Author: mayna

In buying a new property or refinancing your existing home, you may be looking down the road to a time when you may want to sell.

With mortgage rates at historical lows, it would give you a definite edge if your mortgage (and its low rates) can be transferred to new owners. So if you are planning to finance or refinance a property, consider the fact that a Federal Housing Administration (FHA) mortgage is “assumable”.

“Assumability” means that a new owner can effectively take over your mortgage payments. And this could be extremely important to you if interest rates were to climb significantly over the next few years. Assumability allows you to offer potential buyers a mortgage with payments well below market rates.  Of course, the buyers of your home would still have to be able to qualify for the mortgage before they could assume that debt.

In turning over your mortgage to new owners, you are protected from liability because documents that are signed at closing release you from any liability connected to your former mortgage. Should the new owners default, thanks to these documents you’re off the hook.

As good as this sounds, consider the options carefully. You should be aware that, if you qualify for a conventional mortgage, it could prove more attractive than an assumable FHA mortgage; often a conventional mortgage will have significantly reduced or no mortgage insurance, cutting your mortgage payments and possibly offsetting the benefits of an FHA loan. Ensure you discuss your individual situation with your mortgage professional.

We’re all guilty of bad judgment at one time or another. But whether it’s bad judgment or bad luck, being unable to make your mortgage payments has the same result. You lose your home.

You may have declared bankruptcy, sold your home through a short sale or gone through a foreclosure. As a result, your credit has been affected to a greater or lesser extent. And this may make it difficult to purchase another property.

Here are some of the things you need to be aware of when thinking about financing your next home:

In picking a mortgage program, your best bet is to look first at Federal Housing Administration (FHA) home loans, then at conventional mortgages. The FHA is more lenient in its guidelines than Fannie Mae is, so we’ll focus on FHA loans.

Bankruptcies: There are two basic types of bankruptcies: one where debt is wiped clean (Chapter 7) and one where there is a payment plan (Chapter 13). In general, you’ll need to wait to get a loan; for two years after the discharge date of a Chapter 7 bankruptcy and one year after Chapter 13, providing you can prove that payments have been made on time.

Short Sales: In this situation, you sold your home for less than you owe and the lender took a loss on the property. Waiting time for an FHA loan is three years. In most cases, and depending on your credit scores, you’ll need a minimum down payment of 10%.

Foreclosures: You can apply for an FHA loan three years after the foreclosure is complete. Extenuating circumstances that may reduce this time include being unable to sell your home when relocating due to a job change or some hardship that is unlikely to recur, such as a medical leave due to unforeseen circumstances that caused a lapse in income. In both cases, you will need proof.

 

Year-end is a great time to take a close look at your finances. Because volatile markets can skew the percentage of stocks, bonds and cash in your portfolio, it’s important to give your portfolio an annual check-up to make sure your allocation remains aligned with your situation and goals.

It’s easy to do in three simple steps:

Step one: Develop a target asset allocation

Given your individual financial circumstances and goals, what percentage of your portfolio should be dedicated to each asset class? For example, if you’re close to retirement, you may want the majority of your portfolio in income investments such as cash and bonds, with a smaller percentage in stocks to protect your portfolio against inflation. If you’re younger, and can tolerate the fluctuations of the stock market over time, you may want to put the majority of your investments in stocks.

Step two: Evaluate your portfolio

Next, determine if your actual investments match your target asset allocation. If they do, your portfolio is in good shape. If they’re off, consider just how far off they are.

Since making frequent changes to your portfolio can have tax consequences, you may only want to alter the asset mix if it’s off by more than five percentage points.

Step three: Rebalance

If your asset allocation has drifted significantly away from your target, you can rebalance your portfolio in a variety of ways.

For example, you can shift funds out of the asset class that exceeds its target into the other investments, or you can simply add funds to the asset class that falls below its target percentage. You can even direct dividends from the asset class that exceeds its target into the ones that are below their targets.

This will bring your portfolio back into balance, but because of tax implications, it’s important to talk to your advisor before making any significant changes to it.

 

In today’s volatile markets, you may be tempted to buy and sell some securities. If you do, you’ll want to keep in mind the so-called “wash-sale” rule.

According to the Security and Exchange Commission (SEC), a wash sale occurs when you: “sell or trade stock or securities at a loss and within 30 days before or after the sale you buy substantially identical stock or securities; acquire substantially identical stock or securities in a fully taxable trade; or acquire a contract or option to buy substantially identical stock or securities.”

Why would an investor do this?

Mainly to take a capital loss while retaining the security.

The Internal Revenue Service (IRS) frowns on this, but many investors try to find ways around the rule, especially in today’s market environment. Many others just may not understand how wash-sale rules work.

For example: You buy a stock and hold it. A few years later, you purchase additional shares of the same stock. A few days later, you sell the initial shares at a loss. You then deduct the loss.

This seems to meet the wash-sale rule requirements – but it doesn’t.

Many investors mistakenly assume the rule applies only when you buy back a security 30 days after the sale, but as the SEC definition explains it applies before a sale as well.

Some areas of the law are fuzzy. For example, the definition of “substantially identical” is unclear.

So be sure to consult your advisor before buying and selling any stocks, bonds or mutual funds.

 

For those who, for whatever reason, aren’t yet qualified to purchase a home, there are options.

One way to realize your dream of home ownership is through purchasing a home on a rent-to-own basis.

Here are some things you should know about this option:

Rent-to-own programs generally appeal to two types of people:

The first includes people who have a down payment, but also have credit challenges.

The second is the reverse, where potential buyers may have good credit and can qualify for a mortgage, but have little or no money to put down on a purchase.

Through the rent-to-own program, the potential buyer is allowed to pay rent to live in the home he or she wants to buy, according to terms established in a rent-to-own agreement.

A certain percentage of rent goes towards the purchase and, at the end of a specified period of time, the buyer theoretically will have enough to enable him or her to purchase the home.

The renter/buyer also can expect to pay some type of deposit, and at the end of the rental term he or she will either purchase the property using the deposit and rental credits, or forfeit the deposit and vacate the premises.

Rent-to-own may also offer a seller relief from a mortgage they can’t pay on a home they can’t sell.

Just as in a sale, the seller and the renter/buyer negotiate a sales price for the home and a term, usually three years.

As you can imagine, all parties will benefit from an ironclad contract, drawn up by lawyers experienced in this type of agreement.

As compared to a straight-forward property rental, there is definitely more of a risk in a rent-to-own situation.

Be sure you know what you’re getting into; talk to your mortgage professional about rent-to-own programs and see if they are right for you.

 

Whether you are planning on purchasing, refinancing or rehabbing a property to make it more energy efficient, you will definitely want to look into energy-efficient or green mortgages, as they are often called.

This program applies to the property you call your primary residence. Generally this means a single unit, but Freddie Mac offers Energy Efficient Mortgages (EEMs) for principal residences from one to four units. Second homes are excluded from EEM programs.

How it works

With an EEM you are able to finance the cost of improvements that will make your home more efficient, and therefore lower your overall monthly energy expenses. EEMs are available through a variety of mortgage programs from Fannie Mae, Freddie Mac, FHA and VA.

The cost of the improvements can be rolled into a new loan, or it can be a stand alone mortgage separate from your existing one. Buyers can benefit from EEMs if they are purchasing a new energy efficient home.

To participate in the program you first must work with a certified energy consultant who will determine your proposed energy savings by using what is called a Home Energy Rating System (HERS). These consultants, or raters, must be certified by the Residential Energy Services Network (RESNET). There are fees associated with working with the consultant, and they can often be rolled into the cost of the loan.

Contact your mortgage professional for more details on this program, which can help you save money on your energy bills each month.

In buying a new property or refinancing your existing home, you may be looking down the road to a time when you may want to sell.

With mortgage rates at historical lows, it would give you a definite edge if your mortgage (and its low rates) can be transferred to new owners. So if you are planning to finance or refinance a property, consider the fact that a Federal Housing Administration (FHA) mortgage is “assumable”.

“Assumability” means that a new owner can effectively take over your mortgage payments. And this could be extremely important to you if interest rates were to climb significantly over the next few years. Assumability allows you to offer potential buyers a mortgage with payments well below market rates.  Of course, the buyers of your home would still have to be able to qualify for the mortgage before they could assume that debt.

In turning over your mortgage to new owners, you are protected from liability because documents that are signed at closing release you from any liability connected to your former mortgage. Should the new owners default, thanks to these documents you’re off the hook.

As good as this sounds, consider the options carefully. You should be aware that, if you qualify for a conventional mortgage, it could prove more attractive than an assumable FHA mortgage; often a conventional mortgage will have significantly reduced or no mortgage insurance, cutting your mortgage payments and possibly offsetting the benefits of an FHA loan. Ensure you discuss your individual situation with your mortgage professional.

We’re all guilty of bad judgment at one time or another. But whether it’s bad judgment or bad luck, being unable to make your mortgage payments has the same result. You lose your home.

You may have declared bankruptcy, sold your home through a short sale or gone through a foreclosure. As a result, your credit has been affected to a greater or lesser extent. And this may make it difficult to purchase another property.

Here are some of the things you need to be aware of when thinking about financing your next home:

In picking a mortgage program, your best bet is to look first at Federal Housing Administration (FHA) home loans, then at conventional mortgages. The FHA is more lenient in its guidelines than Fannie Mae is, so we’ll focus on FHA loans.

Bankruptcies: There are two basic types of bankruptcies: one where debt is wiped clean (Chapter 7) and one where there is a payment plan (Chapter 13). In general, you’ll need to wait to get a loan; for two years after the discharge date of a Chapter 7 bankruptcy and one year after Chapter 13, providing you can prove that payments have been made on time.

Short Sales: In this situation, you sold your home for less than you owe and the lender took a loss on the property. Waiting time for an FHA loan is three years. In most cases, and depending on your credit scores, you’ll need a minimum down payment of 10%.

Foreclosures: You can apply for an FHA loan three years after the foreclosure is complete. Extenuating circumstances that may reduce this time include being unable to sell your home when relocating due to a job change or some hardship that is unlikely to recur, such as a medical leave due to unforeseen circumstances that caused a lapse in income. In both cases, you will need proof.

Are you getting close to retirement or have you already retired? If so, it’s likely you have more than one retirement plan.

You’re not alone. Many investors have multiple retirement plans; unfortunately they believe that having several plans makes it difficult to calculate required minimum distributions (RMDs). That needn’t be the case.

Say that in addition to several Individual Retirement Accounts (IRAs) you have a 401(k) plan and a 403(b) plan, all of which are still with the firms that initially handled the investments for your employers.

In this situation, you would be required to take three RMDs at age 70½: one RMD from each of your three separate pools of money. The first pool would be your 401(k) money; the second, your 403(b) money and the third your IRA money.

If you have multiple IRAs, once you have determined your total IRA RMD you can choose to withdraw the total IRA RMD from one or any combination of your IRAs.  Similarly, if you have multiple 403(b) accounts, once you have determined your total 403(b) RMD you can choose to withdraw the total 403(b) RMD from one or any combination of your 403(b) accounts.

These points may need clarification, and tax laws are always changing; consult your advisor before taking RMDs from your retirement account.

This article is not intended to provide tax or legal advice and should not be relied upon as such. Any specific tax or legal questions concerning the matters described in this article should be discussed with your tax or legal advisor.

With employment slow to rebound, the U.S. Federal Reserve Board (the Fed) probably won’t rush to raise interest rates anytime soon, and that could bode well for Government National Mortgage Association securities (GNMAs).

GNMAs are mortgage-backed securities, meaning securities that hold portfolios of mortgages. They are issued by the U.S. Department of Housing and Urban Development (HUD) and are backed by the full faith and credit of the U.S. government. This guarantee is limited to covering the timely principal and interest payments of the loans underlying the security.

The prices of GNMAs, and therefore the value of a fund that holds them, rise and fall as interest rates move. When interest rates fall, people with mortgages usually refinance at lower rates. As they do, more money is returned to the GNMA pool, and GNMA fund managers are forced to reinvest at prevailing lower rates.

On the other hand, when interest rates rise, GNMAs may also decline in value because they hold pools of mortgages purchased at lower interest rates, and people who took out those mortgages have no incentive to prepay them because interest rates are higher.

Therefore GNMAs typically do best when interest rates are stable. And that’s the environment we’re likely in today. Pundits believe that before considering an increase in rates, the Fed will need to see much stronger labor markets and at least some indication of higher inflation. This seems unlikely at the moment.

So our current rate environment may well encourage investors to look more closely at GNMAs.

It can be hard to maintain a bond component to your portfolio when the stock market is performing relatively well, if erratically. But remember, diversification into bonds, including GNMAs, represents one of the best remedies for managing assets during a time of stock market volatility.