BenjaminWills.com

I saw an article in the Economist the other day that had some statistics on “The Great Recession” and how it has effected everyones lives. I bet you or someone you are close to have suffered from this recession.

“consider the findings of a recent Pew survey on how this recession has changed America 30 months after it started. More than half of all workers have experienced a spell of unemployment, taken a cut in pay or hours or been forced to go part-time. The typical unemployed worker has been jobless for nearly six months. Collapsing share and house prices have destroyed a fifth of the wealth of the average household. Nearly six in ten Americans have cancelled or cut back on holidays. About a fifth say their mortgages are underwater. One in four of those between 18 and 29 have moved back in with parents. Fewer than half of all adults expect their children to have a higher standard of living than theirs, and more than a quarter say it will be lower.”

“Another way to put this is that for many Americans the great recession has been the sharpest trauma since the second world war, wiping out jobs, wealth and hope itself. ”

Wow, that last line of wiping out hope itself. I, for one, hope that is not so.

When Cheri and I were married 31 years ago I never imagined we would still be this happy after all of these years. To explain my skepticism let me give you a little background.  Cheri and I came from families where our parents had fallen out of love when we were still young. Sure they stayed together but we all knew it was for show. It is what you did in the 60’s; divorce was a very bad thing so you stayed together for the kids. So imagine how concerned we were that we could make this work when others we loved could not.

To be fair I was so scared of making a commitment that it took me 5 years of dating just to get married! We were young and had no idea how we could get through the challenges that lay ahead; children, careers, crisis, illness and recessions. But we took a chance anyway and 31 years later we love each other more than ever.

How did we do it? I’ll tell how - we both made a commitment to love each other forever, to not let anything get in the way and we stuck to that commitment. I was asked several years ago what was my secret to a long and loving relationship. My answer was “you have to work hard at it every day, especially when you don’t feel like it”. As you can imagine that did not go over very well. Too many people have a fairy tale idea about marriage and believe if you find your soul mate (what ever that means) love comes easy. Sorry, but I don’t agree, life throws way too many things at you. Now, I must admit that I was lucky to find a partner who shared my values because I was way too naive and immature in my twenties to make such a wise choice.

So if you are looking for my secret to a successful at life all you need to know is that if you work hard and surround yourself with people you love you have a chance and it doesn’t hurt to have a little luck along the way.

Happy anniversary honey, I love you more every day.

My father always told me that the most important reason to buy a home is to stabilize your monthly housing expense. Everything else; tax deductions, building equity and housing appreciation are just bonuses. Think about it, how much money would you have if your housing expense stayed stable for 10 years?

It’s staggering when you think about the cost of housing, especially if you’re a renter and not a home owner. If you are currently paying $1,000 a month for rented housing, then over the next three years, your property management company will effectively have reaped $36,000 of your hard earned cash! You’re paying their mortgage when you could be building equity in your own property. In addition how often do you think they will increase your rent? All the while the cost of a new home continues to go up.

What if I don’t have the money to buy a home right now?

There are many loan programs available that offer low and no down payment options. Some Federal, State and local housing agencies have down payment assistance programs that allow you to buy with little or no down payment, and often sellers are willing to pay some of your closing costs if they want to sell the home quickly.

There are many benefits of home ownership to consider, most of all, tax deductions. Let’s take a look at how advantageous this can be as a homeowner:

How much is tax deductible?

Tax deductions vary, but the IRS has laid out solid rules. They also have several tax publications full of helpful information worth taking the time to read. Publication 530, Tax Information for First-Time Homeowners, is very thorough, as is Publication 936, Home Mortgage Interest Deduction. For quick reference, you can refer to Tax Topics 505, Interest Expense, and 504, Home Mortgage Points.

These publications often refer to local and state guidelines, so I recommend consulting a tax specialist or a CPA to answer all the questions that arise from reading these materials. Here are a few tips you should know up front:

Real Estate taxes are deductible on a primary residence. Real Estate taxes are paid at settlement or closing, or through an escrow account.

Mortgage interest is deductible on a loan to purchase, build or improve your home. Your lender will provide you with a Mortgage Interest Statement (Form 1098) to list the total interest paid during the year. This should include any deductible points paid for that year.

Pre-paid interest is deductible in the year it is paid. At the close of a real estate transaction, borrowers usually pay for the interest on their loan that falls between the closing period and the first of the next month. Mortgage payments are made “in arrears” so when a loan is closed mid-month, there is interest due to the new lender which must be paid in advance.

If you are building a home, the interest on the construction loan is deductible. The construction period cannot exceed 24 months prior to the date that you move in if you claim this as your primary residence.

My advice is simple. Call a mortgage professional to discuss your specific needs and they can help find the program that’s right for you. There are a variety of low down payment and no down payment programs available.

That seems to be the question everyone is asking. One day we hear that retail sales are up and the next we hear that home sales are down. So is the recovery here? Really?

I have to admit that I am just as confused about the economy as the next person. I do believe the recession is over but can we really call it a recovery when we have double digit unemployment and millions of homes on the verge of foreclosure? I read the other day that a majority of economists think the economy is headed in the right direct but that does not give me much comfort so I look for my leading indicators:

1. Traffic - the traffic in Raleigh at rush hour is still much lighter than it was a few years ago but heavier than it was 12 months ago. Positive

2. Shopping - the last time I was at the mall it was not crowded at all but when I went to Wal Mart and Dollar Tree it was packed. I heard Crammer (Mad Money) say that people shop at dollar stores because they are hunting for bargains not because they enjoy shopping (we do that more at malls). Negative

3. Charities - I was amazed to see how much money was raised for Haiti and there are indications that charitable gifts are on the rise after two years of decline. Since donations to charitable organizations are purely discretionary this is a good sign. Positive

So there you have it. The recovery is here, but just barely based on my top three leading indicators. The recovery is here, really. Now, when will we see wages rise and employment improve? Your guess is as good as mine.

In order to expedite the paperwork process, I recommend you gather the following items:

• Most recent paystubs for one month.
• W2s from the last two years.
• Signed copies of your last two years’ tax returns, including all schedules that were filed.
• If you are self-employed, a year-to-date profit and loss statement.
• Homeowner’s insurance company name and number.
• Most recent bank statements for two months.
• Most recent statements from any retirement and investment accounts for two months.

What costs are involved?
Within 3 days of your application, your Loan Officer is required by law to provide you with a good faith estimate of closing costs, a truth in lending form disclosing your APR (annual percentage rate) along with other state and federal disclosures. This is important because you will need sufficent assests for your down payment and closing costs as well. This is a brief rundown of some of the fees that could be associated with your new mortgage:

• Application/Processing Fee – Charged by the loan officer to process your loan application.
• Appraisal Fee – Charged by the appraiser to determine the current value of the property.
• Closing Fee – Charged by the closing agency (escrow, attorney, title) to ensure the close of your transaction.
• Credit Report Fee – Charged by the credit reporting agency to provide your credit report to your loan officer and/or lender.
• Title Search/Title Insurance Fees – Charged by the title company to ensure the property is free from liens or title defects.
• Origination Fee – Paid to the originator to obtain a lower interest rate. This is usually expressed in the form of points. One point equals 1% of the loan amount.
• Discount Points – Paid to the lender to secure a lower interest rate.
• Miscellaneous Fees – VA and FHA loans may have other fees associated with them. Private Mortgage Insurance (PMI), document preparation, notary, recording and tax service are other fees which may fall under this category.  

 

Always work with a local professional loan officer who and help you evaluate your personal situation and assist you in finding the loan program that works best to meet your individual goals and needs.

Change.

The word alone strikes fear in many people. Over the last few years we have seen difficult and painful change so I understand why people are so apprehensive about change. But if you really think about it we can’t live a full life without change.

Do you want to still be 18 years old and going to high school….forever? Would you like to be making the same wage you made at your first job? Would you like to be living in the same place you did when you first moved out of the house with your parents?

Change is essential to living a full life so I would urge you to change the way you think and about change. Embrace it. Celebrate it. Enjoy it. Just remember that the alternative is to have no change at all and I for one do not want that to happen.

Passion, it is a word I have heard many times, but in 2009 I rarely felt the kind of passion I experienced in the past. To put this in context, let me tell you about my journey in 2009.

I had been in the mortgage business for 30 years which allowed me to realize most of my personal and career goals. I celebrated 30 years of marriage to a women I love more everyday. My three sons are all basically on their own now (still two in school) and they make me proud to be their father. My career included several successful management rolls where I built and managed groups that ranked in the top 1% of the firms I worked for.

What was lacking in my life? A new goal that I cared strongly about that would motivate me everyday. In 2010, I am committed to helping 100 underserved families become homeowners. This goal has feed my passion for helping families realize the dream of homeownership. By following my passion, I could give back to the community that had given me so much and do what I do best, educate.

I have designed a seminar presentation called “Pathways to Homeownership” to help spread the word about government sponsored new homeownership programs for families of modest income with little or no money down. The seminars are scheduled monthly at the North Raleigh Regional Library with the first one being Tuesday, February 2, 2010 from 7:00 to 8:00 pm.

If you know anyone that is interested in attending these seminars or have a recommendation on venue for these seminars, give me a call or pass on my information. I truly need everyone’s help to realize my goal of assisting new homeowners realize their’s.

The top article in the NYT today addresses the fragile housing recovery and points out the possibility of another decline in values. Read entire article at: http://tinyurl.com/ya5hlz2

My view is that we will not see a sustained housing recovery until unemployment drops. When people are afraid that they may lose their jobs they put off major purchases. When people do lose their jobs and their house is worth less than they can sell it for they are more likely to go into foreclosure. The combination of the fear of unemployment and the potential for more foreclosures will continue to weigh heavily on the housing market for some time.

I believe we still have several more years of weakness in the housing market. This is great news for buyers as they should be able to continue to find bargains but not so great for sellers who will need to continue to price aggressively if they want/need to sell quickly.

I am looking forward to the prospects of a continued housing recovery in 2010, especially in the Triangle market, but am also aware of how fragile the recovery is. I will continue to observe the market and let you know what I think next year!

Happy New Year

We sometimes lose sight of all we have to celebrate during these hectic times. For me personally, the crowded stores and busy roads cause me to complain sometimes (My wife will tell you I know more drivers name Dick this time of year than at any other time) but once I get over these petty inconveniences and focus on what I have to be joyous about I get back to celebrating. Here are a few things I am celebrating this holiday season:

1. Three wonderful children that are happy, healthy and kind.
2. A wonderful wife of 30 years that I love more each day.
3. A network of friends and family that help lift my spirits even when times are tough.
4. A passion for helping others that brings meaning and joy to my life.

I could go on and on but you get the point. So have a happy holiday season filled with joy and celebration and share your joy with the people in your life that matter most.

The following is reprinted with permission from Mortgage Market Guide
by Barry Habib and Sue Woodard

Homebuyer Alert…

For prospective homebuyers who are on the fence about making a home purchase, the next few months represent a countdown of sorts for two reasons.

The first of these, the coming expiration of huge tax incentives, may be a bit more obvious to most borrowers. April 30, 2010 is the last day to enter into a home purchase contract and still potentially qualify for a federal income tax credit of up to $8,000 for first-time homebuyers and up to $6,500 for repeat homebuyers. The credit can be claimed only on contracts that close by June 30, 2010.

Secondly, beyond the waning benefit of the Federal income tax incentive, another form of stimulus will soon disappear, as the Federal Reserve winds down a program that has been keeping home loan rates artificially low.

Rate Alert…

The lowest rates of 2009 were driven down to their attractive levels because of the Fed’s Mortgage Backed Securities (MBS) purchase program. Home loan rates have an inverse relationship with the value of MBS. When these securities trade higher on the market, rates move lower and vice-versa. So when the Fed originally agreed to be a big buyer, it helped provide a market for MBS, which helped keep prices high and, as a result, helped push home loan rates low.

And while the Fed continues that program through the end of March 2010, the reality is that the Fed‘s “extension” was really more of a rationing intended to prevent home loan rates from spiking as the program is phased out. It’s sort of like weaning the market off of its life-saving treatment instead of forcing it to go cold turkey.

Already, some in the media have mistakenly reported the extension of the program through March as good news, telling consumers that rates will continue to decline, and remain low into the spring. This gives a false sense of security that homebuyers and refinancers simply cannot afford.

The problem is…

Those reports do not accurately report what’s going on or where rates are really headed. That can have a very costly impact on consumers who may miss out on historically low rates if they listen to these media outlets.

Here’s what’s really going on…

In May 2009, the Federal Reserve’s purchases of MBS peaked at an average of $25 Billion per week. As of November, the average weekly purchases dropped down to $14 Billion. At the end of November, the Fed had already used over 80% of the allocated funds for MBS, meaning less than 20% remained to be used over four months.

Making the problem worse is that the Fed now has less money available to purchase MBS while at the same time, the supply of these securities has increased as a result of refinance and purchase activity that was triggered by lower rates.

Why is that important?

As the Fed now has fewer funds to last through the remaining months of the program, its ability to keep rates low will wane.
As the Fed’s program winds down and ends, we’ll likely see two things happen.

First, we will probably see higher levels of volatility—with rates sometimes shifting dramatically in the middle of the day. That means it is more important than ever for buyers to work with a knowledgeable mortgage professional who has a finger on the pulse of the market at all times and can provide trusted, proven advice.

Second, since MBS will have less support from the Fed, rates are likely to rise over time.

In short, while rates are still very good, they may not be for long.
What should you do to protect yourself?

First and foremost, work with a knowledgeable mortgage originator who studies and monitors the market.

Second, don’t be fooled by media stories that only report the headlines and don’t understand the underlying implications of the Fed’s actions. If you ever hear something in the news but aren’t sure what it means to your situation, feel free to call or email me for in-depth answers and advice.

Finally, if you haven’t yet explored how the current rate environment might benefit you or someone you know, let’s arrange a time to sit down and discuss your unique situation as well as your short- and long-term goals. Remember, rates are still very good, but they may not be for long.