The Best (and Worst) Reasons to Tap Your Home Equity

U.S. News and World Report by Teresa Mears It can be right for making home improvements, but don’t abuse it to go shopping or pay monthly bills With home values rising, more Americans have equity in their homes. That has generated plenty of cheers from homeowners, and it’s also brought back the home equity line of credit as a popular option for the first time since before the Great Recession. Americans took out $23.4 billion in home equity lines in the first quarter of 2014, up 15.5 percent from 2013 and the highest number in six years, according to Equifax, a credit reporting agency. If your mortgage is less than 80 percent of your home’s value, you might want to join that group. But the greatest lesson of the recent real estate boom and bust is that turning home equity into cash is best done with great care. “The mortgage mess and the real estate recession gave us some really good lessons in how home equity lending could go bad,” says Liz Weston, a personal finance columnist and author of “Deal with Your Debt: Free Yourself from What You Owe,” and other books. She cited a 2011 CoreLogic study that found that borrowers with home equity loans or lines of credit were significantly more likely to owe a larger amount than their homes were worth. “We shouldn’t forget those lessons now that many people have equity again, and that banks are allowing us to tap it. Your home equity is a precious resource that shouldn’t be squandered,” Weston says. [Read: Could You Finance Your Retirement With a Reverse Mortgage?]  There are times that having a home equity line of credit is a smart financial move. It’s hard to find a loan at better rates – less than 4 percent for borrowers with good credit – and qualifying for a home equity line of credit is easier than it is for a business or personal loan. Having a home equity line of credit but using very little of it can help prepare for emergencies, Weston says. “Even a fat emergency fund can get drained by a big-enough financial setback, and most people don’t have a fat emergency fund,” she says. “The key, though, is, again, not to squander that equity. You want it there for you when you need it. If you’re such a spendaholic that you can’t trust yourself not to use the line, then of course you shouldn’t set one up.” Using home equity line of credits to finance cars and vacations is generally a bad idea, financial experts say. Using the line to fund a child’s education might be a good idea, but only if you can pay...

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Tax Incentives Sweeten the Deal for Buyers

Realtor View by Chaille Ralph Of the many advantages granted to homeowners, one of the most popular is the list of tax breaks they receive. As a new homeowner, you may be able to deduct some of the costs related to your purchase if you itemize your deductions rather than use the standard deduction when filing your taxes. These costs can include mortgage interest, real estate taxes and private mortgage insurance premiums you’ve paid. While the IRS can best explain what you can and cannot deduct, your Realtor can answer your initial questions about tax incentives during your home buying process. Here’s a closer look at some of the deductions that might apply to your situation. If you took out a loan to purchase your home, you may be able to deduct from your taxable income the amount you paid in interest on your mortgage. This mortgage-interest deduction especially is valuable for new homeowners since the majority of your monthly mortgage payment will go toward paying the interest on your loan for the first few years. Your lender will send you a Form 1098 that lists how much you paid in interest. Real estate taxes If you paid real estate taxes assessed on your property to a local or state taxing authority such as a water district, city, county or school district, you may be able to deduct this cost. This information will also be on the Form 1098 from your lender. If you made a down payment of less than 20 percent of the purchase price on your home, you are probably paying private mortgage insurance. But you may be able to deduct some of the money you paid for these PMI premiums, if you meet certain qualifications. This amount will be listed on the Form 1098 from your lender. Keeping accurate records is important for properly reporting your deductions as a homeowner. The IRS recommends keeping your purchase contract and settlement papers and any paperwork such as receipts or canceled checks. Staying organized will save time when you sit down to file your taxes, and it’s good to keep your paperwork handy in case you’re audited. Remember everyone’s situation is different, so the best way to determine what will apply to you is by consulting a tax professional who can help you find out what items are...

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Save energy at home to leave more green in your pocket!

Realtor View by Chaille Ralph Many consumers are mindful of the environment when making purchases these days. Look at the popularity of hybrid vehicles, alternative fuels, locally grown produce and a host of other products designed to use fewer resources and reduce pollution and waste. Housing definitely is on that list. You don’t think of houses being responsible for carbon emissions, but they are – to a significant degree. The energy used for heating, cooling, appliances and lighting most likely comes from a source that produces carbon emissions. Other factors, such as water use and building materials used to construct or remodel a home, can affect the environment significantly. You might think the best way to “go green” in housing is to start from scratch. And it’s true. If you’re building a new, custom home, you can make decisions that will increase energy and water efficiency greatly. You can select the most environmentally friendly building materials and construction methods. But if you’re not building a new home, there’s no need to throw up your hands. There’s still plenty you can do to make a difference. When looking to purchase an existing house, it’s possible to assess some aspects of its energy use. How old is the air conditioning unit? Does the landscaping consist of native plants? You might be able to secure energy bills from the current owner to review electricity and water usage (keep in mind your usage may vary considerably). You can hire a professional to determine how energy efficient or inefficient a home may be. Whether purchasing a home or wanting to make the best of the house you own, there are many steps you can take to improve energy efficiency. Here are some examples: Install rain barrels to collect roof runoff and use that water for irrigation. Replace water-thirsty plants with landscaping that requires little additional irrigation. Replace old windows with energy-efficient windows. Seal air leaks around windows, doors and other areas that may have gaps. Seal air ducts. Install additional installation. Replace appliances with newer models that have earned EPA‘s Energy Star designation. Replace heating and cooling units. Replace the water heater with a more efficient model. Change out incandescent bulbs with compact fluorescents. You probably know efforts such as these offer benefits beyond helping the environment. They also save money. Yes, you pay more on the front end to make improvements such as those listed, but each one of them reduces your expenses – often paying for itself in short order. As energy costs continue to rise, the more you can do to cut consumption, the more it pays off. Be informed You can find information online about how to lower your energy consumption...

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Curious about the return for your remodeling investment?

by Dana Dratch (Bankrate.com) Planning a home renovation? Do it for your own enjoyment, because there’s no guarantee you’ll get all of your expenses back when you sell. That’s one lesson from a 2014 Remodeling magazine study. The magazine looked at prices on 35 popular home renovation projects – and how much of that money homeowners can expect to recoup when they sell. In the study, prices were based on national averages for time and materials supplied by skilled professionals. While some projects moved the needle on home value more than others, most didn’t return 100 percent of the renovation cost at resale, according to the report. And the projects that yielded the least at resale all returned less than 61 cents on the dollar. If you renovate, “you have to understand that it may not add the value to your home that it cost you,” said Mark Ramsey, broker with The Ramsey Group at Keller Williams Realty in Charlotte, North Carolina. Home office remodel Cost (national average): $28,000 Return at sale: 48.9 percent This is not your typical stuff-a-desk-in-the-guest-room office. When Remodeling magazine priced out the project, it envisioned a professional-grade workspace with super-durable commercial-grade carpet and floor-to-ceiling hardwood built-ins, said Sal Alfano, editorial director for Remodeling magazine, who oversaw the study. At resale: Home offices don’t sell houses, said Ron Phipps, principal with Phipps Realty in Warwick, Rhode Island, and past president of the National Association of Realtors. “To spend money making more of the house office-driven – it doesn’t excite people the way a home theater might,” he said. “Or redoing other rooms or updating the kitchen.” Sun room addition Cost (national average): $73,546 Return at resale: 51.7 percent Anytime you have to add onto the foundation – and the footprint of your home – the price climbs, said Michael Hydeck, owner of Hydeck Design Build Inc. near Philadelphia and past president of the National Association of the Remodeling Industry. It can make a big difference in your enjoyment of the home and help heat adjacent rooms, Alfano said. At resale: Resale value will vary by region, Phipps said. “You have to look at what your market is.” Whatever you build, if you want to get the biggest bump to your home value, opt for a licensed professional and permitted work, said David R. Tina, president of the Greater Las Vegas Association of Realtors and an owner/broker with Urban Nest Realty. Upscale master suite addition Cost (national average): $224,989 Return at resale: 56 percent This isn’t your typical master bedroom remodel. Picture adding a luxe hotel suite onto your house: a 640-square-foot space with a kitchenette, sitting room, high-end gas fireplace and a spa-quality bathroom – complete with a stone-and-glass dual-system shower and a jetted corner tub set in marble. By contrast, Remodeling...

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Overwhelmed by the Loan Process? You’re not alone!

by Chris Gash Plenty of mortgage websites define “balloon payments” and “debt-to-income ratio,” but borrowers are still struggling to get answers to the most important question: What will I owe? “Regardless of whether you’re an experienced or inexperienced home buyer, there’s a lot of information out there, and it’s difficult to discern what’s important,” says Cameron Findlay, chief economist at Discover Home Loans, which conducted the survey of 1,037 respondents nationwide and released the results in July. Of these, 59% have previously owned a home. 63% Percentage of survey respondents who say they are overwhelmed with information available on home financingSource: Discover Home Loans The study focused on buyers seeking homes at prices that don’t rise to jumbo levels—over $417,000 in most places and $625,500 in some high-price areas. While jumbo borrowers may be more financially savvy, Mr. Findlay adds, many of them may be buying a home for the first time since new rules went into effect that tightened lending standards. Discover, best known for its consumer credit cards, started offering home loans in mid-2012. The survey uncovered other mortgage misunderstandings. While 87% of the respondents had identified the type of property they could afford, only 52% actually had calculated their projected monthly payment, 41% hadn’t figured out their down payment, and almost half (48%) had no idea how much a more or less expensive home would raise or lower their mortgage payments. Home buyers sought multiple sources for help understanding the mortgage process: 59% of home buyers turned to mortgage bankers, 42% asked real-estate agents, 38% asked a financial adviser and 37% went to family or friends. A smaller percentage used online financial tools or calculators (30%). Plenty of mortgage-education websites include a general discussion about income and down-payment requirements, but don’t drill down to the specific questions of what documentation is needed so borrowers can plan ahead, says Tom Wind, executive vice president of home lending at Jacksonville, Fla.-based EverBank. EVER -0.06%What distinguishes the jumbo from the general borrower is they may have plenty of income to qualify, but it may come from diverse sources such as self-employment income or investments, he adds. “There’s a frustration about why you are asking them to provide all this information because they earn a lot more money and have a lot of assets,” says Mathew Carson, a mortgage broker at San Francisco-based First Capital Group. He recently had a client who received three stocks in 1987 as a gift that he had never touched and now were worth $20,000. But the $625,000 loan was delayed because two months of statements were required, and the management company had never issued statements. Another area of confusion is rates. A variety of websites offer mortgage...

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