To see which method gives tax filers the "biggest bang for the buck", ABC's Good Morning America recently compared three popular tax preparation services:
In declaring TurboTax the "winner", the 4-minute video glossed over several important tax-related items.
The first is that true tax planning cannot happen in a 3-hour stint in front of a computer. Tax planning a year-round activity.
The second is that all personal financial decisions should be evaluated for their tax implications. That can't happen without a personal accountant that knows your tax history and understands your financial goals.
The third is that filing income taxes is a personal event. The "winning" tax preparation method for the family on TV may not be what's best for your family.
If you'd like a referral to a trusted accountant, please ask me. Filing your taxes for cheap today does not mean it will be the lowest cost to you long-term.
Yearly reviews are a great way to keep on track with your financial goals. You’re probably already meeting with your financial advisor and other asset manager for quarterly or annual reviews, and you should do the same with your Mortgage Planner as well. An annual mortgage check-up is an ideal way to make sure your mortgage is still having the maximum positive impact on your overall financial plan.
A lot can happen in one year. The market can take turns that can open up new opportunities, such as reduced interest rates, new loan products or changes in home values. Furthermore, your personal and financial situation could be mildly to radically different than it was just 12 months prior. Perhaps one or more of the income earners got a raise or lost a job. Maybe you received an inheritance. Even a minor, one-year change in one of your kids’ college plans could impact your financial situation in a way that would benefit from an adjustment in your mortgage strategy.
Periodic reviews serve several purposes. First, they establish a consistent path toward achieving your financial goals. Secondly, they ensure that you stay on track with your goals. Sometimes plans need minor adjustments, but without the knowledge that comes from a thorough evaluation, those minor adjustments may go unnoticed. Often, by the time an adjustment becomes apparent, you may have already lost valuable time and/or resources that could have been spared with a few minor modifications along the way. Finally, periodic reviews help to keep you accountable toward your commitment to achieve your objectives. Without accountability, it’s very easy to let your savings and investment actions fall by the wayside, especially when unexpected expenses arise. Knowing that you’ll be discussing your action steps will help to keep you committed to your goals.
Consider scheduling a periodic review with your Mortgage Planner in conjunction with your asset manager’s review. In addition to saving time, you’ll also gain the advantage of your own personal management team for your financial asset-building program.
Remember that getting clarity on your financial situation is never a waste of time. If you find that your current financing is more desirable than the financing that is available in today’s market, you’ll know that your Mortgage Planner did a great job advising you last time. If you find that your changing circumstances have dictated that a new loan will better suit your new situation, your Mortgage Planner can bring you one step closer to achieving your financial goals.
RealtyTrac released Q1 2008 foreclosure statistics and the data follows an interesting statistical phenomenon most commonly known as the "80/20 Rule".
The 80/20 Rule states that 80 percent of the effects come from 20 percent of the causes.
In this case, 80 percent of bank repossessions in the first three months of 2008 came from 20 percent of the states in the union.
Accounting for 156,463 repossessed homes nationwide:
Overall, 0.55 percent of homes were repossessed by banks in the first quarter.
Mortgage markets lost ground last week on inflation concerns and a general feeling that "the worst may be over" on Wall Street.
As investors moved money into the stock market, mortgage rates ticked higher for the second straight week.
The biggest story from last week was the rising cost of gasoline.
Rising energy costs combined with rising food prices are creating worries about the American consumer's ability to spur the economy forward.
That sets up the biggest story of this week -- the Federal Open Market Committee meeting.
The FOMC starts a 2-day meeting Tuesday and is widely expected to lower the Fed Funds Rate by 0.250 percent at its adjournment.
Cuts to the Fed Funds Rate are meant to promote growth in the economy by decreasing borrowing costs for businesses and consumers. For example, credit card rates are tied to the Fed Funds Rate so when the Fed Funds Rate falls, American households pay less interest and (theoretically) have more money to spend on "things".
But the FOMC meeting is not the only big news to watch for.
On Thursday, the Personal Consumption Expenditures data is released. PCE is the Federal Reserve's favorite inflation gauge because it's a smarter version of the "Cost of Living" index. If PCE rises more than expected, it's an indication of inflation and inflation tends to make mortgage rates rise.
Then, on Friday, it's the jobs report. The economy is expected to post the fourth consecutive month of negative job growth. Markets have been highly sensitive to the jobs data lately so expect wild swings in mortgage rates in its wake.
And lastly, sprinkled throughout the week, more than 100 influential members of the S&P 500 will report their earnings. If earnings and outtlooks are strong, mortgage rates should rise. If earnings are weak, mortgage rates should fall.
Newspaper headlines rarely tell the full story and today's papers provide a terrific example.
From the Baltimore Sun (and others):
New-home sales lowest since 19918.5% March decline exceeds forecasts; prices also tumble
As always, there's more to the story than the headline.
The Census Bureau reported a 8.5 percent decline in New Home Sales last month, but in the "fine print" of the report, the Census Bureau cites a margin of error of 16.1 percent.
By including a margin of error, the Census Bureau is acknowledging that the "headline number" is not precise and that the actual change in New Home Sales data lies somewhere between the values -24.6% and +7.6%.
Notice that the range of possible reading includes positive numbers.
This means that New Home Sales could have just as easily shown growth in March -- if only the Census Bureau had interviewed a different set of home builders.
The Census Bureau acknowledges this possibility, adding that it "does not have sufficient statistical evidence to conclude that the actual change is different from zero." The data, therefore, is worthless.
The housing market may be strong or the housing market may be weak. Most likely, it is both of these things. It all depends on your street in your neighborhood because all of real estate is local.
Either way, look deeper than the headlines. They're a good source of information, but the real analysis requires a deeper look.
SourceNew Residential Sales In March 2008Census.govApril 24, 2008http://www.census.gov/const/newressales.pdf
Radon is the number one cause of lung cancer among non-smokers and 1 out of 15 homes has elevated levels of the radioactive gas seeping into it.
Despite the risks, however, radon is a potential problem that many homeowners ignore.
Radon can enter a home at many different points. A partial list includes:
But, because radon is odorless, colorless, and scentless, it's impossible to detect without the use of tools.
There are do-it-yourself, at-home radon testing kits which can be purchased at Lowe's for less than $20, or you can hire an EPA-approved professional to site-test for you.
If the tests are positive for radon, fixing the problem in your home can cost anywhere from $800 to $2,500, depending on the home's architecture.
According to the Environmental Protection Agency, nearly one million homeowners have taken radon-reducing steps in their homes over the years, saving 6,000 lives.
Source My $1,200 Radon Job Gwendolyn Bounds The Wall Street Journal Online http://online.wsj.com/article/SB120855599410427459.html
As mortgage lenders limit how much money they will lend and to whom, co-signing home loans is growing in popularity.
"Co-signing" a home loan is when a third-party -- usually a parent or relative -- promises to make repayments to the bank in the event that the borrower falls behind on his obligations.
Money experts usually advise against co-signing notes because of the long-term financial risks, but people still do it for a number of reasons including "wanting to help".
If you're thinking about co-signing a home loan for a friend or loved one, it's important to consider the implications of sharing credit with another person.
The four questions below may help you with your decision:
Not only can a co-signed home loan create serious financial burdens, but it's a long-term commitment, too.
Once the note is co-signed, the only way to separate the signers is terminate the note entirely. The two ways to accomplish that are to remortgage the home out of the co-signer's name, or to sell the home and retire the debt.
Co-signing on a mortgage is not "bad" but bad things can happen should the primary signer face personal and/or financial difficulties. Before agreeing to share credit, consider the implications should something go wrong.
In the world of real estate, Days On Market is the number of days between when a home lists for sale and when it goes under contract.
It is often abbreviated as DOM.
Average Days on Market is a similar statistic but instead of applying to one home in particular, it applies to all homes in a given neighborhood, ZIP code, or city.
Average DOM is calculated by adding the number of days for which every listed home in an area was available for sale, and then dividing that number by the total number of listings.
In a buyer's market, Average Days On Market is often elevated. This is because homes don't sell as fast as during a seller's market when the Average DOM can be quite low.
For buyers and sellers of real estate, Average Days On Market can be a strong indicator of home prices. When Average DOM falls, home prices tend to increase.
Did you know... President Lincoln and Congress enacted the first income tax in 1862 to pay Civil War expenses. Did you know... The Civil War income tax was repealed in 1872, revived by Congress in 1894, and ruled unconstitutional by the Supreme Court in 1895. Did you know... In 1913, Wyoming was the deciding vote in the 16th Amendment which gave Congress the authority collect income tax. Did you know... The first income tax was 1 percent on net personal incomes above $3,000. There was a 6 percent surtax on incomes over $500,000. Did you know... The first 1040 form was 4 pages long -- including instructions. Today, the instructions ALONE are 92 pages. Did you know... During World War I, the highest rate of income tax was 77 percent. Taxes were used to help finance the war. Did you know... In 1954, the tax filing date changed from March 15 to April 15. Did you know... Electronic filings started in 1986. Today, e-filings have an error rate of 0.5 percent versus an error rate of 21 percent for paper filings.
Did you know... President Lincoln and Congress enacted the first income tax in 1862 to pay Civil War expenses.
Did you know... The Civil War income tax was repealed in 1872, revived by Congress in 1894, and ruled unconstitutional by the Supreme Court in 1895.
Did you know... In 1913, Wyoming was the deciding vote in the 16th Amendment which gave Congress the authority collect income tax.
Did you know... The first income tax was 1 percent on net personal incomes above $3,000. There was a 6 percent surtax on incomes over $500,000.
Did you know... The first 1040 form was 4 pages long -- including instructions. Today, the instructions ALONE are 92 pages.
Did you know... During World War I, the highest rate of income tax was 77 percent. Taxes were used to help finance the war.
Did you know... In 1954, the tax filing date changed from March 15 to April 15.
Did you know... Electronic filings started in 1986. Today, e-filings have an error rate of 0.5 percent versus an error rate of 21 percent for paper filings.
And remember: If you don't file tax returns, the Treasury Department won't send your economic stimulus check. Happy April 15, everyone.
SourceA Brief History of the IRSIRS.govhttp://www.irs.gov/irs/article/0,,id=149200,00.html
Strategic Equity Blog #16: “MythUnderstandings”--Think Like a Millionaire
Overcoming the misconceptions that keep you from investing in real estate
Most people who aren’t investing in real estate are being stopped by doubt and fear. They may want to invest in real estate, but each time they consider taking action, they come up with an obstacle or a core belief that keeps them from moving toward their dreams.
According to The Millionaire Real Estate Investor by self-made millionaire and real estate investor Gary Keller, most successful real estate investors have had to overcome certain beliefs that later proved to be unfounded. Some of these beliefs center around the way they view themselves as investors, and the others are focused on beliefs about investing. By addressing these doubts and fears, and recognizing that they’re unfounded, you’ll eliminate the major barriers to becoming a real estate investor.
· Personal Myth #1: “I don’t need to be an investor. My job will take care of my personal wealth.” Truth: History indicates that few jobs pay enough to create true financial independence. Financial wealth building depends on another vehicle.
· Personal Myth #2: “I don’t need or want to be financially wealthy. I’m happy with what I have.” Truth: Financial wealth offers greater opportunity to care for yourself and others, and that is something most everyone wants and needs.
· Personal Myth #3: “I can’t do it.”
· Truth: You don’t know what you can or cannot do until you actually try.
· Investing Myth #1: “Investing is complicated.”
· Truth: Investing is as complicated as you make it.
· Investing Myth #2: “All the best investments require knowledge most people don’t have.”
· Truth: Your best investments will always be in areas that you can or already do understand.
· Investing Myth #3: “Investing is risky. I’ll lose my money.”
· Truth: Investing and gambling are not the same thing. Investing, by definition, is not risky.
· Investing Myth #4: “Successful investors can time the market.”
· Truth: Timing isn’t about being in the right place in the right time. It’s about being in the right place all of the time.
· Investing Myth #5: “All the good investments are taken.”
· Truth: Plain and simple, every market, in every time, has its share of good investments.
There’s nothing more powerful for keeping you out of action than fear and doubt. By seeking the truth, rather than relying on unfounded beliefs that lead to fear and doubt, you can overcome your greatest obstacle and get closer to achieving your dreams.
If you’re interested in investing, but you have doubts about whether or not investing fits in with your current financial program, it’s best to consult with a qualified and reputable Mortgage Planner who can assess your financial situation and put you on a plan that targets your goals. As with any financial program, gaining clarity on the facts is always the best place to start.
Getting approved for a conforming home loan is now tougher than before.
Again.
As home loan defaults mount, government-sponsored financier Fannie Mae has imposed new guidelines on what it will lend and to whom, highlighting the need for a strong credit profile and a downpayment.
In other words, Fannie Mae is outright declining mortgage applicants whose credit is weak and whose payment history shows signs of trouble. But, it's not just the "fringe" borrowers that are finding it harder to get a mortgage.
Buyers with strong credit profiles are being hit by new changes, too.
One such change says that owners of second homes must now have a 10 percent equity position in their homes; 15 percent if the property is in a "declining market".
This is up from 5 and 10 percent, respectively, and represents a growing trend to make homeowners have a "stake" in their own homes. Downpayment requirements are higher for all mortgage products, in general.
Fannie Mae's changes are the third set of restrictions imposed since December 2007 and more tightening is expected over the next few months. That makes now a compelling time to buy a home -- borrowing money will be more restrictive (and more costly) later.
If you are actively shopping for homes and have not been pre-qualified in the last few weeks, reach out to your loan officer and get checked against the latest set of mortgage guidelines.
It's better to know today than after you make an offer.
(Image courtesy: myFico.com)
News sources like to use the term "credit crunch" in describing the U.S. economy, but they rarely define what a credit crunch is and what it means for Americans.
A credit crunch is when the amount of available loans suddenly decreases over a very short period of time.
Usually, it follows a period of lending which, in hindsight, becomes known for its "easy money".
The start of a credit crunch often coincides with consumer loans starting to go bad and lenders losses starting to mount.
The realization that more losses are ahead forces lending institutions to tightening their respective lending guidelines.
Since the current credit crunch began in mid-2007, Americans looking for credit now face:
And now, the newest symptom of the credit crunch: the largest buyer of mortgage loans -- Fannie Mae -- has instituted a new, 580 minimum score requirement for all mortgage applicants.
As consumer delinquencies mount and the economy continues to sputter, getting access to credit will likely get tougher for every American -- good credit and bad.
And that's the defining characteristic of a credit crunch.
SourceCredit CrunchWikipedia, April 8, 2008http://en.wikipedia.org/wiki/Credit_crunch
Mortgage rates edged lower last week, buoyed by a weak employment report for March.
After shedding 80,000 jobs last month, the number of working Americans is lower by 232,000 so far this year.
Many pundits are claiming these figures are proof of a U.S. economic recession but it's important to keep the data in perspective.
According to the government, there are 153 million people in the workforce.
The 232,000 terminated workers, therefore, represent a fractional 0.15 percent of the workforce. This is a very small percentage.
This week, there isn't much new data for markets to digest but we'll want to keep an eye on some important events.
The first is Monday's Consumer Credit report. As the Federal Reserve has lowered the Fed Funds Rate, Prime Rate has fallen, too, and that means that credit card interest rates are down.
The Consumer Credit report will show whether Americans are spending the country out of a recession. Ballooning national debt levels should cause mortgage rates to rise because more spending on the consumer level increases the likelihood of inflation later this year.
The second is Tuesday's release of the Federal Open Market Committee's March meeting minutes.
We know what the Fed said and did after its last meeting; the minutes, though, give us the "Behind the Scenes" look at the debate. There shouldn't be much in the minutes that we haven't already heard, but if there is, expect mortgage rates to swing wildly in response.
Other than that, there's not much doing this week. A few Federal Reserve speakers will be out and Friday we'll get to see the University of Michigan Consumer Sentiment survey.
The biggest threat to mortgage rates this week is ongoing news of financial stability (or instability) with large banks and investment houses.
Mortgage markets do not like it when banks go insolvent so be aware of that type of news if it surfaces because it can change the direction of mortgage rates in an instant.
(Image courtesy: The Wall Street Journal Online)
For the third month in a row, the economy shed jobs, suggesting that the U.S. is in a recession.
March's monthly loss of 80,000 jobs is the largest since March 2003 and follows January and February's losses of 76,000 each.
The weak data is edging mortgage rates lower as we head into the weekend.
The connection between poor jobs data and today's falling mortgage rates is a little bit strained, but worth discussing. It all comes down to expectations.
Prior to today, there was an expectation that the Federal Reserve's recent rate cuts would over-ignite the economy sometime this Summer. The Fed has cut 3 percent from the benchmark rate since September 2007.
Meanwhile, consumer spending makes up two-thirds of the economy and people can't spend if they don't earn.
So, after today's report showing fewer workers (and falling confidence levels to boot), the largest component of the economy is expected to sag for a while.
This lack of spending should offset the cumulative impact of the Fed's rate cuts and lowers the expectation for runaway inflation later this year.
Now for the connection: If inflation causes mortgage rates to rise, it's the absence of inflation that causes them to fall.
And that's precisely what we're seeing today.
More commonly called "points", discount points are up-front fees charged by mortgage lenders in exchange for lower mortgage rates.
The cost of one point is one percent on the loan size and discount points appear on Line 802 of the HUD-1 Settlement Statement.
As a general guideline, each point paid lowers a mortgage lender's offered interest rate by 0.250%.
For example, a $200,000 home loan offered at 6.000% can be had for 5.750% if the borrower agrees to make an up-front payment of one point ($2,000).
In addition to lowering your interest rate, discount points are usually tax-deductible, too. Therefore, be sure to provide any settlement statements from the previous calendar year to your accountant during Tax Season.
Lastly, as an added note: discount points should not be confused with origination points, a one-time charge for the lender's service appearing on Line 801 of the HUD-1 Settlement Statement. Origination points are not tax-deductible.
FHA stands for Federal Housing Administration, a by-product of the National Housing Act of 1934 and now a sub-group within the U.S. Department of Housing and Urban Development (HUD).
The FHA is not a lender nor does it build homes.
The FHA exists to insure lenders against loss in the event that a homeowner defaults on a mortgage.
Mortgages backed by FHA are often called "FHA loans" even though it's somewhat of a misnomer. A more appropriate name would be "FHA-insured" loans because that better describes the FHA's function.
With the FHA's guarantee, mortgage lenders are enticed to make loans on which they would otherwise pass and the explicit backing from the government holds mortgage rates low for borrowers.
FHA loans are often used by borrowers with less-than-20-percent downpayments and, therefore, tend to require mortgage insurance payments.
For FHA loans above 80%, mortgage insurance rates are 0.50% annually (paid monthly) with an up-front payment of 1.5% against the loan size and due at closing.
Homeowners with 15-year fixed FHA loans, however, are exempt from the annual insurance payments.
For all homeowners, though, when the loan balance reaches 78 percent of the home's value, the annual MI is no longer required.
Mortgage rates for FHA loans are typically higher than comparable conforming mortgages but because of new, risk-based pricing from Fannie Mae and Freddie Mac, homeowners with credit scores under 680 are finding FHA a viable alternative.
And often with lower rates.
SourceFHA LoanWikipedia, April 1, 2008http://en.wikipedia.org/wiki/FHA_loan