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Real Estate and *stuff *

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10 Common Errors Home Owners Make When Filing Taxes

February 9, 2011

As promised!  More on taxes!  I know, I know…it’s crazy to talk about such exciting stuff without a party hat on but an IRS audit or missed refund money is no party either!  Here are the ten most common errors that home owners make on their tax returns.  Don’t rouse the IRS or pay more taxes than necessary—know the score on each home tax deduction and credit.

Sin #1: Deducting the wrong year for property taxes

You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some taxing authorities work a year behind—that is, you’re not billed for 2010 property taxes until 2011. But that’s irrelevant to the feds.

Enter on your federal forms whatever amount you actually paid in 2010, no matter what the date is on your tax bill. Dave Hampton, CPA, tax manager at the Cincinnati accounting firm of Burke & Schindler, has seen home owners confuse payments for different years and claim the incorrect amount.

Sin #2: Confusing escrow amount for actual taxes paid

If your lender escrows funds to pay your property taxes, don’t just deduct the amount escrowed, says Bob Meighan, CPA and vice president at TurboTax in San Diego. The regular amount you pay into your escrow account each month to cover property taxes is probably a little more or a little less than your property tax bill. Your lender will adjust the amount every year or so to realign the two.

For example, your tax bill might be $1,200, but your lender may have collected $1,100 or $1,300 in escrow over the year. Deduct only $1,200. Your lender will send you an official statement listing the actual taxes paid. Use that. Don’t just add up 12 months of escrow property tax payments.

Sin #3: Deducting points paid to refinance

Deduct points you paid your lender to secure your mortgage in full for the year you bought your home. However, when you refinance, says Meighan, you must deduct points over the life of your new loan. If you paid $2,000 in points to refinance into a 15-year mortgage, your tax deduction is $133 per year.

Sin #4: Failing to deduct private mortgage insurance

Lenders require home buyers with a downpayment of less than 20% to purchase private mortgage insurance (PMI). Avoid the common mistake of forgetting to deduct your PMI payments. However, note the deduction begins to phase out once your adjusted gross income reaches $100,000 and disappears entirely when your AGI surpasses $109,000.

Sin #5: Misjudging the home office tax deduction

This deduction may not be as good as it seems. It often doesn’t amount to much of a deduction, has to be recaptured if you turn a profit when you sell your home, and can pique the IRS’s interest in your return. Hampton’s advice: Claim it only if it’s worth those drawbacks.

Sin #6: Missing the first-time home buyer tax credit

If you met the midyear 2010 deadlines, don’t forget to take this tax credit into account when filing.

Even if you missed the 2010 deadlines, you still might be in luck: Congress extended the first-time home buyer credit for military families and other government workers on assignment outside the United States. If you meet the criteria, you have until June 30, 2011, to close on your first home and qualify for the tax credit of up to $8,000.

Sin #7: Failing to track home-related expenses

If the IRS comes a-knockin’, don’t be scrambling to compile your records. Many people forget to track home office and home maintenance and repair expenses, says Meighan. File away documents as you go. For example, save each manufacturer’s certification statement for energy tax credits, insurance company statements for PMI, and lender or government statements to confirm property taxes paid.

Sin #8: Forgetting to keep track of capital gains

If you sold your main home last year, don’t forget to pay capital gains taxes on any profit. However, you can exclude $250,000 (or $500,000 if you’re a married couple) of any profits from taxes. So if you bought a home for $100,000 and sold it for $400,000, your capital gains are $300,000. If you’re single, you owe taxes on $50,000 of gains. However, there are minimum time limits for holding property to take advantage of the exclusions, and other details. Consult IRS Publication 523.

Sin #9: Filing incorrectly for energy tax credits

If you made any eligible improvement, fill out Form 5695. Part I, which covers the 30%/$1,500 credit for such items as insulation and windows, is fairly straightforward. But Part II, which covers the 30%/no-limit items such as geothermal heat pumps, can be incredibly complex and involves crosschecking with half a dozen other IRS forms. Read the instructions carefully.  More on the energy tax credits to come!

Sin #10: Claiming too much for the mortgage interest tax deduction

You can deduct mortgage interest only up to $1 million of mortgage debt, says Meighan. If you have $1.2 million in mortgage debt, for example, deduct only the mortgage interest attributable to the first $1 million.

This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Readers should consult a tax professional for such advice, and are reminded that tax laws may vary by jurisdiction.

Schedule A Form: 6 Home Deduction Traps

February 8, 2011

Yes it’s that time of year again!  The snowbanks are getting higher and taking on a “brownish” tint – the joy of winter has passed with the holiday season and we’re all looking forward to spring – why not spend this time doing something fun!  Like taxes!  Woot!  No really…it’s a chore but it’s necessary and as a taxpayer you are entitled to every deduction available to you.  That’s right, the IRS WANTS you to have an accurate number for your total tax liability.

This week I will have a series of articles on “Don’t Miss Tax Breaks” for home owners.  I have a financial background as a CPA prior to becoming a Realtor.  This is great stuff and I welcome your comments.

Get an “A” on your Schedule A Form: Dodge these tax deduction pitfalls to save time, money, and an IRS investigation.

Trap #1: Line 6 – real estate taxes

Your monthly mortgage payment often includes money for a tax escrow, from which the lender pays your local real estate taxes.

The money you send the bank may be more than what the bank pays for your taxes, says Julian Block, a tax attorney and author of Julian Block’s Home Seller’s Guide to Tax Savings. That will lead you to putting the wrong number on Schedule A.

Example:

  • Your monthly payment to the lender: $2,000 for mortgage + $500 escrow for taxes
  • Your annual property tax bill: $5,500

Now do the math:

  • Your bank received $6,000 for real estate taxes, but only paid $5,500. It may keep the extra $500 to apply to the next tax bill or refund it to you at some point, but meanwhile, you’re making a mistake if you enter $6,000 on Schedule A.
  • Instead, take the number from Form 1098—which your bank sends you each year—that shows the actual taxes paid.

Trap #2: Line 6 – tax calculations for recent buyers and sellers

If you bought or sold a home in the middle of 2010, figuring out what to put on line 6 of your Schedule A Form is tricky.

Don’t simply enter the number from your property tax bill on line 6 as you would if you owned the house the whole year. If you bought or sold a house in midyear, you should instead use the property tax amount listed on your HUD-1 closing statement, says Phil Marti, a retired IRS official.

Here’s why: Generally, depending on the local tax cycle, either the seller gives the buyer money to pay the taxes when they come due or, if the seller has already paid taxes, the buyer reimburses the seller at closing. Those taxes are deductible that year, but won’t be reflected on your property tax bill.

Trap #3: Line 10 – properly deducting points

You can deduct points paid on a refinance, but not all at once, says David Sands, a CPA with Buchbinder Tunick & Co LLP. Rather, you deduct them over the life of your loan. So if you paid $1,000 in points for a 10-year refinance, you’re entitled to deduct only $100 per year on your Schedule A Form.

Trap #4: Line 10 – HELOC limits

If you took out a home equity line of credit (HELOC), you can generally deduct the interest on it only up to $100,000 of debt each year, says Matthew Lender, a CPA with EisnerLubin LLP.

For example, if you have a HELOC for $200,000, the bank will send you Form 1098 for interest paid on $200,000. But you can deduct only the interest paid on $100,000. If you just pull the number off Form 1098, you’ll deduct more than you’re entitled to.

Trap #5: line 13 – Private mortgage insurance

You can deduct PMI on your Schedule A Form, as long as you started paying the insurance after Dec. 31, 2006. (Also, this is also a good time to review your PMI: You might be able to cancel your PMI altogether because you’ve had a change in loan-to-value status.)

Trap #6: line 20 – casualty and theft losses

You can deduct part or all of losses caused by theft, vandalism, fire, or similar causes, as well as corrosive drywall, but the process isn’t always obvious or simple:

  • Only deduct losses that are greater than 10% of your adjusted gross income (line 38 of Form 1040).
  • Fill out Form 4684, which involves complex calculations for the cost basis and fair market value.  This form gives you the number you need for line 20.

Bottom line on line 20: If you’ve got extensive losses, it’s best to consult a tax pro. “I wouldn’t do it myself, and I’ve been dealing with taxes for 40 years,” says former IRS official Marti.

I know…not very exciting but necessary!

Saving for the Super Bowl: How to Throw a FREE Game Day Fiesta (and win a $100 gift card)

February 2, 2011

This is a great contest sponsored by HouseLogic.  HouseLogic is a free site for homeowners (houselogic.com) that is full of how-to articles, Facebook links and home ownership information.

Get 6 smart tips to save big on your game-day party–and share some of your own tips for a chance to win a Super Bowl bash on us.

1. Cheer for charity

Have fun watching the game with friends and family while supporting a good cause–and take a tax deduction, too. Here’s what to do:

  • Choose a charity or cause you love.
  • Provide guests with suggested donations. For example, if you want to raise $500, recommend each person donate $25.
  • Ask your local liquor store if it would donate a little free product in exchange for free promotion at your event. More often than not, the business is willing.

2. Get sponsored

Let a brand donate their food and drink to your party. Here’s how to get involved:

  • HouseParty.com has a host of brands willing to provide free goods and services for your party, including DiGiorno Pizza and Kraft.
  • Pick the brand you’d like to host and then complete a questionnaire about yourself and your knowledge of the brand. Your answers help the House Party team know if you’re a good fit for the promotion.
  • If you’re chosen, the brand will supply a host of party goods for you and your friends to enjoy.

3. Go green to save green

Some NFL stadiums have been taking measures to go green for years now, saving hundreds of thousands in energy costs and recycling everything from straws to cooking grease. Here’s how you can conserve at home:

  • Use real dishes. Save about $20 and space in a landfill by not buying plastic plates, cups, and silverware.
  • Send Evites. Don’t send paper invitations. Use free electronic invitations instead.
  • Recycle, donate, or sell your big, old TV. Use the big game as an excuse to treat yourself to a sleek, energy-efficient LCD TV. It’ll cost you up front, though you may find a pre-game day deal (see below) and you’ll save on energy in the long run.

4. Go coupon hunting

There are tons of blogs and websites out there that have the scoop on the latest deals at hundreds of retailers. Save big on everything from food to supplies to electronics just by spending a few minutes doing an online search. Here’s what we found:

5. Get a little help from your friends

After all, it’s the company that really makes the party special. So rather than breaking your back (and the bank) trying to get everything done by yourself, include your guests and make it fun.

  • Have a competitive potluck. Have a cook-off for fans of opposing teams (or let each person fend for themselves). It’ll add to the spirit of the day and save you big on groceries.
  • Ask for help. Need extra chairs? Ask your friends to bring them instead of buying them. Looking for some preshow entertainment? Ask your friends to bring their favorite games to play. That’s what friends are for.

6. Tell us your money-saving tips!

Let us know some of your own great money-saving tips for hosting a Super Bowl party on Facebook—and you’ll have the chance to win a $100 gift card from HouseLogic!

No purchase necessary to enter or win. Must be a U.S. resident and 18 years of age or older at time of entry. Void where prohibited or restricted by law. Winner will be chosen at 2 p.m. Eastern time on January 31.

7 Tips for Staging Your Home

January 21, 2011

It’s been an exciting week! I listed two new houses this week and have been discussing this topic so much that I thought it was time to make a post. It’s a fine line to walk when you are both living in your home and showing it to potential buyers.  You don’t want to feel like you are living in a hotel but at the same time would like to ensure a quick home sale.  There are a few things you can do to help the process and still maintain your life style  In general, make your home warm and inviting to boost your home’s value and speed up the sale process.

1. Start with a clean slate

Before you can worry about where to place furniture and which wall hanging should go where, each room in your home must be spotless. Do a thorough cleaning right down to the nitpicky details like wiping down light switch covers. Deep clean and deodorize carpets and window coverings.

2. Stow away your clutter

It’s harder for buyers to picture themselves in your home when they’re looking at your family photos, collectibles, and knickknacks. Pack up all your personal decorations. However, don’t make spaces like mantles and coffee and end tables barren. Leave three items of varying heights on each surface, suggests Barb Schwarz of www.StagedHomes.com in Concord, Pa. For example, place a lamp, a small plant, and a book on an end table.

3. Scale back on your furniture

When a room is packed with furniture, it looks smaller, which will make buyers think your home is less valuable than it is. Make sure buyers appreciate the size of each room by removing one or two pieces of furniture. If you have an eat-in dining area, using a small table and chair set makes the area seem bigger.

4. Rethink your furniture placement

Highlight the flow of your rooms by arranging the furniture to guide buyers from one room to another. In each room, create a focal point on the farthest wall from the doorway and arrange the other pieces of furniture in a triangle around the focal point, advises Schwarz. In the bedroom, the bed should be the focal point. In the living room, it may be the fireplace, and your couch and sofa can form the triangle in front of it.

5. Add color to brighten your rooms

Brush on a fresh coat of warm, neutral-color paint in each room. Ask your real estate agent for help choosing the right shade. Then accessorize. Adding a vibrant afghan, throw, or accent pillows for the couch will jazz up a muted living room, as will a healthy plant or a bright vase on your mantle. High-wattage bulbs in your light fixtures will also brighten up rooms and basements.

6. Set the scene

Lay logs in the fireplace, and set your dining room table with dishes and a centerpiece of fresh fruit or flowers. Create other vignettes throughout the home—such as a chess game in progress—to help buyers envision living there. Replace heavy curtains with sheer ones that let in more light.

Make your bathrooms feel luxurious by adding a new shower curtain, towels, and fancy guest soaps (after you put all your personal toiletry items are out of sight). Judiciously add subtle potpourri, scented candles, or boil water with a bit of vanilla mixed in. If you have pets, clean bedding frequently and spray an odor remover before each showing.

7. Make the entrance grand

Mow your lawn and trim your hedges, and turn on the sprinklers for 30 minutes before showings to make your lawn sparkle. If flowers or plants don’t surround your home’s entrance, add a pot of bright flowers. Top it all off by buying a new doormat and adding a seasonal wreath to your front door.

All of this should come with a grain of salt and reasonableness.  We can walk through your house and make small changes that will increase the appeal of your home while not changing your lifestyle or costing you extra money.  Please give me a call if you would like to schedule an appointment to see what can be done to get your home sale ready.

In the meantime, please check out my two new listings that prompted this blog:

272 Oak Street in Shrewsbury – 4 bed, 2 bath, 3000 sqft, inlaw apartment – contemporary style and grace makes this home unmatched!  You really have to walk through this house to appreciate it.  So many updates (roof, siding, heating system, flooring, carpet) and a very aggressive sale price.   http://272oakstreet.epropertysites.com/

 

10 Overlook Ave Millbury – 3 bed, 2 bath newer home, better than new construction with the upgrades that the sellers have done such as the trex deck in back – nursery or office off the master bed that has a walk-in closet, very motivated sellers and the flat screen wall mount tv in the master bedroom stays! – http://10overlookave.epropertysites.com/

 

Low-Cost Kitchen Storage: Cheap Stress Reduction

January 15, 2011

Low-cost kitchen storage strategies bring calm to your kitchen, banishing stress-inducing clutter and leaving the space calm and orderly.  Good news for budget-minded cleaning compulsive:  Getting organized in the kitchen won’t drain your piggy bank!  Stash more cash and control the chaos with these low-cost kitchen storage solutions, all readily available at home centers, discount stores and online.

Rack attack: Store pots, everyday dishes, spices, and wine on racks that are freestanding, wall-hung, and ceiling-hung–and voila! Everything is in its own location, visible, and easily accessible!

Position the racks where they make sense: A pot rack above the cooktop; a dish rack close to the dishwasher for quick unloading; spices near the range or meal prep area; a wine rack near the wine glasses and dining table.

You’ll find racks in metal, wood, and other materials, starting as low as $10 to $15.

Shelf expression: You can size an open shelf to fit anywhere you need it and paint or stain it to match your décor. Use shelves for storing such kitchen necessities as cookbooks, attractive dishware, oils and vinegars, and spices.

Home improvement centers have storage sections where you can hunt, but don’t overlook the office supply and bathroom sections for even more low-cost shelves.

You’ll find cool shelves starting as low as $8.

Great divide: Organize the contents of kitchen drawers and cabinets with wire or wood inserts. Drawer dividers keep utensils sorted and orderly. Vertical dividers inside cabinets create a spot for storing trays and cookie sheets. You’ll also find special inserts for storing knives and spices neatly inside drawers.

Available in wire, wood, or plastic, dividers start at about $3.

Elevated thinking: Wire stacking shelves have legs to elevate the storage surface. Set a stacking shelf on a countertop, existing shelf, or inside a cabinet to increase kitchen storage space. Use a stacking shelf for canned goods, dishware, spices, and more.

Prices start at about $6.

Hang ups: Install pegs or hooks along a backsplash, inside cabinets, or anywhere on a kitchen wall to create a place for cups, hot pads, cooking utensils, keys, and recipe clips. Hooks are available that fit over doors or come equipped with magnets that adhere to any metal surface.

Pegs and hooks start as low as $1.

Basket case: Baskets come in a variety of materials to complement your décor, from natural woven grasses to canvas to colorful plastic bins. Set baskets on open shelves, inside cupboards, and on the kitchen counter to round up small items, such as napkin rings and bamboo skewers.

Baskets are great for storing dish towels, cloth napkins, and coupons. Prices start as low as $1.

If you are looking for more great storage solution ideas for your home, please visit myself and Pierre at Lowe’s in Ware this coming Tuesday!  RE/MAX Professional Associates has teamed up with Lowe’s for a weekly in-store demo every Tuesday at 7pm.  This week’s topic is “Storage Solutions”.  Visit our meet-up group to find out more or contact me.

Preventing Ice Dams

January 11, 2011

With the storm fast approaching, I thought this would be a good topic for the blog.  My first winter storm in my house I was enjoying a cup of hot steamy beverage on my couch when I heard (and felt) a large BANG on the wall behind me.  The addition to my house, that I had closed off to conserve heat because it was only being used as a work room, had developed a massive ice dam – which I was unaware of.  The ice dam, with the inches of snow piling up on it, slide off the roof of the single story addition and took the metal gutter with it.  I then had a metal gutter blowing in the wind, banging on my house!  It spared the window but damaged the side of the house, the gutter and the roof to the addition.

During the colder months, preventing ice dams should be a primary concern. Here’s how to protect your home from damage.

Potential damage

Over the five-year period leading up to 2007, water damage and freezing accounted for the second largest share of homeowner insurance claims, according to Claire Wilkinson of the Insurance Information Institute. The average homeowner claim for such damages was $5,531.

Ice dams are responsible for cracked plaster ceilings and walls, peeling paint, soaked carpets, and buckled wood floors. Less visible but no less destructive effects include drenched insulation, rotting joists, and the formation of mold. The most common form of ice dam-related damage is collapsed rain gutters, which can cost $100 to $300 per side to repair.

What causes ice dams

As heat rises from a home, it melts the accumulated snow on the roof. That melted snow travels down the roof in liquid form until it reaches the eave line and gutter, where it refreezes due to colder temps. This ice ridge continues to expand, blocking the flow of subsequent snow melt.

As water continues to melt higher up the roof, it collects behind the ice dam in the form of a puddle. Because that water sits over the warmer portion of the roof, it doesn’t freeze.

In order for ice dams to form, there needs to be roof snow buildup, home heat loss, and subfreezing temperatures. The more snow, the larger the heat loss, and the longer the subfreezing temperatures remain, the higher the likelihood that ice dams will materialize.

Preventing ice dams

Homeowners can’t control the weather, but they can do something about heat loss. “The main goal is to keep heat from reaching the roof, thus preventing snow melt in the first place,” explains Doug Bruell, president of Cleveland’s 25-year-old North Coast Insulation. Proper insulation and ventilation of the attic space is intended to keep the roof surface at or near outdoor temperatures.

Typical steps include insulating the attic floor and installing soffit, gable and/or ridge vents to expel heat. Folding attic stairways and recessed light fixtures also need to be insulated. “All penetrations into the attic from the heated living space need to be addressed,” adds Bruell. Homeowners can expect to pay $800 to $1,500 to insulate the attic, plus another $300 to $600 for the installation of vents.

The process is a bit more involved for homes with finished attics, says Bruell. To facilitate sufficient cold air flow from soffit vent to ridge vent, baffles or tubes are installed between the ceiling insulation and the underside of the roof. This might involve opening up the ceiling.

Insulation means savings

According to the U.S. Department of Energy, adding insulation to an unheated attic will have a greater impact on energy consumption than placing it anywhere else in the house. A properly insulated and ventilated attic not only reduces winter heating bills, it will trim summer cooling bills by expelling heat buildup. You can expect to save 10% to 50% on your heating and cooling bills.

In addition, you may qualify for a federal tax credit of up to $1,500. Bruell estimates that in most cases, the procedure pays for itself in four to five years.

Deicing alternatives

In theory, roof rakes, brooms, and other long-handled devices can be used to remove snow before it has a chance to melt. In practice, however, the scheme is difficult to pull off, considering that most homeowners can’t reach all areas of the roof.

Electrically-heated deicing cables, which install along eave lines to inhibit water freeze, are only moderately effective, says Bruell. “These heat cables often just back up the problem, forcing the dams to form higher up the roof.” In addition to the purchase price ($150 to $300), and installation ($300 to $500), these cables require electricity to run. They also can shorten the life of roof shingles.

Enjoy the snow everyone!

Ice dam removal

Homeowners suffering the effects of an ice dam–or those who fear a leak is imminent–can hire a roofing company to remove the ice buildup. Rather than employ hammers, chisels, and salt, which can damage the roof and gutters, technicians will steam away the ice and remove any remaining snow. Expect to pay around $500 or more for the service. It goes without saying that do-it-yourself removal can be dangerous when it involves ladders, heavy ice, and slippery roofs.

Enjoy the snow!

Adams Street – Modern Loft-Style Condos – Open Sundays

January 8, 2011

Welcome to the Adams Street School House Condos! These are beyond what you usually see in Worcester and you really HAVE to see them! Renovated from an 1894 closed school-house and having top of the line amenities but still retaining the character of the past – these are amazing!

The Adams Street School is a Classical Revival / Victorian Eclectic brick building first constructed in 1896.  The interior spaces – classrooms, corridors, and stairwells – share generous ceiling heights, quality finish materials, and a durability that have served the school well throughout its lifetime.  The loft-style units in the former Adams Street School cover a range of unit types and sizes, from simple studios, to 1- and 2-bedroom units, to attic lofts with cathedral ceilings and open mezzanines.  The particular historical details that remain, the adapted residential layout and the varying views from the ample windows create a unique environment in each unit.

The Crawford Realty Team of RE/MAX  Professional Associates is proud to offer you NINE units to choose from.  We are open Sundays 1pm to 4pm so that you can stop in and take a look.  Come on by and pick out your new home – and have a blast while doing it!

The School House is located right off of Shrewsbury Street so you would be close to fantastic restaurants, Union Station, I290  and I190.  Pets are allowed and there is off-street parking.  The units feature Energy Star appliances, granite countertops and laundry hook-ups.

Here is a quick summary of the available units:

Unit 104:  1 bed, 1 bath $109,000

Unit 105:  1 bed, 1 bath $116,700

Unit 106:  1 bed, 1 bath $139,700

Unit 108:  1 bed, 1 bath, study $198,700

Unit 206:  1 bed, 1 bath, study $190,000

Unit 208:  2 bed, 2 bath $279,700

Unit 306:  1 bed, 1 bath, study $192,700

Unit 309:  2 bed, 2 bath $192,700

Unit 310:  1 bed, 1 bath, interior loft $288,700

We are open Sundays 1pm to 4pm and Thursdays 4pm to 6pm for January and February.  If you would like more information or need to schedule a different time – just let me know!  I am really excited about these units and can’t wait to talk to you about them!

New Kitchen Cabinet Hardware—Low-Cost Ways to Jazz Up Your Style

January 8, 2011 — 2 Comments

Replace old kitchen cabinet hardware and gain an instant style update that’s simple to do and easy on the budget.  It’s a quick way to really make an impact on the room and express yourself.  I am all about expressing my individual style and if you take a few moments in this aisle at your local Lowes, you will be amazed at all the choices you have.

Measuring for kitchen cabinet hardware

Replacing kitchen cabinet hardware is a job you can do yourself. But note there’s a wide range of sizes when it comes to the spans between screws on kitchen cabinet hardware. You’re in luck if your doors feature a knob with a single screw that secures to the door or drawer front, and you want to replace it with the same.

Otherwise, you’ll need to measure precisely the spread between screws. Use a measuring tape to measure from the center of one screw hole to the center of the other. Write the measurement down and count the number of pulls and/or knobs that you need. If you’re making your purchase at a home center, bring the handle and dimensions with you.

If you opt for handles that don’t match up with existing holes, fill holes with wood filler and camouflage the repair with fresh stain or paint. Or you can cover the fix with a backplate that fits behind the new handle.

Hinges can be tricky

Hinges can be difficult to switch out because there are so many different types and sizes. If your kitchen cabinet hinges match the finish on the new hardware or if the hinges are hidden anyway, you can keep the originals.

Otherwise, before removing all the hinges, remove just one and then shop around—online or at a home center—to make sure you can find one that will work for your installation.

Installation tips for kitchen cabinet hardware

  • If you need to re-drill your cabinet drawers and doors, speed up the project either by making a jig or buying one. You can make a jig from scrap plywood following directions available online. Or purchase a plastic jig from a home center or online for about $7.
  • As you drill, keep the bit perpendicular to the door or drawer face. You can position an 8-inch tri-square next to your drill as a visual guide. If you’re inexperienced using a power drill, there are a number of drill guides available, starting at about $17.

This a really fun way to the spend the afternoon!  It gives a brand new look to your kitchen and it’s easy to do.  We will be talking about this in up-coming events at a Lowe’s location in Worcester County – ask me more about it!

 

A Financial Plan for Your Home

January 7, 2011

I am not big on New Year’s Resolutions but I am big on having a plan.  This is a good time of year to make a plan because the calendar is fresh and clean (and half priced if you still like to use wall calendars).  Your home is probably your biggest investment. To manage it, create a financial plan that takes into account repairs, upgrades, mortgages, insurance, and taxes.

Use our home financial plan budget worksheet, and start by writing a list of expenses, such as:

  • Mortgage
  • Taxes
  • Home insurance, including liability
  • Repairs and maintenance, such as new furnace, roof, painting
  • Voluntary upgrades, such as a swimming pool, a premium range, a new powder room

What will you learn from this home financial plan weekend exercise?

  • How much you have to spend
  • How much you need to allot in the short- and long-term for necessary maintenance and voluntary improvements

With this newfound grip on your home’s expenses, you can create a home financial plan that’ll help you there for years with maximum enjoyment and minimum anxiety.

The mortgage: Pay it—and then some

Yup, you already shell out a lot for your mortgage, but can you pay more? Even a little extra each month can add up to an earlier payoff. Let’s say you have $200,000 in outstanding principal and a 20-year fixed-rate mortgage at 5%. Your monthly payment is $1,319.91. But if you can manage to pay another $100 a month, you’ll save $14,887 in interest.

Run the numbers yourself for your home financial plan.

Advantages of an early payoff, says Alan D. Kahn, a financial planner in Syosset, N.Y.:

  • Less debt means more money to spend later.
  • It feels darn good to own your house outright as soon as possible.
  • Minimal tax loss. Toward the tail end of the life of a loan most of your payment goes to the principal, not the interest, so you’re getting only a small tax break anyway.

Of course, if you’re still saving for retirement, put the 100 bucks elsewhere:

  • A retirement plan
  • An account for the inevitable home repairs
  • An account for discretionary improvements, which can raise your home’s value

Insurance: Protect your property

Your vegetable garden is pointless without a fence to keep out rabbits; likewise, your home financial plan will come to nothing without an insurance “fence”:

Homeowner’s insurance. Basic coverage for your home and everything in it. The average cost is $636 per year but this varies widely by state.

Liability coverage. Protects you from a lawsuit if someone gets hurt on your property, for example. Your best bet: An umbrella policy.  For about $300 a year you can by a typical $1 million policy.

Various disaster insurance policies. Optional policies cover flood, earthquake, and hurricane damage. As part of your home financial plan, you have to research to see what disaster coverage, if any, you need in your area, and what your standard policy already covers. For $540 a year you can buy flood insurance, for example.

Don’t under- or overbuy insurance

For your basic policy, get homeowners insurance with full replacement coverage in case your house burns to the ground.

That sounds simple, but heads up on calculation. Remember that you own a house as well as the land on which it sits. So even though you bought your home for $300,000, it may cost only $100,000 to rebuild it. Your policy limits should reflect this. This difference will vary widely by region.

Another heads up: Don’t make the common and potentially disastrous mistake of thinking that because your home has fallen in value you need less insurance. If you bought a $1.2 million townhouse in Florida during the boom, it’s true it now may only sell for $600,000. But the replacement cost of the townhouse hasn’t changed much, so you can’t improve your home financial plan by cutting insurance costs that way.

Other ways to cut your insurance budget:

  • If you make structural improvements, such as adding storm shutters, your insurer may give you a break.
  • If you belong to certain groups, such as AARP or veterans’ organizations, your premiums may be lower.

Repairs and renovations: By choice or necessity

You own a home, so you’ll be spending money on everything from a new faucet to—surprise!—a new roof. Freddie Mac and other authorities say as part of your home financial plan, you should be prepared to spend 1% to 3% of the market value of the home annually on maintenance. To be extra-prudent, open a savings account and make regular payments until your account reaches 1% to 3% of your home’s current value.

To help you budget:

Start with the inspection report you received when you bought the house. Did the inspector indicate that you would need a new roof in five years? A new furnace in 10?

Keep a log of your major appliances’ age so you can estimate when they’ll need replacing. Some estimated life spans:

  • Roof: 20-25 years
  • Heating systems: 15-20 years
  • Range/ovens: 11-15 years
  • Water heaters: 8- 13 years

Then get estimates on what replacements will cost and start saving.

Consider ongoing non-emergency maintenance, too. Do you live in New England? Price a snow blower and get bids from plow services.

Resist the siren call of the home equity loan to take care of everything. That just defeats your efforts to pay off the mortgage early.

Separate out what you want from what you need. A $50,000 kitchen remodel is nice, but you’ll recoup only 76% of the project cost your home’s resale, according to Remodeling magazine.

If you can afford to redo, go for it. Just don’t confuse your necessary repairs (new oil furnace—about $4,000) with your discretionary upgrades (Viking range—$6,000 and up).

Taxes: (Almost) no way around them

Even if your lender handles your property taxes from an escrow account, you need to budget for them in your home financial plan. They creep up almost every year, it seems. Take responsibility for tracking the changes in your area: Look over past tax bills to get a sense of how quickly they’ve risen in the past.

Or if your lender handles escrow and you haven’t saved your bills, ask for an accounting. The median annual property tax payment is $2,198, but that hides the enormous range in medians from state to state:

  • New Jersey: $6,320
  • New York: $3,622
  • California: $2,829
  • Alabama: $383
  • Louisiana: $188

You can generally deduct property taxes on your federal return. A tax pro can tell you how much of a tax break you’ll get, to help you fine tune your home financial plan.

You may be able to reduce your tax burden by getting a reassessment. Do your homework first: Are comparable houses taxed less than yours? Ask the local assessor what formula is used to set tax rates. You can challenge the assessed value and get yourself a rollback.

A plan is exactly that – a great way to pace yourself and keep working towards your financial goals.  The unexpected will always happen and with a plan you are prepared for that.  Now, who is going to spend their Friday Night writing out a financial plan for their home? 🙂

Making Home Affordable: The Modification Option

January 4, 2011

The Making Home Affordable program offers at-risk homeowners a chance to modify mortgages to avoid foreclosure on their homes.  This is just one of the possible solutions that are available to home owners who are in distress or are facing that possibility.

Qualifying for a loan modification

Making Home Affordable’s modification option is known as the Home Affordable Modification Program, or HAMP. It’s designed for homeowners who are likely to lose their homes because they can’t keep up with mortgage payments. Even if you aren’t behind on payments yet, you can qualify for help if you can demonstrate that you will fall behind soon.

To qualify for HAMP, the home must be your primary residence and you must owe $729,750 or less on a first mortgage that was originated on or before Jan. 1, 2009. Your monthly payment on your first mortgage must be greater than 31% of your monthly gross income. Second mortgages and home equity lines of credit don’t count. You must also demonstrate financial hardship such as a jump in mortgage payments or a drop in income.

A loan modification makes sense if you can’t afford your current mortgage payment but could manage to stay current if that monthly payment is lowered. Second homes, which include vacation homes and rentals, don’t qualify for the program. Homes of up to four units are eligible, with higher loan limits, as long as you occupy one of the units. HAMP is scheduled to expire at the end of 2012.

How to get started

HAMP begins with a trial phase. Contact your lender to initiate the process, or call 1-888-995-HOPE to get free assistance from a housing counselor approved by the U.S. Department of Housing and Urban Development. The lender will calculate a lower monthly payment, which you must make on time for at least three months. After successfully completing the trial phase, your lender should make the loan modification permanent.

While lenders may accept some undocumented information up front to begin the process, eventually you’ll need to file detailed paperwork to earn a permanent modification. It’s better to get your documentation in order in advance. HAMP administrators say the leading reason trial modifications fail to be made permanent is missing paperwork.

Start by gathering information on your income (pay stubs), expenses (mortgage statements, tax and insurance bills, debt balances), and assets (bank and non-retirement savings statements). You’ll need that information to fill out the Request for Modification and Affidavit. Also complete IRS form 4506T-EZ, which allows your lender to review your income tax returns. File a Hardship Affidavit as well. If possible, send all of the documents at once by certified mail to your lender to lessen the likelihood of lost paperwork and delays, says Nicole Hall, editor of LendingTree.com.

Lowering your monthly payments

A lender can modify a mortgage in several ways: lower your interest rate, reduce your principal, or extend the term of the loan. The basic goal is to use one or more of these approaches to get your monthly mortgage payment, including real estate taxes and homeowners insurance premiums, down to a more affordable 31% or less of gross (pre-tax) income. Lenders are allowed to cut your interest rate to as low as 2%, if necessary. The average HAMP modification has reduced monthly payments by $640.

To get a ballpark figure of how much a modification might lower you monthly payment, run the numbers for yourself. If, for example, your current mortgage payment is $2,000 and your monthly gross income is $4,000, then you’re paying 50% of your pre-tax income toward the home loan. A typical modification to bring that figure down to 31% would reduce the payment to $1,240, a savings of $760 a month.

Alternatives to foreclosure

Even if you’re facing foreclosure, HAMP is worth a shot. The foreclosure process is suspended while you’re in the trial phase of the modification. Foreclosure can be avoided altogether if you can demonstrate the ability to keep up with the new, lower payment and graduate to a permanent modification. Keep in mind that the foreclosure process can resume if you miss payments during the trial phase or fail to get approved for a permanent modification.

Some owners won’t be able to stay in their homes, even with a mortgage modification. To avoid foreclosure, look into the federal Home Affordable Foreclosure Alternatives program. HAFA offers lenders financial incentives to opt for a short sale or deed-in-lieu rather than a foreclosure. Although the program doesn’t officially go into effect until April 5, 2010, some lenders may initiate it early.

In a short sale, a borrower sells a home for less than the outstanding mortgage, and the lender takes the proceeds and considers the debt paid off. In a deed-in-lieu, the homeowner turns over the home to the lender, and the mortgage is closed. Although neither option is ideal, either can make sense if a loan modification isn’t attainable or sufficient.

To learn more about this option and to see what other options might be available to you, give me a call.  RE/MAX Professional Associates recognizes the need for this type of information and already has a team ready to help you.