The Jersey Observer-New Jersey Real Estate Blog

Many houses on the market right now are distressed properties. Distressed properties include those whose owners have defaulted or are about to default on their mortgages. In many cases, distressed properties can be less expensive that comparable homes for sale.

There are a number of different types of distressed properties:

• Short Sale. In a short sale, the homeowner can’t afford to maintain the mortgage. Rather than foreclosing on the home, the lender agrees to the sale of the property for less than the balance of the loan. Short sales give both lenders and homeowners an option other than foreclosure.
• Foreclosure Auction. Banks and other lenders will auction off properties that have been repossessed from homeowners who have defaulted on their mortgage loans. Foreclosure auctions are usually held at public facilities such as courthouses. The auctions are generally best left to investors with cash available to spend. All bids have to be backed up with the money for the entire sale price up front. Also, houses usually purchased at an auction are purchased site unseen.
• REO (real estate owned) Foreclosure. When people describe a distressed property as a “foreclosure,” they are usually referring to an REO foreclosure. These are bank or lender owned properties that you purchase directly from the lender in a process that is similar to a typical home sale.

The advantages of purchasing a distressed property:

A distressed home will sometimes be priced significantly lower than it would be sold for if it were not a distressed property. That doesn’t mean all distressed homes will be cheaper than all other homes that aren’t distressed, however. If there are a lot of foreclosures in an area, prices of non-distressed homes tend to be lower, too. In some cases of distressed properties, you can offer to purchase the home for less than the asking price. There is little to no emotion involved with a seller on distressed properties since you’ll be dealing with the lender instead.

The disadvantages of purchasing a distressed property:

Distressed homes take more time and effort to purchase. They require a lot of paperwork, and you might end up waiting a long time just to have your offer rejected. Depending on the property, it may need many major repairs. Many distressed properties have been vacant for a while with no continuous maintenance. Lenders generally sell distressed homes as-is. There is often a lot of competition when purchasing distressed properties with other buyers and investors. More competition leads to higher prices.

If you have any questions about purchasing a distressed property, contact us today. We can guide you through the home buying process and help you determine if buying a distressed property is right for you.

When house hunting, many homebuyers become torn between two houses they love. Sometimes you and your spouse have different favorites. Or perhaps you genuinely love two houses equally.

Buying a home is one of the biggest financial decisions you will make, so there is a lot to consider when trying to choose between two houses. Once you determine that both houses are within your budget and meet your family’s needs, take the following steps to help you make your decision.

• Create a “Pros and Cons” list. Do this right away. Start jotting down everything you can think of about each home and its surrounding areas. Consider the size of the rooms you will use most often. If you entertain a lot, will one home have a bigger dining area than the other? If you use the family room a lot, is one bigger than the other? Does one have a better yard? Do you want a big yard? Ask yourself all the questions you can think of and start comparing all the features of each home.

• Compare neighborhoods. Sometimes the homes might be in the same neighborhood, but if not, evaluate the individual neighborhoods. Are there nearby parks? Are the other homes well maintained? Are the streets maintained?

• Consider commute time. Will you save on gas prices if you choose one house over the other? If you like to ride your bike, is there one home that will accommodate a bicycle commute better?

• Research appreciation. If the two homes you’re choosing between are in different areas, have your real estate agent retrieve sales of homes in those areas for the past few years. If one neighborhood sees an annual percentage increase that is much higher than the other, it’s likely your home will also appreciate at a higher rate.

• Visit each home at least twice. Sometimes you might notice something about a house the second or third time you visit that you didn’t notice the first. Do your own inspection of each home and take detailed notes. If one home requires more maintenance than the other, that might help you make your decision.

• Look into HOA fees. Does one home have an HOA and the other doesn’t? How much will the HOA fees be? Will they be raised? Do you like HOA guidelines or would you rather not have restrictions?

• Research the surrounding schools. If you have school-aged children, then look into the reputation of the schools your child may attend. Most public school district information and standardized test results can be found online. You may even want to visit the school and talk to the teachers and other parents.

• Ask about crime. Visit the local police department and ask about the crime rate in the prospective neighborhood. Talk to your potential neighbors and ask them about any signs of burglary, drugs, or vandalism.

Your real estate agent can give you their objective professional opinion about each property, but don’t ask them to make the decision for you or to pick one house over the other. This is ultimately your decision, so take the proper steps to carefully consider which house will be best for you.

Tax season is upon us. Many people have questions when it comes to homeownership and the tax considerations that come with it. Your accountant can help you answer these questions, but here is some basic information about homeownership and taxes.

Property Taxes

Property taxes are paid by most homeowners in the US for the privilege of owning a home. On average, property taxes amount to 1.5% of the property’s current market value. Property taxes are determined by county or city authorities to help pay for public services and are calculated using a variety of formulas.

Property taxes are fully deductible against current income taxes.

Mortgage Interest Deduction

The mortgage interest deduction is one of the most important tax benefits homeowners have. Homeowners can deduct the interest paid on mortgage loans to help buy, build, or improve a primary residence and/or second home.

The mortgage interest deduction entitles you to deduct the interest on your home loan for the year in which you paid for it. While mortgage interest reduces your taxable income, it is not a dollar-for-dollar tax cut.

The amount of interest on your mortgage decreases each year, so making principle reductions every year can help you pay off your loan early.

When buying a new home, the borrower is generally required to pay interest from the closing date until the first of the following month. Verify whether or not that charge is included in the year-end statement.

To use this deduction, you need to itemize, and your total deductions need to exceed the IRS’s standard deduction.

Capital Gains

When you sell your home, you can keep, tax free, capital gains up to $500,000 for a married couple or up to $250,000 for individuals in profit from the sale. To qualify, you must have lived in the home as your primary residence for at least two of the prior five years. This is not a one-time tax exclusion. It can be used as often as you meet the qualifications. Some exceptions do apply.

Homeowners should always keep all receipts of permanent home improvements and information on all mortgage closing costs. If you end up in a situation where you have to pay capital gains taxes, these costs can be added to your adjusted cost basis. Cost basis is a tax term for the dollar amount assigned to a property at the time it is acquired, for the purpose of determining gain or loss when it is sold.

Any money spent on permanent home improvements can be added into the home’s cost basis, which reduces capital gains when the home is sold.

Home Acquisition Costs

Points paid by the buyer or seller to purchase a home are deductible for that year. Closing costs aren’t immediately tax deductible, but they can be figured into the adjusted cost basis when you sell your home. These fees include title insurance, loan application fees, credit report fees, appraisal fees, services fees, closing costs, document preparation costs, and recording fees.

If you have questions regarding homeownership and taxes, feel free to contact us. You can also contact the IRS by calling 1-800-TAX-1040.

According to the Mortgage Bankers Association, mortgage loan application volume declined by 5% for the week ending January 20, 2012. The results include an adjustment for the Martin Luther King, Jr. Holiday. Interest rates on some fixed-rate loans rebounded slightly from all-time lows. The average interest rate for a 30-year fixed-rate mortgage increased by five basis points to 4.11%. The average interest rate for a 30-year FHA loan increased six basis points to 3.97%.

While interest rates seem to be rebounding, they are still very low. Now could be a great time for you to purchase a home. Contact us to discuss your options today.

The average rate on a 30-year fixed mortgage loan stayed near the record low for the sixth consecutive week.

Freddie Mac reported on Thursday, December 8, that the rate on the 30-year home loan dropped to 3.99 percent from 4 percent the previous week.

The average rate on a 15-year mortgage dropped down to 3.27 percent from 3.3 percent.

Mortgage rates have been below 5 percent for all but two weeks this year.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country Monday through Wednesday each week.

‘Tis the season to be with family, brave the crowds, enjoy those winter sports . . . and buy a home. That’s right. Although most homes are sold during the spring and summer months, many homebuyers choose to take advantage of winter real estate savings. Here’s why:

• Less competition. The wintertime sees fewer buyers on the market, so for you, that means less competition. People are less likely to move in the winter because of weather, the holidays, etc., so many people put off looking for a home until the spring. Many families may not want to move their children in the middle of the school year, keeping them from house hunting. Less competition for you means a better chance of getting a great home at a lower price.

• Sellers need to go. When people are selling their home in the winter, it can often mean they have to get out quickly because of a job transfer or other pressing matter. Because many sellers may need to get out fast, they are more likely to bend on negotiations with the buyer.

• Smoother process. Because lenders have a lot less paperwork in the wintertime, transactions generally go through more quickly and with a lot less hassle.

• Lower taxes. Property taxes are usually determined by how much you paid for your home. Therefore, if you snag a great deal on a home during the winter, your property taxes will also be lower. Also, it may be a good idea to purchase a home before December 31. Homebuyers may be able to deduct mortgage interest, property taxes, and some of the costs associated with a new home purchase from their income taxes.

• Lower interest rates. Mortgage rates don’t generally follow a seasonal trend; however, right now, mortgage rates are still near record lows. Most likely, interest rates will remain low throughout the holiday season.

Keep in mind that warmer areas in the country such as Florida and ski/winter resort destinations like Colorado don’t follow this trend.

1. Create a “Gratitude Journal” in which each family member writes down what they are thankful for. Try to encourage everyone to write at least 10 or more things. Make copies for everyone for Christmas.
2. Make a “blessings box.” It’s similar to the Gratitude Journal, but have everyone write specific blessings they are thankful for on little slips of paper anonymously. The items can be humorous or serious. After Thanksgiving dinner, randomly pull slips out of the box and read them out loud.
3. Volunteer with a local Meals on Wheels program. Bring a hot dinner to those who may not be able to join their family or friends this year. They’ll appreciate the food and, more importantly, the time you share with them at their homes.
4. Have everyone make a toast of thanks. Once everyone is seated for Thanksgiving dinner, go around the table and have each person say why they are thankful, and then raise your glass and toast to it. Even kids love to clink glasses.
5. Report a job well done. Have you received consistently good service from someone throughout the year? It could be your hair stylist, a waiter, a patient store employee who seemed eager to answer all your questions, a customer service representative? Every Thanksgiving, make a list of those people. Write a simple “Thank You” note that outlines the attentive care you received from that person. Send the note to their supervisor and also a copy to them.
6. Send a letter or care package to a military service member abroad. You can use AnySoldier to send care packages. They also provide a list of items you could include in your package.
7. All over the country this Thanksgiving, different companies and nonprofit organizations are hosting 5k and 10k races to benefit local charities and other causes. Most of these races are Run/Walks that encourage full family participation and the upside? You can work off some of that big dinner before you even sit down at the table. Runs are planned for on and around Thanksgiving, and some require advance registration, so be sure to check out the specific rules for your area.
8. Volunteer at a homeless shelter. All the donated food that is raised during Thanksgiving time needs hands to help cook it. Volunteer this Thanksgiving at a homeless shelter to prepare and dish up a meal for those who don’t have a home to go to this holiday. The National Coalition for the Homeless has a directory to help you find homeless shelters in your area.
9. Express your gratitude face to face. Find ways to tell your dinner guests as well as all those you come in contact with on Thanksgiving how much they mean to you. There is nothing more sincere than a verbal expression of thanks.
10. Give an anonymous donation of whatever you can afford to a charity of your choice. Share what you have with others who have little.