Tuesday, December 5, 2023

Moving Scams: How to Spot Them



Moving can be stressful enough without having to worry about being scammed by a moving company. Unfortunately, there are unscrupulous movers out there who prey on people who are in the midst of moving.

To protect yourself from being scammed, it's important to be aware of the red flags. Here are a few things to watch out for:

The mover or broker doesn't perform an on-site inspection of your household items and gives an estimate over the telephone or online. A legitimate moving company will always come to your home to inspect your belongings and give you an accurate estimate.

The mover or broker doesn't provide a written estimate or says they will determine the cost after loading. A written estimate is essential to protect yourself from hidden charges.

The moving company demands cash or a large deposit before the move. Legitimate moving companies will accept credit cards or checks.

The mover asks you to sign blank documents. Never sign blank documents. This could give the mover the opportunity to add hidden charges after the move.

The mover or broker doesn't provide you with a copy of the Your Rights and Responsibilities When You Move booklet and a copy of FMCSA's Ready to Move brochure. These booklets contain important information about your rights and responsibilities as a mover.

The company's website has no local address and no information about their registration or insurance. A legitimate moving company will have a physical address and be registered with the Federal Motor Carrier Safety Administration (FMCSA).

The mover claims all goods are covered by their insurance. This is not always true. Make sure you understand the terms of the mover's insurance before you sign any contracts.

On moving day, a rental truck arrives rather than a company-owned or marked fleet truck. This is a red flag that the mover may not be legitimate.

The mover claims that you have more belongings than estimated. This could be an attempt to charge you more money.

If you see any of these red flags, it's best to walk away from the moving company and find a more reputable one. You can check the FMCSA's website to see if the company is registered and insured. You can also read reviews of the company online.

For more information, go to the Federal Motor Carrier Safety Administration website.   Download our Moving Guide.

Tuesday, November 28, 2023

Which types of showings work



A showing is an opportunity for a buyer to determine if a home is right for them. Each of the different types of showing plays a valid and necessary role in marketing the home. Some buyers may start by looking at homes online, which can lead them to drive by the home to see if it still meets their interest before they schedule a showing.

Online showing: This is when a buyer looks at a home's listing online, including photos, videos, and a description. This can be a great way for buyers to get a general overview of a home and see if it is worth scheduling a showing.

Drive-by showing: This is when a buyer drives by a home to see it in person. This can be a good way for buyers to get a feel for the neighborhood and the surrounding area. It can also be helpful for buyers to see the home's size and layout from the outside.

In-person showing: This is when a buyer schedules a time to visit the home with a real estate agent. This is the best way for buyers to get a true sense of the home and see if it is right for them. Buyers can ask the real estate agent questions about the home and the neighborhood. They can also walk through the home and get a feel for the space.

Virtual Showing: Virtual Reality (VR) can be used to stage, remodel, or update a home for sale by creating realistic images of what the home could look like with different furniture, appliances, paint colors, countertops, or flooring.  By creating images of the home in different staging scenarios, the agent can show potential buyers the potential of the home and how it could be used.

Each one of these types of showings contributes to the marketing of a home.  By offering different types of showings, a seller can reach a wider audience of potential buyers and increase the chances of selling their home quickly.

Tuesday, November 21, 2023

How homeowners can avoid mortgage relief scams



Homeowners who are facing financial difficulty are often targeted by mortgage relief scams. These scams can be very convincing, and homeowners may be desperate for help, making them vulnerable to these schemes.

Scammers often pose as government officials or mortgage experts, and they may promise homeowners that they can help them avoid foreclosure or modify their mortgage loan. However, these promises are often false, and homeowners who fall victim to these scams may lose their homes and their money.

If you are facing financial difficulty and you are considering a mortgage relief program, it is important to do your research and be very careful. Here are some tips to help you avoid becoming a victim of a mortgage relief scam:

  • Only work with a HUD-approved housing counselor. You can find a housing counselor by calling 1-888-995-HOPE (4673).
  • Be wary of anyone who promises to help you avoid foreclosure or modify your mortgage loan for a fee. It is illegal for anyone other than a licensed attorney to charge a homeowner a pre-paid fee to negotiate a mortgage modification on the homeowner's behalf.
  • Read all paperwork carefully before signing anything. Do not sign anything that you do not understand.
  • Do not be pressured into making a decision quickly. Take your time and do your research before making any decisions about your mortgage.

The warning signs for fraudulent mortgage rescue schemes:

  • You are charged an upfront fee for assistance in avoiding foreclosure or modifying your mortgage loan.
  • You are asked to transfer the deed to your home. It is very unlikely you will ever get the deed back, regardless of what you are told.
  • The individual or company "helping" you asks you to make future mortgage payments directly to them, instead of paying your mortgage company directly. This is a common tactic used by scammers to take your money and run.
  • You are asked not to contact your current mortgage company. This is another common tactic used by scammers to prevent you from getting help from a legitimate source.
  • The scammer refuses to provide you with a written plan or contract, or alternatively pressures you to quickly sign documents you do not understand. This is a red flag that the scammer is not interested in helping you, but rather is trying to take advantage of you.

Review this HUD guide for homeowners having difficulty making mortgage payments. This guide provides information on your rights and options if you are facing foreclosure.

If you think you may have been a victim of a mortgage relief scam, you should contact your state attorney general's office or the Federal Trade Commission (FTC). You can also file a complaint with the FTC online at ftc.gov/complaint.

It is important to be aware of the red flags for fraudulent mortgage rescue schemes. If you are contacted by someone who claims to be able to help you avoid foreclosure or modify your mortgage loan, be sure to do your research and ask questions before you hand over any money.

Tuesday, November 7, 2023

Discover the benefits of an FHA Assumption



With new mortgage rates approaching 8%, many buyers have decided to wait for rates to come down.  While there may be some easing in the fourth quarter of 2023 and 2024, assuming an existing FHA mortgage with a lower rate made in the last three or four years might be a much better alternative.

Since December 1, 1986, FHA has had the right to approve the purchaser of an existing FHA loan.  Prior to that, anyone, regardless of credit worthiness or other qualifications, could assume an existing FHA loan. 

Existing FHA mortgages are assumable at the current interest rate for owner-occupied buyers.  The benefit is that the rate could be much lower than a new current mortgage.  The borrower must qualify for the loan under current FHA underwriting guidelines, but it will be easier because the payment will be lower due to a lower assumable mortgage rate.

The buyer's closing costs on an assumption are less than a new FHA loan because an appraisal and survey are not required.  The transfer fee is $500 instead of the 1% loan origination on a new loan.

An existing mortgage is further into the amortization schedule than originating a new loan which means there is more being applied to the principal each month accelerating the payoff.  Another benefit is that lower interest rate loans amortize quicker than higher interest rates loans.

It will generally take a larger initial cash investment on an assumption to buy the equity than buyers were planning to use as a down payment.  Secondary financing can be used for the difference which is referred to as the assumption gap.  Purchase Price less Existing Balance on Mortgage = Equity less Planned Down Payment = Assumption Gap.

The difficulty is that lending institutions are slow to add second mortgages to their offerings. Another reality is that lenders make much more money on a new loan than an assumption. Alternative sources for the second loan could be the seller, relatives, credit unions, local banks, and hard money lenders.

Conventional loans have had a "due on sale" clause in their loan documents since the early 1980s which not only require the borrower to qualify for the assumption but allows them to escalate the interest rate to the current rate.  For practical reasons, there is no benefit to assuming a conventional loan; the borrower might as well get a new conventional mortgage.

Buyers who assume an FHA mortgage without obtaining lender approval risk triggering the due-on-sale clause.

Lenders must grant a release of liability to the original borrower (seller) if the assumptor (buyer) is approved and agrees to execute a statement to assume and pay the mortgage debt.

The practical difficulty in finding assumable FHA loans is that there is no searchable field in most MLS databases and anything identifying it as an assumable mortgage is limited to the description or the agent comments.

Another issue is that many agents have never done an assumption and, in some cases, are not even aware that FHA mortgages are assumable at the original mortgage rate.  An experienced agent can show you the savings on an assumption compared to a new mortgage at current interest rates and knows how to locate assumable loans.

If you're interested in learning more about it, find an agent familiar with FHA, VA, & USDA assumptions.  Each type of mortgage has slightly different requirements, but each is assumable.

Tuesday, October 31, 2023

Discover how to go from stress to success with your home move



Navigating a real estate transaction, which often involves substantial financial investments and emotional considerations, can understandably induce stress. To streamline this process, adopt these effective strategies that promote a smoother journey.

Begin by clearly outlining your primary motivations for either buying or selling a property. By eliminating distractions and maintaining a focused perspective, you can mitigate potential anxieties. For instance, if your primary goal is to secure more space for your family, evaluating properties without this essential feature becomes a straightforward decision.

Whenever feasible, allocate ample time to prevent hasty decisions or setting unrealistic deadlines. While external factors like a sudden job relocation or a booming market might necessitate swift responses, it's crucial to differentiate between preparedness for action and arbitrarily shortened time frames.

Remember, orchestrating a successful transaction requires coordination with other involved parties such as title and mortgage companies, appraisers, surveyors, inspectors and possibly, attorneys. The ability to expedite your actions doesn't necessarily imply that others can adhere to such accelerated timelines.

Anticipate encountering a few unexpected things during your home buying or selling journey. Recognizing the potential for sudden surprises can alleviate some of the pressure when they arise. When challenges do surface, counterbalance these concerns by reminding yourself of the favorable aspects associated with relocating, such as a home more conducive to your current lifestyle, a more convenient location, or other opportunities.

The ultimate strategy to alleviate stress when engaging in real estate transactions lies in partnering with a seasoned REALTOR� who possesses the expertise to navigate you through each step of the process, thereby facilitating the realization of your real estate aspirations.

For more information, download our Buyers Guide.

Tuesday, October 24, 2023

The Net Worth Advantage: Homeowners vs. Renters



The decision to rent or own a home is not just about having a place to live; it also has significant implications for your financial future. One key aspect that often comes into play is net worth ... the value of your assets minus your liabilities. Numerous studies and statistics highlight a compelling trend: homeowners tend to have higher net worth compared to renters.

The numbers according to the Federal Reserve's Survey of Consumer Finances confirms the belief that homeownership has long been associated with wealth accumulation.  The median net worth of homeowners is 40 times higher than that of renters. This discrepancy can be attributed to several factors that favor homeowners, including equity buildup, property appreciation, and forced savings through mortgage payments.

Homeownership allows individuals to build equity over time, which is the difference between the home's market value and the remaining mortgage balance. Every mortgage payment with amortizing loans contributes to this equity, leading to a gradual increase in homeowners' net worth. On the contrary, renters do not benefit from this form of forced savings, as their monthly rent does not result in any ownership stake.

Historically, real estate has proven to be a valuable investment, with properties appreciating in value over the long term. Homeowners enjoy the potential for capital appreciation, which can significantly boost their net worth. In contrast, renters do not participate in the appreciation of the property they live in and miss out on this wealth-building opportunity.

Homeownership also comes with tax benefits, such as deductions for mortgage interest and property taxes but with such a high portion of taxpayers electing to take the standard deduction, the more important tax benefit is the capital gains exclusion. 

Homeowners can exclude up to $250,000 of the gain on their principal residence if single and up

to $500,000 if married filing jointly. During the five-year period ending on the date of the sale, the

taxpayer must have owned and lived in the home for at least two of the past five years.

These advantages contribute to lowering the overall cost of homeownership and increasing the financial cushion for homeowners.

Owning a home can have positive implications for retirement readiness. As homeowners pay down their mortgages, they are essentially building a valuable asset that can be leveraged in retirement. Borrowing against one's home is not a taxable event.  The proceeds could be used for any reason.  Furthermore, owning a home outright eliminates the need for monthly rent payments during retirement, providing greater financial security.

Additional sources to support the claim that homeownership has net worth advantages include:

  • The National Association of Realtors regularly releases reports that analyze the financial benefits of homeownership, including equity accumulation and property appreciation.
  • The Case-Shiller Home Price Index tracks changes in the value of residential real estate, offering insights into property appreciation trends over time.
  • U.S. Census Bureau data offers a broader perspective on homeownership rates, wealth distribution, and their impact on net worth.

The numbers speak for themselves ... homeowners tend to enjoy a higher net worth compared to renters. The combination of equity building, property appreciation, tax advantages, and retirement preparedness contribute to this financial advantage. While individual circumstances vary, it's clear that homeownership offers a pathway to building wealth and securing a more robust financial future.

For more information, download our Homeowners Tax Guide.

Tuesday, October 17, 2023

The Danger of Do-It-Yourself Divorce



Ken & Barbie have been married 20 years and have owned their current home for over 10 years. Without the benefit of legal or tax advice, they decide to divorce with Ken taking his retirement and Barbie taking the equity in the home which are equal in value.

It appears to be equitable until a year later when Barbie decides to sell the home.  It sells for the same market value at the time of the divorce but now Barbie pays all the sales costs.  The unpaid balance on the home was much larger than normal because it had been refinanced for $750,000 two years earlier.

When Ken gave Barbie his equity in the house, he also gave her his tax liability in the home.  Barbie has a substantial capital gain because the home was purchased for a much lower price ten years earlier.  Capital gain is calculated by taking the sales price less sales costs, plus capital improvements made, less the purchase price.

Since she is single, she has a $250,000 exclusion and the balance of the gain of $456,750 will be taxable as long-term capital gains.  Let's assume her rate is 15%, Barbie would owe $68,513 in capital gains taxes.

When calculating Barbie's net proceeds from this sale and accounting for the sales costs, mortgage balance, and federal taxes due, she only realizes $88,487 in this example while Ken walked away from the divorce with the full value of his retirement account of $225,000.

It doesn't appear to have been an equitable settlement.  Contributing to this inequity was an apparent misunderstanding of how taxes are calculated and that the expenses incurred with the sale of the home as a single person would be borne solely by herself.

No gain or loss is recognizable on the transfer of the residence if related to the end of a marriage.  It is treated as a gift with no gift tax due if the transfer is within two years prior to the divorce or one year following.  There is no change in basis; it is carried over to the gifted party.

A marriage is a legal arrangement and divorcing deserves the benefit of expert advice.  An attorney who is familiar with potential tax consequences could have advised his/her client about the potential tax consequences and possibly suggested a more equitable division of assets.

This example is used to show you how it can appear to be an easy solution to dividing the assets.  In an emotional state, one person could agree to something that could be costly later. 

 

Division of Assets

 

Home's Market Value at time of Divorce

$975,000

Unpaid Balance at time of Divorce

$750,000

Equity in Home at time of Divorce

$225,000

Ken's Retirement Value at time of Divorce

$225,000

Computation of Tax

 

Subsequent Sales Price by Barbie

$975,000

Less Sales Costs

$68,000

Less Basis (the home was refinance several times with cash out)

$200,00

Capital Gain

$706,750

Less Section 121 Exclusion for single person

$250,000

Remaining Taxable Gain

$456,750

Tax Due at 15%

$68,513

Computation of Proceeds

 

Sales Price

$975,000

Less Sales Costs

$68,000

Less Mortgage Balance

$750,000

Less Federal Income Tax Due

$68,513

Net Proceeds

$88,487