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January 2008

Resolutions for Homeowners - Part II

Here is the second two of 10 resolutions that the American Homeowners Foundation urges all Homeowners to adopt this year. 

One of the best New Years Resolutions homeowners can make is to eliminate expenses that are unnecessary and have no benefit. This is a tall order for many of us, with implications ranging from how you finance your mortgage to the energy efficiency of your home. Nevertheless it’s a very worthwhile exercise which will affect your current and future lifestyle. Many have already made some of the following ten 2008 New Years Resolutions for American Homeowners, but few probably addressed them all.

Resolution #3: I won’t let fears of dropping home values, the mortgage market meltdown, and the growing risk of a recession stop me from purchasing a home in 2008.

Many homeowners have decided to put off the consideration of a home purchase because of these concerns, but in many cases those fears are unwarranted. If you want to move in 2008 you should take a closer look, because this year could be an excellent time to buy a home.

As previously stated, the risk of a recession is certainly increasing, and this is certainly no time to push the limits of your financing ability. However, many homeowners are in a strong financial position, thanks to good savings habits and accumulated home equity. While they need to make sure they keep plenty of liquid assets against the risk of a recession, in fact many homeowners have more than sufficient liquid assets for that purpose and are in a position to buy a home if they wish to.

The direction of home values is of little consequence if you plan to stay in the same area. According to the National Association of Realtors, the median moving distance in 2006 was 13 miles. This means that if the value of your current home has declined, so did the value of the home you’ll be buying if you stay in the same area. The price difference will probably remain about the same in most cases (and this relationship holds true if homes are appreciating in your area). The future outlook for home values will also be about the same, so the direction of home values will have relatively little consequence for most home buyers.

The mortgage meltdown/subprime crisis will make home financing difficult for many who could only qualify for subprime mortgages previously, and more expensive for home buyers with impaired credit when they can get financing.

Despite this bad news for some homeowners, mortgages are still widely available at attractive rates for the majority of home buyers, who have excellent credit histories, and a good financial profile. In addition the government has begun to step in to help those at the margins - FHA loans have been made more accessible, Fannie Mae and Freddie Mac programs have been allowed to expand, and more proposals to help home buyers are in the works.

On top of all this, the inventory of homes for sale is at an all time high in many areas. Yes, that means you’ll have to work harder to sell your home, but it also means you will never be as likely to find a replacement that fits your needs exactly as you are today. Because homes are moving slowly in today’s market, it makes far more sense to first sell your home before you commit yourself to buying your next home. Even so, some sellers in this current soft market will accept a home sale contingency in a purchase offer, but usually only if they are first convinced that the prospective buyers will be pricing their home extremely competitively. That’s not unreasonable - pricing competitively is something you must do in this market anyway if you expect to sell your home. The bottom line is that for many, if not most homeowners, 2008 is a great time to buy a home, and the gloom and doom on the housing and economic front should not stop you from looking into it.

Resolution #4: I will increase my saving and reduce or eliminate high interest loans.

Refinancing your mortgage is often the first step in this process (see resolution #1), and curtailing your interest free loans to IRS the second (see resolution #2). Next, make sure you are taking advantage of all matching employer contributions to a company IRA if you have one and if at all possible make the full tax deductible annual contribution to your 401k, 403(b), regular or Roth IRA, or other tax-deferred retirement accounts.

In order to pay their mortgage off sooner, many homeowners make additional payments above the required monthly amount to their mortgage lender. They would have been better advised to get mortgage with a shorter term (15 years, for example), because they would have received a slightly lower interest rate as well. While debt reduction is a worthy goal, many homeowners would be much better off from a financial and tax standpoint to instead put extra money into tax-deferred retirement accounts. Not only would they get employer contribution matches in some cases, but the accumulated interest or dividends will either be deferred or tax free until you withdraw them at retirement. A 2005 study found that more than 38% of households would have earned 11 - 17 cents more on the dollar by investing in tax-deferred retirement accounts instead of prepaying the mortgage. Those extra earnings would have resulted in additional annual savings of almost $400 per household.

Make sure that both your tax deferred accounts and investments are diversified and you aren’t overly exposed in any one investment, including holdings in your employer’s stock. Even sound, well managed companies can take a beating in the stock market. Make sure you invest in mutual funds or stocks with consistently good performance records. For example the Lipper Reports tracks mutual fund performance by category (i.e. large caps, energy, etc.) over 1, 3, 5, and sometimes even 10 years. If there are 100 funds in that category invest only in those that are consistently in the top quartile (which would be the top 25 if there are 100 funds in the category) over each of those periods, and you should do pretty well. Review your investments annually (or even better quarterly) against that standard to make sure they are maintaining their track record.

Review your annual Social Security Benefits statement to make sure that your earnings have been accurately reported and that no one else is using your Social Security number. If they have, they may also use your social security card to get a drivers license and credit cards in your name as well. You can order your statement online at www.ssa.gov.

3:12 PM - Jan. 30, 2008 - comments {0} - post comment

Resolutions for Homeowners - Part I

Here is the first two of 10 resolutions that the American Homeowners Foundation urges all Homeowners to adopt this year. 

One of the best New Years Resolutions homeowners can make is to eliminate expenses that are unnecessary and have no benefit. This is a tall order for many of us, with implications ranging from how you finance your mortgage to the energy efficiency of your home. Nevertheless it’s a very worthwhile exercise which will affect your current and future lifestyle. Many have already made some of the following ten 2008 New Years Resolutions for American Homeowners, but few probably addressed them all.

Resolution #1: I will get my home finances in order.

Despite all the disaster stories about the mortgage meltdown, mortgage interest rates are relatively low and widely available to creditworthy homeowners. This is therefore a good time to review how you are financing your home. You may be able to save money, reduce financial risks, improve your financial status and/or use the opportunity to incorporate home financing in your long term financial planning. This is especially true if you currently have a subprime and/or adjustable rate mortgage.

If you have an older mortgage, there’s a pretty good chance you can get a lower interest rate - and therefore lower monthly payments - if you refinance your mortgage today. Since most of your mortgage payments in the early years consist of interest, you will also end up with a larger mortgage interest tax deduction with a new mortgage. If you don’t take any cash out and your new rate is lower, your actual monthly payments will also be lower. Paying less money while getting a bigger tax deduction is a good proposition. Also, the cost of private mortgage insurance (PMI) is also tax deductible for mortgages originated after 2007.

If you have an adjustable rate or interest only mortgage that has not yet reset, you have done well in this period of low mortgage interest rates. But don’t assume that your good luck will continue. The increase in monthly payments could be frightening when mortgage rates increase in the future. Worse, the large number of adjustable rate loans is expected to trigger as many as one million foreclosures when their teaser rate runs out in 2008. This may be the best time to refinance to a safer fixed rate mortgage if your current income will qualify you for the monthly payments.

If you have substantial home equity when you refinance your mortgage you can take cash out for worthy uses such as remodeling. Since the remodeling is financed through a mortgage, the interest on the cash you took out for the remodeling project is tax deductible. This is a big plus compared to using your credit card to pay for remodeling costs, because credit card interest isn’t tax deductible. If you currently have substantial high interest credit card debt and/or a higher interest short term second trust on your home, it may make sense to use the proceeds to retire those as well. However, there are limits on the mortgage interest deductibility if you finance for more than the original cost of the home plus improvements. Check with IRS (www.IRS.gov or 800-829-1040) or your tax advisor for the limitations before you take cash out.

Resolution #2: I will stop lending the government money interest free.

More than 101.2 million taxpayers got more than $229 billion in income-tax refunds in 2006. The average refund was $2,264. Refunds from IRS may sound like good news, but the IRS didn’t pay those taxpayers any interest on that refund, which accumulates through the year. Taxpayers who received refunds would have been better off if they reduced the amount withheld from their income tax every paycheck by enough to break even with IRS at years end, and put the extra amount in their paychecks into investments that earn interest or dividends. If they are also paying interest on credit cards (which isn’t tax deductible), it would probably make even more sense to use the difference to reduce their credit card balances.

Some taxpayers save their income tax refunds, but others blow it on things they could live without. The latter is a big mistake, especially with the growing number of economists who see a growing likelihood of a recession in 2008. It may be wise to hold off until next year on a purchase of a new car, boat or other major expense that can be deferred another year.

3:20 PM - Jan. 28, 2008 - comments {0} - post comment

Stay Pest Free this Winter

“Throughout the winter rodents such as house mice seek shelter indoors, often causing serious and costly property damage,” says Cindy Mannes, vice president of public affairs for NPMA. “In addition to property damage, winter pests contaminate food and water sources throughout the home.”

Mice are a common winter nuisance and only need a space the size of a nickel to enter a home. Once inside, mice and other rodents can cause considerable damage and pose serious health risks to people and pets. Mice are notorious for chewing through wires and wallboard. Homeowners need to inspect for rodent droppings in undisturbed areas, especially since droppings can trigger allergies and spread disease such as Hantavirus. During the winter months, spiders and cockroaches take advantage of damaged or missing screens on doors and chimneys to access the home. Once inside, cockroaches can easily contaminate unattended food and water sources.

NPMA offers a few important measures to prevent pests this winter season:

1. Seal any cracks and holes on the outside of the home, including areas where utilities and pipes enter the home.
2. Screen vents and openings to chimneys.
3. Keep attics, basements and crawl spaces well ventilated and dry.
4. Repair fascia, sofits and rotted roof shingles; some insects are drawn to deteriorating wood.
5. Replace loose mortar and weather-stripping around the basement foundation and windows.
6. If you suspect a pest infestation in your home, contact a licensed pest professional to inspect and treat the pest problem.

10:50 AM - Jan. 26, 2008 - comments {0} - post comment

Winter vacations in Colorado

6:59 PM - Jan. 24, 2008 - comments {0} - post comment

Ways to avoid foreclosure

However, for homeowners who have missed mortgage payments and may not qualify for the program, working with a credit counseling agency will allow them to explore alternatives to foreclosure, more commonly known as “workout solutions.”

“The agreement announced in early December is an effort to help people with adjustable rate loans stay in their homes,” said Suzanne Boas, president of Consumer Credit Counseling Service of Greater Atlanta, Inc. “However, most of the people who are turning to us for help are currently delinquent on their loans, having missed payments for a variety of reasons, ranging from reduced income to large medical expenses. We are working every day to find ways to help these families stay in their homes, too.”

Under the agreement announced Dec. 6, borrowers with interest rates scheduled to adjust between January 2008 and July 2010, who are no more than 60 days late and would be unable to afford their new mortgage payments can have their rates frozen for five years.

At CCCS of Greater Atlanta, Inc., certified housing counselors work with homeowners to analyze their current financial situation, communicate with their mortgage lender and outline a variety of options that may allow them to keep their home. If the homeowner has the desire to stay in their home, there are four common plans that CCCS counselors typically explore with their lenders.

Here are four recommended options:

Repayment Plan — This is the most common workout plan for any household that is 1-3 months delinquent on their mortgage payment.

Under this scenario, a homeowner sends in their normal payment plus an additional amount each month that is agreed upon by the mortgage lender. Repayment terms typically span from 3-24 months and the terms of the loan are not changed.

Loan Modification — A loan modification is a written agreement between the servicer and homeowner that changes one or more of the original loan terms, such as the interest rate, term of the loan or type of mortgage.

Under a loan modification, the monthly payment often is not reduced, though the interest rate usually will not “reset” to a higher rate or will be rolled back to the initial rate. This can be a solution for a family with an adjustable rate loan where the rate has recently increased, or is about to increase.

Forbearance — A forbearance is similar to a repayment plan, but this agreement usually applies to people who have experienced a major financial setback, such as one-time medical expenses or a temporary loss of income. The borrower must be able to prove that they have a new job or a new source of income to resume making their regular monthly payments in the future

A forbearance allows the homeowner to send in no payment or a reduced payment for a collected during the plan by either doing a reinstatement, a repayment plan, or a loan modification.

Partial Claim (FHA) — In effect, this is a second loan for anyone with a loan guaranteed by the Federal Housing Administration (FHA). The mortgage loan is brought up to date by securing up to 12 months of past due principle, interest, taxes and insurance in a separate, interest free note that is payable when the original mortgage is paid off.

To qualify, a homeowner must be at least 4 months delinquent on their mortgage loan, but no more than 12 months. The new loan enables them to pay off the amount they are “in arrears” and immediately brings their mortgage loan up to date. There are no extra payments or extra interest. A lien is placed on the home and the amount needed to make the loan current is deducted when the home is sold.

6:56 PM - Jan. 22, 2008 - comments {0} - post comment

Update your homeowners insurance!

The homeowner’s insurance survey was conducted with more than 1,000 US homeowners participating. This group covered every region of the U.S. The Homeowners Consumer Center discovered the following when it came to homeowners, and their homeowners’ insurance policy:

Question: When is the last time you checked your homeowner’s insurance policy for needed updates?

Within the last year—— 5
Within the last three years ———72
Not since the home was purchased——- 1042

Question: Do you live in a flood plain?

Yes ——–275
No———- 473
Don’t know—— 371

If you do live in a flood plain do you have flood coverage?

Yes —–225
No——- 31
Not applicable/Don’t know or I am not sure ———–863

When was the last time you updated your homeowner’s insurance policy for contents coverage such as jewelry, computers, home electronics, antiques, etc?

Within the last year—— 5
Within the last three years ——–56
Not since the home was purchased ———1058

In the event that you lost the use of your home, do you have “loss of use insurance coverage” that would pay for rent while your home was being repaired?

Yes ———117
No ———–11
Don’t know or I am not sure———— 991

6:29 PM - Jan. 20, 2008 - comments {0} - post comment

Buyng now can be a smart move

The American Homeowners Foundation has some ideas about why now could be the best time to buy a home.

Although much of the housing market is in a slump, this is still a good time for most to buy a home.

Even though many economists are predicting further drops in home values in most areas, today is still an excellent time for most of us to buy a home. The direction of area home values won’t make much difference to homeowners who will both buy and sell in the same area, and other important factors very much favor buying a home now.

Most move up buyers buy their next home in the same area. Whether overall home values in that area are going down, up, or holding their own, other homes in the area will be similarly impacted. Current local home values and any future changes in those home values, whether negative or positive, will therefore have the same effect on a home they might buy as they will have on their current home when they sell it. For that reason the direction of housing values in any given area is of small consequence relative to other factors for those homeowners, who should not let declining values get in the way of buying their next home.

If you are a prospective first time buyer in one of the few appreciating markets, buying sooner rather than later certainly makes sense. Similarly, if you live in an area where home values are falling and plan to relocate to another area where prices are rising, that is a good reason to buy and sell (or sell and buy) as soon as you can, before the gap widens further.

Holding off on a home purchase due to current market conditions may make sense in some cases only for a much smaller group - prospective first time buyers who live in an area where further home price declines are likely. The same is true for those living in the relatively few areas where homes are appreciating and who plan to relocate to other parts of the country where home prices are still falling. Unfortunately some homeowners now owe more money on their mortgage than their home is worth because of dropping home values. They may be unable to afford to sell at this time regardless of local market conditions unless they have sufficient savings to make up the difference.

There are several reasons that today is a particularly good time to buy a home for most of us. The selection is as great as it will ever be, mortgage rates are still relatively low by historical standards, and costs of any desired remodeling/upgrades are a lot less because of the downturn in new home construction and the resulting glut of building supplies.

With inventories of homes for sale at all time highs in many places, there’s a much greater chance that you’ll be able to find a home that’s ideally suited for your needs. That’s a very big plus because homeowners spend an average of nearly a decade in their home before they sell it. The shortage of inventory and high home prices that existed up until 2005 forced many buyers to make many compromises on home features at that time. No doubt many of them wish that some of the nicer homes for sale in their neighborhood today had been available at that time. Today’s home buyers will have to make far fewer, if any compromises, and many will be able to pay less for a home that’s much better suited to their needs.

If today’s home buyers decide to make some upgrades and improvements to their next home they can usually do it for substantially less than it would have cost several years ago. The rate of new home construction has dropped precipitously, and prices of many building materials have dropped substantially as a result. Prices for oriented strand board, which is used for exterior wall sheathing, roof sheathing and subfloors, is down 40% from late 2005, according to the National Association of Home Builders. Lumber used for framing floor and roof joints retreated 24%, in cost according to NAHB. Drywall prices are down 35% from late last year, according to United States Gypsum Company.

Construction labor costs are down as well, as many home builders have decided to become remodeling contractors until the market for new homes improves. The remodeling market has also slowed down somewhat. With many home builders recently reinventing themselves as remodeling contractors, price competition in that market is very intense today. Only a few years ago you were lucky if half the contractors returned your call, and a few actually showed up and subsequently gave you a proposal. That has changed dramatically.

“When we remodeled our kitchen and bathrooms several months ago every contractor we called showed up, and their bids were very competitive,” said American Homeowners Foundation President Bruce Hahn. “Many of them were ready to start immediately, and none of them balked when we told them we wanted them to sign a comprehensive contract specifying all of the details of the project,” he added. (Note: Judging from the continuing number of complaints regarding remodeling contractors, the competition has yet to drive incompetent and/or dishonest contractors out of the business.

Lastly, mortgage rates are still competitive by historical standards. Although lenders have become more particular about who they will lend to, and the gap between mortgage interest rates for those with excellent credit and those with marginal credit histories has widened, mortgages with 30 year fixed rates are still affordable for a majority of home buyers. If you are looking down the reset barrel of an adjustable rate mortgage on your current home, you will also be able to resolve that problem and avoid the higher mortgage reset interest rate with a fixed rate loan on your next home.

The bottom line: Trying to employ market timing in real estate entails many of the same risks as attempting market timing in the stock market, as many real estate flippers who flocked to the market in the middle of this decade learned the hard way. Despite all the current doom and gloom in the housing market, it’s still a great time for most of us to buy a home!

6:13 PM - Jan. 18, 2008 - comments {0} - post comment

First house = duplex?

Ki Gray, broker in Austin, Texas, has a great idea about buying a duplex as your first home.

There is a lot of talk about getting your first house. It is part of the American Dream to get a house and maybe get a dog named Rover. But maybe that first home should instead be a duplex. Why would I propose such a thing? Is it possible I am a secret Russian spy that hates American pie? No, there are simply too many advantages to buying a duplex first.

Buying a duplex has a number of financial advantages over buying a house. A lot of people assume duplexes would sell for about twice of what a house sells for in the same neighborhood. This is rarely the case. Duplexes are more frequently about 1.5 times the price of a house in a given area. So to pick an easy number if a house is selling for $100,000 then a duplex should be selling for $150,000.

So let's compare buying a house to a duplex. To keep things the same let's assume we have $20,000 to put down and we are looking in the Austin real estate market so that the taxes are 2.5 percent of the purchase price and insurance is 0.4 percent of the purchase price.

1. Lower Monthly Payment
To start off with let's look at the house. For the house we are going to have a 6.5 percent interest rate. We can use this mortgage calculation:

$100,000 house price
$20,000 down payment

Monthly Payment = $747.32

Moving on to the duplex. Because duplexes usually have higher interest rates we are going to assume a 7 percent interest rate. We are also going to assume that the other side of the duplex is being rented for $650.

$150,000 duplex price
$20,000 down payment

Monthly Payment = $1,184.18
Rent Payment minus 5 percent vacancy = $617.50
Monthly Payment minus rent = $566.68

The monthly payment on the duplex comes out to be 31.8 percent less than on a house. You might get different numbers based on your area. In most areas, a duplex leads to a lower monthly payment but there are a few real estate markets where the opposite is true, so always run the numbers.

2. Increasing Your Future Real Estate Purchasing Power
Besides the advantages of a lower mortgage payment, buying a duplex first allows you to make additional purchases while buying a house first can negate your ability to buy additional properties.

To understand why this is the case, we need to understand a few rules about how banks determine whether or not to provide loans. When you are purchasing your first investment property, banks will usually not count the rent as income unless you have owned investment properties for more than two years.

So, if a buyer first buys a house and then wants to buy a fully rented duplex, they will need to be able to qualify for the full price of the house and the duplex combined. This can be difficult for someone in the beginning stages of their career. If a buyer purchases a duplex first, in two years when they are looking for a house, they can count the rent from the duplex as income—which can help them qualify for the bigger house purchase.

3. Faster Pay off
Here is another interesting way to look at it. If instead of simply spending the saving you incurred by owning a duplex, you could pay off your mortgage faster. If you applied $747.32 to your house it would take 30 years to pay off. But, if you paid your duplex of $566.68 and then took the additional $180.64 and applied it to your mortgage you could pay off your duplex in 18.5 years. So in 18.5 years you would have a $150,000 duplex paid off instead of a $100,000 house partially paid off.

4. Greater Benefits of Mortgage Pay Off
Not only will you pay off your duplex faster, but once you have paid if off you will be in a better position. Once you pay off your house, you are living mortgage free—but not payment free. Based on the original assumptions (Austin Texas 2.5 percent tax rate and 0.4 percent insurance rate) you are still making a payment of 241.66 a month for taxes and insurance. In contrast once the duplex is paid off you are not only living in your duplex for free you are actually getting a profit of $255 a month.

Buying a duplex is not for everyone. Some people do not want the hassle of managing a property. And this article is not proposing that everyone should buy a duplex. But there are financial benefits to buying a duplex, so take it into consideration.

6:08 PM - Jan. 16, 2008 - comments {2} - post comment

NAR predicts home sale to increase in '08

Lawrence Yun, NAR chief economist, said the worst part of the credit crunch has already worked its way through the data. “The unusual mortgage disruptions that peaked in August were clearly seen in lower home sales that were finalized in September and October, so the market was underperforming,” he said. “Now that mortgage conditions have improved, some postponed activity should turn up in existing-home sales over the next couple of months, and I expect sales at fairly stable to slightly higher levels.”

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in October, increased 0.6% to an index of 87.2 from an upwardly revised reading of 86.7 in September. It was the second consecutive monthly gain, but remained 18.4% below the October 2006 index of 106.8. “The broad trend over the coming year will be a gradual rise in existing-home sales, but because sales are exceptionally low in the final months of 2007, total sales for 2008 will be only modestly higher than 2007,” Yun said.

The PHSI in the Northeast jumped 16.0% in October to 80.6 but is 11.1% below a year ago. In the West, the index rose 8.4% to 87.3 but is 16.9% lower than October 2006. The index in the Midwest slipped 1.4% in October to 85.5 and is 11.7% below a year ago. In the South, the index dropped 7.8% in October to 91.6 and is 25.3% below October 2006.

“The improvement in the Northeast reaffirms a trend apparent for some months now that shows signs of recovery, noteworthy because that was the first region to slump, and the gain in the West indicates some easing of interest rates for jumbo loans,” Yun said. “Lawmakers need to understand that raising the loan limits on FHA and GSE-backed conventional loans will markedly improve mortgage availability.”

Existing-home sales are likely to total 5.67 million this year, the fifth highest on record, rising to 5.70 million in 2008, in contrast with 6.48 million in 2006. Existing-home prices should be down 1.9% to a median of $217,600 for all of 2007, and then rise 0.3% to $218,300 in 2008.

“Home price growth in the vast affordable midsection of America will help raise the national median existing-home price slightly in 2008. I then expect price appreciation to return to more normal patterns in 2009, perhaps rising one or two percentage points above the rate of inflation,” Yun said.

“Even with a modest decline in the national aggregate price this year, it’s important to keep in mind that nearly two-thirds of the metro areas in the U.S. are showing price increases,” he said. “The apparent disparity results from fewer sales in high-cost markets, so a change in the mix of sales is dragging down the national median home price.”

Areas showing healthy price gains include disparate markets such as Gary-Hammond, Ind.; Binghamton, N.Y.; Corpus Christi, Texas; and Spokane, Wash. “We can’t emphasis enough how much local conditions vary, even within a given area, so it’s important for consumers to make decisions based on local market conditions.”

New-home sales are forecast at 788,000 this year and 693,000 in 2008, down from 1.05 million 2006; no sustained improvement is seen for new homes until 2009. Because builders have correctly adjusted production, housing starts, including multifamily units, will probably total 1.36 million this year and 1.16 million in 2008, down from 1.80 million last year. The median new-home price is projected to drop 3.0% to $239,100 for 2007, and then decline another 0.2% to $236,600 in 2008.

The 30-year fixed-rate mortgage is estimated to rise slowly to the 6.4% range by the end of 2008, with additional cuts in the Fed funds rate lowering short-term interest rates.

Growth in the U.S. gross domestic product (GDP) should be 2.1% in 2007, down from a 2.9% growth rate last year; GDP growth is forecast to improve to 2.4% in 2008.

The unemployment rate is likely to average 4.6% for 2007, unchanged from last year, but rise to 5.0% in 2008. Inflation, as measured by the Consumer Price Index, will probably be 2.8% this year and 2.7% in 2008, down from 3.2% in 2006. Inflation-adjusted disposable personal income is estimated to grow 3.1% this year, the same as in 2006, and then grow 2.2% next year.

5:48 PM - Jan. 14, 2008 - comments {0} - post comment

Planning a trip abroad this year?

Many Americans spend a lot of time preparing and planning trips to other countries, be it a winter vacation in the Caribbean or a once-in-a-lifetime trip to Europe. Here are a few important travel tips to make sure your trip is as smooth as possible, and suggestions for what to do if the unexpected happens.

Is my destination a safe place?

As we all know by watching the news, there are a number of places in the world that are not safe for travel. The Department of State (DoS) issues travel warnings that recommend Americans avoid traveling in certain countries.

In addition, the DoS also offers fact sheets, called Consular Information Sheets, on every country in the world. These sheets describe general health, safety, and travel tips, as well as contact information for the local US Embassy, which is a critical piece of information when traveling abroad.

Passports - are they needed everywhere?

A passport is now required when traveling anywhere outside of the USA. Due to this recent change in policy, the time required to receive a passport has dramatically increased to approximately two months. You can pay an additional fee to request expedited service, but even then you'll wait nearly a month to receive it.

Helpful Tip: Even if you don't currently have plans to travel out of country, it's a good idea to apply for your passport today and keep it in a safe location until it is needed.

Where do I apply for a Passport?

Many county or municipal offices handle passport applications and photos. A complete list can be accessed at: http://iafdb.travel.state.gov/. If you're traveling within two weeks and need a passport or foreign visa for travel, you can contact one of the thirteen Passport Agencies who will be able to assist you.

What if my Passport is lost or stolen?

If you lose your passport while you're in the US, you must report the loss or theft immediately to the State Department and you should also file a local police report. If you lose your picture ID while traveling domestically by air, contact your airlines immediately as there are other ways to document your identity for the airline and TSA that can be used on a case-by-case basis.

Losing your passport while traveling overseas is a dramatically different problem. The first step is to contact the nearest US Embassy or Consulate. The State Department's website has a complete listing sorted by region and country. Alternatively, you can contact the Department of State Overseas Citizens Service at 1-317-472-2328. Generally, you will need to travel to the embassy, prove your identity, and reapply. Expect to pay more for this passport than the one obtained in the standard fashion.

Helpful Tip: Keep a photocopy of your passport with you while you're traveling, but in a separate place than your other travel documents. You may even consider storing digital copies on your PDA, iPod, or laptop to keep this info with you. You can also ask a trusted friend or family member to keep a copy of passport, birth certificate and driver's license with them at home. That way you have a backup copy in case you need it.

What is the best way to pay for purchases while traveling abroad?

While many of us may remember the Karl Malden voiced American Express Traveler Checks commercials that were popular over the past several decades, Travelers Checks are not the best or most cost-effective way to pay for purchases overseas. Many retailers either no longer accept them, or they charge a very substantial markup to the exchange rate.

Helpful Tip: The best way to pay for items while traveling overseas is with your credit card, where with several card issuers you pay only the wholesale exchange rates without additional markups.

5:43 PM - Jan. 12, 2008 - comments {0} - post comment

9 Ways to Kill Your Retirement

The group at Motley Fool gives us ideas about retirement planning that we haven't seen anywhere else.

Retirement is the No. 1 goal of investors. Yet, looking at the numbers, it's clear that many investors are undermining their good intentions with unfortunate actions. Here are nine mistakes to avoid if you want your retirement dreams to become a reality.

1. Cracking your nest egg before retirement. A study by Hewitt Associates found that 45% of workers cash in their 401(k)s when they switch jobs. In other words, they take the money -- paying income taxes and a 10% penalty if they're not yet 59 1/2 years old -- rather than leave it in a retirement account. That's no way to build the retirement of your dreams.

When you change jobs, you can transfer the money in your employer-sponsored retirement plan to an IRA, which will allow the money to continue growing tax-deferred. You might also be able to leave the money in your old plan or transfer it to the plan at your new job, depending on the plans' rules. But your best bet is the IRA. You'll have many, many more investment choices, usually at far lower costs.

2. Spending your retirement money way too early. Cashing in your 401(k) at a young age isn't the only way for your retirement to meet an early demise. Not saving enough in the first place will guarantee that your retirement will be DOA. Of course, no one wants to be told to "save" -- it's so boring, so ungratifying, almost Puritanical.

But this is what low-savers (and non-savers) are really doing: They're spending their retirement now -- which may mean they won't be able to retire at all. Buy that Coach purse now, or buy time in retirement tomorrow. Take a Carnival cruise this year, or take time off several years from now. Those are the choices you have to make. Building a nest egg isn't a decision of whether to consume, but when to consume. Do it now, and you won't be able to do it later without having to work for a paycheck.

3. Having no clue about how much to save. According to the 2007 Retirement Confidence Survey from the Employee Benefits Research Institute, only 43% of workers have calculated how much they need to retire. But you can't get to where you want to go if you don't know how to get there. You need a plan. (A free 30-day trial to my Motley Fool Rule Your Retirement service is one good place to start.)

4. Spending your retirement savings too fast. If you've made it to retirement, congrats! You've amassed enough money to create your own portfolio-generated paycheck. Excellent work.

But you can't take it too easy. Because you'll receive a severe pay cut if you deplete your portfolio too fast. How much can you take out each year and be almost certain that you won't outlive your savings? Just 4% a year. That's the withdrawal rate that would have sustained a mix of stocks and bonds over most 30-year historical periods. Sure, if you retire on the eve of the next bull market, you can take out more. However, if you quit working right before the next bear market, then taking out more than 4% a year could have your portfolio beating you to the grave.

5. Not giving a hoot about asset allocation. And speaking of mixing stocks and bonds, nothing can wound a retirement like bad investment decisions, whether it's owning too much of one stock, letting emotions take over, chasing the latest fad, or letting short-term events affect your long-term strategy.

You basically have two choices: You can be a master stock picker like Warren Buffett or Peter Lynch and try to find 10-baggers, or decide whether a nearly 5% dividend yield makes Pfizer (NYSE: PFE) a good stock. Or you can broadly diversify your assets, mostly via low-cost index funds such as Vanguard Total Stock Market (FUND: VTSMX). This way, you enjoy exposure to giants like AT&T (NYSE: T) and Johnson & Johnson (NYSE: JNJ) -- both stocks are among the fund's top 10 holdings -- and smaller growth firms such as Anadigics (Nasdaq: ANAD) and AMD (NYSE: AMD). But until you've established your skill at finding great investments, keep the bulk of your assets in a broadly diversified, regularly rebalanced portfolio.

6. Letting Uncle Sam eat your retirement. There are many types of investments and investment accounts, and they all have their own quirks when it comes to taxes. Not knowing all the rules can lead to too much taxation -- and less money for retirement.

For example, profits from stocks that are held for at least a year will be taxed as long-term capital gains -- a rate no higher than 15%. Interest from corporate bonds, on the other hand, is taxed as ordinary income -- a rate as high as 35%. Yet many investors keep their stock investments in their tax-advantaged accounts and their bonds in regular, taxable accounts. That just doesn't make sense. Asset location can be just as important as asset allocation.

7. Depositing your retirement in your fatty deposits. As Americans' savings rate has dropped, our obesity rate has risen. Just a coincidence? All I can say is, the more we stuff our faces, the less we can stuff our IRAs. So before you make your next visit to the Olive Garden, find out how much you need to save every month to retire when you want, how you want. Then make sure that amount gets deposited in your retirement accounts. If you get that far, then visit the Olive Garden as a reward. You deserve it.

8. Paying too much for help. There's nothing wrong with getting financial advice. If we Fools didn't think investors could use ideas, feedback, and answers, we wouldn't be here.

But we firmly, strongly, passionately believe that such help should be objective and affordable.

Paying too much for advice (especially if it's bad or at least conflicted) does a lot for your broker's retirement, not yours. Paying just 1% a year on a $100,000 portfolio over 20 years could result in your forking over more than that amount in fees. That's a hundred grand that could have been in your pocket. Of course, if the advice you received had your portfolio performing better than what you could do on your own, then the price might be worth it. But if you're paying 1% or 2% a year to lose to an index fund -- as most mutual fund managers do -- then you're better off taking control of your own investments.

9. Retiring permanently when you really just needed a break. If you're in your 60s, you should plan on living at least another two decades. Can you stand full-time leisure for 20 years? Sure, it may sound good now, but many retirees find they get pretty bored after a while. But by then, they have already severed many of their professional ties. Before you decide to retire fully and permanently, discuss a phased or gradual retirement with your employer and/or business partners. Or the possibility of working on a project basis, allowing you to take several months off each year. Or maybe just a one-year sabbatical. Explore your options before you no longer have them.

For more information on investing your IRA or 401(k) go to our website at www.investingyourira.com

3:25 PM - Jan. 10, 2008 - comments {0} - post comment

6 Steps If You're Facing Foreclosure

Step 1) Make your payments on time; call your lender if you're going to be late.
If you think you're going to be late making a mortgage payment, the first thing you should do is to pick up the phone and call your lender. Often times, lenders are willing to work with you if you are upfront with them and tell them in advance when you are facing a problem. They will frown on you if you fail to pay on time and do not alert them to your current financial situation.

Step 2) Ask your lender how a foreclosure would impact your credit score.
If you decide that foreclosure is the only possible solution for you, you need to understand that it will impact your overall credit score. Some experts say it could lower your score by more than 100 points. Be sure to ask your lender your credit score will be affected should you choose this option.

Step 3) Identify a decision maker at your lender; keep accurate records.
Make sure you are speaking to the right person in the right department who has the authority to work out a solution with you. Be sure to take careful notes from each conversation you have, including the name of the person with whom you spoke, their contact details and the key points from the discussion.

Step 4) Talk to your lender about alternatives.
When you are in this kind of situation, don't be afraid to ask for "forbearance." Forbearance is a request to suspend your payments or to temporarily reduce your payments for a short period of time. If you request this, be sure to have documentation that you are trying your best to pay the bills. These documents may include recent pay stubs, a letter of intent if you recently accepted a new job, and bank account statements.

Step 5) Watch your monthly budget and expenses.
Managing your monthly budget can be difficult and frustrating, but it is nevertheless one of the ways to help you get a handle on your expenses when you are trying to figure out a solution to your mortgage situation. One of the most important aspects of controlling your budget is to determine where your money is going. The CPA profession has created free tools and calculators to help you better manage your monthly budget. This free calculator can be accessed on the 360 Degrees of Financial Literacy Web Site: "Homeowners' Tab" in the tools section.

By entering your income and monthly expenditures, you can see how much you have left to save and where your money is being spent. In addition, you can click the "View Report" button to compare your budget breakdown to ideal targets, which can help identify areas for improvement.

Step 6) Do additional research.
Visit the CPA profession's Web site at www.360FinancialLiteracy.org for free articles, calculators and resources to help you with personal finance issues such has home ownership and debt management. In addition, the US Treasury has additional resources available to the public on this topic. This information can be accessed at: http://www.treas.gov/topics/financial-markets/.

3:09 PM - Jan. 8, 2008 - comments {0} - post comment

Cost vs Value report

The most profitable project on the national level was upscale siding replacement, recouping 88% of costs upon resale. Wood deck additions and wood window replacements also returned more than 80% of costs, at 85% and 81%, respectively. On a national average, the only interior project to return more than 80% of remodeling costs this year was a minor kitchen remodel, returning 83% of project costs at resale.

"The results of this year's Cost vs. Value report underscore the importance of curb appeal in the buyer's eye," said NAR President Dick Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif. "Realtors® know what attracts buyers in their local markets and can help your house put its best façade forward, so to speak - it's another way Realtors® add value to the real estate transaction."

The 2007 Remodeling Cost vs. Value Report compares construction costs with resale values for 29 midrange and upscale remodeling projects comprising additions, remodels and replacements in 60 markets across the country. Data are provided for nine U.S. regions, following the divisions established by the U.S. Census Bureau. This is the 10th consecutive year that the report, which is produced by Hanley Wood, LLC, was completed in cooperation with REALTOR® Magazine, as Realtors provided their insight into local markets and buyer home preferences within those markets.

Four new projects were added this year: the aforementioned wood deck addition, a back-up power generator, and both a midrange and upscale garage addition. Nationally, the back-up power generator only returned 58% of the investment on resale, although the return was highest in the West South Central region, which comprises Arkansas, Louisiana, Oklahoma, and Texas, at 68%. Buyers in the Pacific region of Alaska, California, Hawaii, Oregon and Washington value their garages: The midrange garage addition returned nearly 70% nationally but 88% in this region, while the upscale garage addition returned approximately 65% nationally but 78% in this area.

Homeowners in the Pacific region could also expect to see some of the highest percentages of remodeling expenses returned at resale, with 13 of the 29 projects returning 90% or higher of project costs. Homeowners in the East North Central region of Illinois, Indiana, Michigan, Ohio and Wisconsin might expect some of the lowest returns; only one project - upscale fiber cement siding - returned more than 80% upon resale (82% of costs recouped), while nine projects returned less than 60% of project costs.

The least profitable projects were a back-up power generator, sunroom addition, and home office remodel. The back-up power generator returned the lowest percentage of initial cost in the East North Central, New England (Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island, and Vermont), Pacific, and West North Central (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota) regions.

Sunrooms are least popular in the East South Central (Alabama, Kentucky, Mississippi and Tennessee), Mountain (Arizona, Colorado, Idaho, Montana, Nevada, New Mexico and Wyoming), and West South Central regions. Home office remodels return the lowest percentage of project costs in the Middle Atlantic (New Jersey, New York and Pennsylvania) and South Atlantic (Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia and West Virginia) regions.

Gaylord explained that the resale value of any given remodeling project depends on a variety of factors. "When considering a remodeling project, particularly with an eye toward resale, it's important to evaluate your home's current condition, how the project will change the existing space in your home, as well as how your remodeled home will compare to other homes in your community," said Gaylord.

"For example, using a breakfast nook to expand the kitchen seems like a good use of space, but using the same space to add a first-floor bathroom in an older home that doesn't have one will draw more buyers," Gaylord said. "Realtors® see hundreds, if not thousands, of homes every year with their buyer clients and can provide valuable insight into what projects and improvements will make a difference with buyers in your area."

2:56 PM - Jan. 6, 2008 - comments {0} - post comment

Redecorate for the new year

If redecorating is in your 2008 plans, our friends at Lowe's have some great ideas and suggestions.

Start with a plan , especially if you're starting from scratch. Do you entertain often? Do you have young children? What's your style - formal, casual or contemporary? Define your budget and get a general idea of what you need before you go shopping. Save time and gas by using online resources to do your research.

Paint works wonders. Dollar for dollar, paint gives you the greatest bang for your buck. You can totally change the look of a room by painting the walls, trim or ceiling a different color. And when shopping for furniture and accessories, don't forget to bring along your paint chips.

Wallpaper is back! And it's better and more fashionable than ever. Today's styles are more varied, with textured vinyls that can simulate stucco and grasscloth. You can get BIG looks without spending a bundle, especially if you do it yourself. Not sure how to select and install wallpaper? Visit Lowe's Wallpaper Center. You'll find time-saving tips and a calculator to help you determine how many rolls of wallpaper you will need.

Toss it up. Bring life to that old sofa with some fresh new toss pillows in different shapes and complementary colors. Along the same lines, throw rugs can add interest and instantly warm up a room.

Accessorize, accessorize, accessorize! Little things mean a lot. Give your home personality with touches like floral arrangements, plants, candles and artwork. Visit flea markets and yard sales for unique items that can be re-purposed. For example, transform an antique milk can into a functional umbrella stand.

Turn on the light. Lighting can set the tone for a room, so it's important to choose the right lamps and installed lighting. Rooms should have a lighting source about every 10 feet, so consider using both floor lamps and table lamps. To give your dining room a fresh look, try an affordable new ceiling medallion.

Treat them right. Custom window treatments can cost hundreds or thousands of dollars, so you'll want to work with off-the-shelf shades, swags and curtains. Drapery panels that are positioned high above the window and flow to the floor are "hot" right now, as are Roman shades and eco-friendly bamboo shades.

3:35 PM - Jan. 4, 2008 - comments {0} - post comment

Getting ready for April 15th

 This article is by Trevor Rice who is a practicing CPA at Stern, Kory, Sreden and Morgan in Santa Clarita, California.

April 15th may be months away, but you know what they say about time flying by. And, considering that most of us will file our returns before the actual deadline, tax season is pretty much right around the corner. In the tradition of keeping our readers one step ahead of things, we thought it would be a good idea to inform you of some of the new tax laws.

Returning for his yearly tax advice is Trevor Rice, a certified public accountant and shareholder with Stern, Kory, Sreden and Morgan in Santa Clarita, California. According to Mr. Rice, there are a few new laws designed to benefit individuals, as well as businesses.

New Tax Laws for Individuals
Rice says, "Due to the recent housing crisis, some relief has been provided." In the past, if you were to have lost your principal residence due to either foreclosure or a short sale, you could have paid taxes on the difference of what you owed on the loan.

For houses lost in 2008 and extending through 2012, Rice says that a forgiven debt up to $2,000,000 will generally be tax-free. While it may not completely ease the pain of losing a home, this new tax law will allow people to move on with their lives much more quickly.

Another new tax law that will benefit individuals applies to first-time home buyers, or anyone who has not owned a home within the last 3 years. According to Rice, if you fall into either of these categories, you may be eligible to receive a refundable tax credit for ten percent of the price of the home, up to a maximum credit of $7,500. There is a catch however.

Starting in 2010 and over the 15 years that follow, you will have to repay this credit to the government. Before you start shaking your head, understand that, at most, this would mean $500 a year would be deducted from your tax refund, or added to the taxes you owe.

New Tax Laws for Businesses
The first law, says Rice, came about with the Economic Stimulus Act of 2008. It carries two main benefits in the form of deductions for any equipment that was purchased for a business in 2008.

In the past, if you purchased business equipment, there was the possibility of deducting up to $125,000 of the total cost for that year. You could then deduct a prorated portion of the assets' worth in the years that followed. The amount of years you could do this was based on the type of equipment purchased.

Rice says, "The first bit of good news is that the deduction has been increased to $250,000," adding that it makes 2008 an optimal year for reinvesting in your business in the form of equipment and related assets. He went on to say, however, that the real benefit of this new law is in the flexibility it provides.

If the $250,000 deduction doesn't make good tax sense, Rice suggests looking into "Bonus Depreciation", a portion of the new tax law that allows you to deduct up to 50 percent of the cost of any equipment purchased in 2008. The remainder would then become deductions over the course of the predetermined "life" of the equipment.

Adding that in some cases it may be possible to use both tax laws simultaneously, Rice urges that you consult with a qualified tax professional about the possibilities for taking advantage of them while they are still here - they each expire at the end of 2008.

Another change has to do with the amount you can deduct for the purchase of a luxury car for business purposes. According to tax law, a luxury car constitutes any passenger car that was purchased for around $15,000 and up. In the past, you could deduct $3,060 in the year it was purchased. Rice says that for this year only, the amount of the deduction will jump to $11,060!

Parting Shots
When asked if he had any advice for next year's tax planning, or for finances in general, Rice offered up a few suggestions.

"Start your tax planning with a professional now," he says. Tax laws frequently change. Some laws expire and need to be taken advantage of this year, while other credits and deductions are better to be deferred. Rice maintains that by acting now, a qualified tax professional can give you the best advice for your situation and more importantly, give you a head start for next April.

In terms of one's personal finances, Mr. Rice says that since the stock market is down, it's traditionally thought of as a good time to buy. Understanding that the market will eventually turn around, Rice is in line with this thought, but says there's a little more to the picture. He suggests that you stay very much on top of your portfolio, with a focus on keeping it diversified. This, he says, is the best way to successfully ride out a volatile market.

Due to this volatility, Rice also suggests that anyone nearing retirement should look at how they are invested and consider the prospect of moving their money into more conservative investments. A qualified financial planner would be a good person to talk to about this.

Lastly, Rice cautions all of us that in terms of taxes, state law does not have to conform to federal law. What this means is that you cannot necessarily count on these new credits also applying to your state taxes. He says, "Check your state laws, or better yet, ask your accountant what he or she has to say."

3:30 PM - Jan. 4, 2008 - comments {0} - post comment

Thinking of buying a new home?

Joshua Ferris of is a broker in Orange County, New York who specializes in new home sales. He's got some great tips to look for if you're considering purchasing a brand new home.

Buying a new home is great! You get to choose where your home will be built, add a sunroom here, third garage bay there and before you know it you are moving into your dream home. With all the options to choose from it is very easy to overlook crucial elements to your new home buying experience that could cost you greatly in both time and money.

1. Choosing upgrades with the lowest ROI or too many upgrades, period.

This is truly the most common mistake made by new home buyers who don't consider the resale value of their home in the future. When buying a new home be sure to stick with the essential upgrades like two sinks in the master bathroom, high quality cabinetry and above all else, top quality padding under the carpeted areas.

2. Not examining your lot choice thoroughly enough.

A recent United Feature Syndicate by Lew Sichelman highlights some very important aspects to choosing a lot for your new home to be built on. Among them are: terrain, noting that people psychologically feel more secure looking down at the street rather than up, location and lot shape which can affect your surroundings including the possibility of facing the rear of a neighbor's home.

3. Finding communities first, vitals second.

When you are buying a home you have to shop differently than you would if you were buying a car or shopping for clothes. To save yourself much heartache and frustration, be sure to hammer out your lifestyle requirements before even searching for a community to build a home in. For example, if you commute to New York City and have school age children you would want to find a school district that you approve of in an area with multiple mass transit options (train, bus, highway) and then locate new home communities within close proximity to both.

4. Overlooking the "inspection" clause in builder contracts.

A dirty little secret in the new home industry is the fact that some builders, national builders included, send out contracts with a clause stating that they don't allow home inspections by an independent, third party home inspector until after you close on and own the home. They offer to do a walkthrough of the home with you before you close but chances are, unless you are a licensed home inspector with many years of experience, you won't notice any red flags beyond the superficial.

5. Not using a buyer agent.

When looking for a new home, be sure to find a buyer agent who specializes in new homes. There are numerous important steps when buying a new home that a new home buyer agent will be prepared to work with such as price negotiation, lot choice, researching future development around the community and the pros and cons of building materials your builder will use in the construction of your new home. At present, the buyer agent's services are paid for out of the builder's marketing budget.

6. Using the builder endorsed financing company out of convenience.

Many large builders have their own in-house financing company and they often offer incentives on their products by tying in the use of the incentives to financing through their in-house lender. In some instances you will find that the builder's in-house lender financing and incentives will cost you more money in the long run than if you had financed your purchase through an outside lender. Rule of thumb: Always check your financing options with the builder's in-house lender, a mortgage broker and a loan officer for a direct lender before committing.

7. Believing everything you read in advertisements.

If it looks too good to be true, it probably is. Always verify everything you read in real estate advertisements including newspaper ads and the community's standard features list. Aside from the obvious typographical errors that occur I have also seen blatant false advertising. For example, I have seen new home community literature advertising the community's short "less than an hour" drive to New York City despite the fact that it would take at least 90 minutes on a good day from that community. Buying a new home is a wonderful, dazzling experience that will cater to your every need. By using reasonable care and professional guidance you will enjoy many great years in your new home and reap substantial rewards from your diligent buying efforts when selling your home in the future.

3:18 PM - Jan. 2, 2008 - comments {0} - post comment

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