors are the biggest places where warm air escapes. Use a match or lit candle to search for leaks. If the flame blows out when held next to windowsills or doorframes, there’s a problem. Replacing windows and doors with efficient new ones are your best bet, also costly.    One alternative is to put up insulating storm windows and doors. You can also use window insulating kits or heavy drapery   to help keep winter drafts from entering your home through windows.    And, weather-stripping is an inexpensive solution for filling gaps in doorframes. For high-traffic areas, rubber weather-stripping is your best bet because it is more durable than foam variety.    
 
• Don’t forget to keep up with the maintenance of central heating   units. Furnaces should be checked each year to make sure they are operating at maximum efficiency and with clean filters.    A clogged filter makes the unit work harder, costing more to operate and creating a fire hazard.    Another good idea is to check the ductwork in your home to make sure there aren’t any leaks. You   can easily fix any that you find with metal-backed tape found at any hardware store.     

• And finally, if your water heater is located in a cold garage or closet invest in a water heaterinsulating blanket. This keeps your unit from having to work so hard to heat the water.    These do-it-yourself jobs can be as big or as little as you want  and they all add up to energy and money savings. Do your part this winter to keep warm air inside your home and even more money in your pocket.    

Terri Bennett is a veteran TV meteorologist, syndicated columnist, and host of DoYourPart. com where you can find everyday green living ideas that are better for you and the planet.

Remodeling your home? Return on your investment dollars!

These numbers are courtesy of the National Board of Realtors and will give you a good idea of where to put your remodeling dollars when you begin thinking of starting your next project. :)


% Return of $ Spent                Remodeling Project
102%                                         Kitchen (By far, the best return of money in value given!)
77                                              Bathroom
73                                              Deck (enjoy those summer days more with this % return!)
71                                              Siding
69                                              Home Office (my personal favorite remodeling project!)
68                                              Windows (Federal Tax Rebates end soon!)

If you would like to explore refinance options to cash out some of your equity to finance a remodeling project, call or e-mail me.  :)

Great Deals in Housing

If you were offered the chance to buy dollars for $0.70 a piece, how many would you buy?  

When you compare today's home loan rates to the average in effect for the last 10 years, that is approximately what you are paying. And given lower home prices, there has never been a better opportunity to buy a home than today.

Home Affordability: The Key to Your Market

Mark Zandi, Chief Economist for Moody's Analytics stated recently in an audio interview with MarketWatch Radio that he has never seen a better time to buy a home, with low interest rates and affordability being one key component.  When people decide to buy a home, the monthly payment is a crucial factor.  

Return on Investment Calculations

The calculation appears simple enough:
Return on investment equals what has been
earned divided by what has been invested.
If an investor puts $1,000 in a portfolio of
stocks that appreciates to $1,100 and pays
$50 in dividends, the portfolio would have
returned 15 percent ($150/$1,000).

However, it is not that simple. To
make the percentages meaningful,
investors need to consider
a few important variables.
For one, a $150 return
on a $1,000 investment in
one year is better than a
$150 return on a $1,000
investment over two years.
Indeed, the first outcome
produces a 15 percent annualized return,
while the second produces a 7.24 percent
annualized return. Annualized returns
enable direct comparisons.

Fees also matter. Two investors each
earn 15 percent on their $1,000 investment.
One investor is charged 1 percent of the
portfolio’s value at year’s end, while the
other is charged 2 percent. After fees are
subtracted, the first investor posts a 13.8
percent return on investment, the second
investor posts a 12.7 percent return.

Leverage, or debt, is another important
variable. Consider two $200,000 rental
properties: One investor pays the full price
in cash while another investor borrows 80
percent of the property’s value ($160,000) at
6.5 percent on an interest-only loan. After
one year, the property generates $15,000
in operating income. The first investor
earns 7.5 percent ($15,000/$200,000) on
his invested capital. The second investor
earns 11.5 percent [($15,000-$10,400 in
interest payments)/$40,000] on his invested
capital.

The variable of leverage,
in turn, leads to the variable of
risk. Some investments are
riskier (offer a greater
chance of losing money)
than others. A leveraged
investment is riskier
than a non-leveraged
investment; bonds are
riskier than stocks; futures
contracts are riskier than
stocks.

Bottom line: An 11.5 percent return
on a leveraged investment isn’t necessarily
better than a 7.5 percent return on an
unleveraged one.

Returns on investment are important
considerations, to be sure, but the variables
that contributed to those returns are just as
important.