When the everyday "Cost of Living" increases, our dollars don't go as far as they used to. Economists call this inflation.
One popular method of measuring inflation is to track prices for 84,000 individual items and lump them together into a "basket". If the overall price is higher, then the economy is experiencing inflation.
If a picture is worth a thousand words, this one from The New York Times is worth at least 84,000.
Broken down item-by-item, life is more expensive in some places you expected, and some places you didn't. For example, over the past year:
- Gasoline: +26%
- Milk: +13.3%
- Children's Shoes: +4.6%
- Pet Supplies: +6.8%
Inflation can be especially damaging to both active home buyers and homeowners looking to refinance because inflation is linked to high mortgage rates.
This is one reason why mortgage rates have fallen since the Federal Reserve's hints last week that its rate-cutting cycle may be over; many believed that additional Fed Funds Rate cuts would stoke inflation later this year.
In the absence of inflation, mortgage rates tend to improve (all things equal).
Source
All of inflation's little parts
Matthew Bloch, Shan Carter and Amanda Cox
The New York Times, May 3, 2008
When real estate news is reported on television or in the papers, it's usually told as a national story. Unfortunately, stories like these aren't helpful for everyday Americans because real estate is not a national market.
Real estate is local.
The graph above was used by Fed Chairman Ben Bernanke in a speech to Columbia Business School earlier this week. Using data from conforming mortgage fundings, it shows the change in home prices from year-to-year on a county level.
Any county not in red increased in value.
In other words, contrary to what reporters tell us, real estate is retaining its value just fine nationwide. Aside from a few counties and states, most areas appreciated.
Graphics like this put important real estate issues in perspective. Home values may falling precipitously in some areas, but those neighborhoods represent just a fraction of the country overall.
In most regions, home values are up.
Four times annually, the Federal Reserve surveys 84 different banks about general banking conditions.
One of the survey questions asks about current mortgage lending standards and whether they are loosening or tightening.
The chart at right is from the April 2008 survey and it illustrates what we already know: It's getting tougher and tougher to get approved for a home loan.
Some of the areas in which mortgage guidelines are tightening are well-known:
- More thorough income documentation
- Higher credit score requirements
- More "money in the bank" post-closing
Some areas are less well-known:
- More scrutiny of prior delinquencies
- Strict review of appraised values
Overall, getting a mortgage approval from a bank is more difficult than in months past and the tightening trend is expected to continue throughout the rest of the credit cycle.
No "class" of buyers is immune, either -- not even the "prime" ones.
Home prices may fall going forward but stricter mortgage guidelines means that fewer home buyers will be able to take advantage. If you're unsure about your credit profile, check with your loan officer to see how additional restrictions could impact your ability to purchase (and finance!) a home.
(Image courtesy: Federal Reserve)
The ubiquity of "free" credit reporting services like FreeCreditReport.com, TrueCredit.com, and AnnualCreditReport.com have helped breed a new generation of credit-aware Americans.
Because credit ratings have more importance to everyday life than in years past, this is a welcome development. For example:
- Lenders use credit ratings to determine borrowing rates
- Insurers use credit ratings to determine premiums
- Employers use credit ratings to make hiring decisions
Unfortunately for Americans, though, not all credit reports are created equal. And when it comes to actually applying for credit in the form of a new credit card or mortgage, the free reports are worth precisely what they cost.
This is one reason why home buyers should have their credit reviewed by a mortgage lender as soon as possible in the home buying process -- the free reports offered by the major credit bureaus may be misleading and incomplete.
Free credit reports are useful for identifying identity theft and reviewing active accounts but do very little to help a potential creditor gauge your creditworthiness.
As the chart shows us, each industry's creditors has a way they like to do business and that way is the "standard" way.
(Image courtesy: The Wall Street Journal)
A well-known "Sell Your Home Quickly" tips is to clean and de-clutter. A home with visual "space" appears more roomy to potential buyers.
Another way to create openness is with bright lighting throughout your home.
There are two simple and very inexpensive ways to brighten your home for a showing:
- For daytime showings, open all drapes and blinds so the maximum amount of sunlight comes into your home
- For evening showings, turn on every light in every room in the house
A well-lit home not only brightens the mood of potential buyers, but it helps your home to make a strong first impression as well. And if you've ever felt gloomy on a rainy day, or exceptionally happy on a bright and sunny day, you understand the psychological power of light on a person's mood.
So, after cleaning your home to make it showing-ready, replace your light bulbs, turn on the lights, and open the blinds. If your windows are dirty, clean them.
Help prospective buyers to see your home in a favorable "light" and you'll be more likely to sell your home quickly.
According to the Bureau of Labor Statistics, the U.S. economy shed 20,000 jobs in April 2008. The labor force now counts at 146 million people as employed.
Normally, a loss of jobs would foretell economic weakness and would be a good thing for mortgage rate shoppers. Today, though, traders had been expecting a larger loss of 70,000 jobs.
In other words, today's jobs report looks surprisingly strong.
The stock market is now rallying on optimism that "the worst is over" for the U.S. economy and evidence supporting the Federal Reserve's remarks that its rate cuts were starting to take hold.
The stock market's gains are the bond market's losses.
Mortgage rates are up today because the cash that is fueling the stock market is coming from the sale of all types of bonds -- including mortgage bonds.
This is unwelcome news for people doing mortgage comparisons today, or buying a home this weekend.
Rates should be higher Monday than they are today. In general, adjustable-rate mortgages are increasing more than fixed-rate mortgages.
(Image courtesy: Wall Street Journal Online)
The Fed lowered the Fed Funds Rate by a quarter-percent to 2.000% this afternoon.
Because it is tied to the Fed Funds Rate, Prime Rate also fell by a quarter-percent. Prime Rate is now 5.000%.
Holders of home equity lines of credit and credit card debt benefited from the change and will see lower interest costs in next month's statements.
Mortgage rate shoppers are also benefitting.
Each time the Federal Reserve cuts the Fed Funds Rate, it's meant to stimulate the economy in growth. Too much stimulation can create too much growth and that often leads to inflation (which causes mortgage rates to rise).
This is one reason why mortgage rates had not fallen over the past few months. Each Fed Funds Rate cut made it more likely that the economy would overheat in the second half of 2008.
So, because the Federal Reserve signaled that a rate-cutting "pause" may be ahead, investors are reducing expectations for a Fed-induced inflation cycle for later this year, pushing rates lower.
The FOMC's next scheduled get-together is a two-day meeting June 24-25, 2008.
Source
Parsing the Fed Statement
The Wall Street Journal Online
April 30, 2008
http://online.wsj.com/internal/mdc/info-fedparse0804.html
The Federal Open Market Committee adjourns from its two-day meeting at 2:15 P.M. ET today.
Markets expect the Fed to lower the Fed Funds Rate by 0.250 percent in its press release but it's not what the Fed does that matters to economy right now.
It's what the Fed says.
If the Fed states that future rate cuts are needed to stabilize the economy, mortgage rates should rise because rate cuts tend to create inflation. Inflation is the enemy of mortgage rates.
By contrast, if the Fed states that it will "pause" before making additional rate cuts (or hikes), mortgage rates should fall.
We'll dissect the message in full late this afternoon but the most important message to remember is this:
The Federal Reserve does not directly control mortgage rates.
The Fed only controls the Fed Funds Rate, the interest rate on a very specific type of loan made from one bank to another. The Fed Funds Rate, however, is directly related to a consumer-focused interest rate called Prime Rate.
Prime Rate is the basis of interest rates on credit cards and home equity lines of credit.
If the Federal Open Market Committee votes to lower the Fed Funds Rate by a quarter-percent, it means that the interest rate on Americans' collective credit card and home equity line debt will fall by a quarter-percent, too.
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:
- California (40,023 homes)
- Texas (14,935 homes)
- Michigan (12,016 homes)
- Ohio (10,299 homes)
- Florida (10,185 homes)
- Georgia (8,265 homes)
- Arizona (7,956 homes)
- Colorado (7,022 homes)
- Tennessee (4,533 homes)
- Indiana (4,446 homes)
- Illinois (4,216 homes)
Overall, 0.55 percent of homes were repossessed by banks in the first quarter.
Temperatures are rising as we head into May, but your energy bill doesn't have to. This classic video from The Weather Channel reminds us that ceiling fans can help to reduce energy bills all year long.
The key is to use them properly.
- When the heating system is on, fan blades should rotate clockwise
- When the air conditioning is on, fan blades should rotate counter-clockwise
By changing the ceiling fan's blade rotation, homeowners can push heat back into circulation to warm a room, or create a downward draft to make a room feel cooler.
With energy costs at record levels and more increases expected, use your home's ceiling fans to help keep energy bills low and household budgets in check.
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 1991
8.5% 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.
Source
New Residential Sales In March 2008
Census.gov
April 24, 2008
http://www.census.gov/const/newressales.pdf
More than 130 million Americans will receive tax rebates this year as part of Congress' $168 billion economic stimulus package.
Payments begin in about two weeks and range from $600 for individuals to $1,200 for couples, plus an additional $300 per child.
Not everyone is eligible for a full rebate, however.
For single filers earning more than $75,000 and joint filers earning more than $150,000, the tax rebate is reduced by $50 for each $1,000 of income beyond the limits.
An individual with no children, therefore, will not receive a tax rebate if income exceeds $87,000 annually. The IRS provides a tax rebate calculator that can help make sense of the math.
For tax filers using direct deposit, the rebates will be paid based on the last two digits of the social security number:
- SSN ending in 00-20 will arrive May 2
- SSN ending in 21-75 will arrive May 9
- SSN ending in 76-99 will arrive May 16
For tax filers using paper checks instead of direct deposit, payouts begin a little bit later on May 16 and extend through mid-July. The IRS makes the exact dates known on its Web site.
For late income tax filers, the IRS send rebate checks about two weeks after the returns are processed, but not before the regularly scheduled date.
The National Association of REALTORS released its Existing Home Sales report for March 2008. An "existing home" is one that is not considered new construction.
A sub-headline in the report showed that the median sales price of all homes sold in March increased by 2.5 percent to $200,700.
But don't assume that the housing market is improving because of a statistic like that because in the field of Statistics, median is just the "middle" in a group of numbers.
With respect to the Existing Home Sales, the median sales price is the price point at which half of all homes sold went for more, and half went for less.
If more homes sell in high-priced San Jose, CA than in low-priced Youngstown, OH, for example, the median will be skewed to the high-side. The reverse is true, too.
Median sales price make for good headlines, but it does nothing to talk about the local market and that's where real estate is bought and sold.
(Image courtesy: New York Times)
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:
- Why can't the borrower get approved on his own? It is because of poor credit ratings? Lack of income? History of foreclosure?
- If the borrower stops paying the mortgage, can you afford to make the full payment due each month?
- If the borrowers defaults on the mortgage and doesn't notify you, how will a foreclosure on your credit rating impact your family finances?
- When the co-signed loan appears on your credit, will the debt load prevent you from getting approved for your own loans in the future?
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.
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:
- Earth and rock beneath a home
- Joints in construction materials
- Gaps around pipes and wires
- Cracks in flooring and walls
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
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.
Credit scoring is becoming more important to mortgage pricing so now would be a terrific time to brush up on your credit education.
If you understand how the system works, after all, you can make it work to your advantage. One terrific place to start your research is at myFICO.com
Published by credit scoring powerhouse Equifax, myFICO.com give you information right from the source. There are tens of pages of tips and tricks from which everybody can learn.
Gleaned from the site, here are some basic pointers to get you started:
Use It Or Lose It: If you don't use credit, the credit agencies can't assign you a credit score. Spend $10 monthly on your credit cards and then pay it in full to "get on the grid" and get yourself a score.
30 Is The Magic Number: Holding your credit card balances below 30 percent of their respective limits shows an ability to manage credit responsibly. Before consolidating multiple credit cards onto one credit line, consider that card's credit limit. Overload it and the consolidation could hurt your credit score.
The Trend Is Your Friend: A track record of paying accounts on-time means that you're likely to continue paying on-time. Credit bureaus like on-time payments. If you've been late, catch up immediately. At 35 percent, this is the largest component of your credit score.
History Is The Best Teacher: Don't close unused credit cards. Having a credit "history" accounts for 10 percent of your score.
There are more helpful hints available at the Web site so with additional credit score adjustments to mortgage rates expected later this year, the best way to protect yourself is to be proactive.
Identify potential issues in your credit profile and work to improve them.
Credit scoring is not always intuitive so if you're not getting the personal information you need from general Web sites, ask your loan officer for an in-depth analysis. The mortgage rate you save may be your own.
Average gas prices reached an all-time U.S. high Tuesday, touching $3.40 per gallon. San Francisco and Tulsa are the nation's bookends at $3.94 per gallon and $3.11 per gallon, respectively.
But before you wonder if relief is coming to your family budget, remember that "rising gas prices" is a conversation we have every April.
Using data from gasbuddy.com and looking back to 2004, we can see that gas prices tend to rise during the Spring season.
If the pattern holds, we'll should see another 10 percent increase at the pump before gas prices settle back down over the summer and fall months.
Today is Tax Day so here's some IRS-related trivia to share at the water cooler:
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.
Source
A Brief History of the IRS
IRS.gov
http://www.irs.gov/irs/article/0,,id=149200,00.html
The Bureau of Labor Statistics tells us that the average American, aged 15 or older, spends 108 minutes daily doing "household activities". This includes housework, cleaning, financial management, and laundry.
The video above (from VideoJug) may help reduce those minutes.
In 2-minutes-16-seconds, watch How To Fold A T-Shirt In 2 Seconds.
Getting approved for a conforming home loan just got tougher.
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.
Some of the new restrictions on home buyers include:
- 580 minimum credit score requirement on all home loans (which 85% of Americans have)
- No more than one instance of a 60-day late payment on a mortgage in the last 12 months
- 5-year moratorium on new mortgage credit with a prior foreclosure on record
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)
Every two years, the Jump$tart Coalition issues a "personal finance" exam to high school seniors.
The test highlights the importance of personal financial literacy among America's youth and comes at an especially important juncture.
Many experts -- including Fed Chairman Ben Bernanke -- believe that basic financial knowledge is essential for (and lacking in) teenagers. Jump$tart's exam did little to disprove this.
This year, 12th graders answered 48.3% correct on average and posted the lowest scores since Jump$tart first issued the test in 1996.
A sample question from the 31-question test:
Which of the following types of investment would best protect the purchasing power of a family’s savings in the event of a sudden increase in inflation?
- A twenty-five year corporate bond
- A house financed with a fixed-rate mortgage
- A 10-year bond issued by a corporation
- A certificate of deposit at a bank
Find out the answer to the sample questions and 30 other questions by taking the complete Jump$tart Personal Financial Literacy test for yourself online.
The average adult scores 68%.
In three weeks, the Federal Open Market Committee will meet again and markets anticipate another cut to the Fed Funds Rate.
Based on data compiled by the Federal Reserve Bank of Cleveland at the close of business yesterday, traders put the probabilities of the Fed's next move at:
- 62 percent chance that the Fed Funds Rate falls to 2.000%
- 36 percent chance that the Fed Funds Rate falls to 1.750%
Currently, the Fed Funds Rate is 2.250%.
Cuts to the Fed Funds Rate are meant to stimulate the economy by lowering borrowing costs for banks, businesses, and consumers. When less money is spent on interest payments, more money is available for goods and services and that tends propels the economy forward.
And, because Prime Rate is tied to Fed Funds Rate, home equity lines of credit and credit cards grow "cheaper" when the FFR falls. That can makes financed home improvement projects a little less expensive.
Cuts to the Fed Funds Rate, however, do not equal cuts to mortgage rates.
Mortgage rates are based on the price of mortgage bonds and -- although it exerts an influence -- the Federal Reserve does not set the prices for mortgage bonds any more than it sets the price for other investments such as stocks or mutual funds.
Since September 2007, the Federal Reserve has lowered the Fed Funds Rate by 3 percent. Over the same period of time, conforming mortgage rates have been mostly unchanged.
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:
- Higher credit score requirements on auto loan applications
- Higher fees and interest rates on credit cards
- Larger downpayment requirements on their home purchases
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.
Source
Credit Crunch
Wikipedia, April 8, 2008
http://en.wikipedia.org/wiki/Credit_crunch
For it's simplicity, comfort, and "green" status, radiant heating is a growing trend in home building.
Radiant heating is the process by which a room's temperature is controlled using warm (or cold) water flowing through plastic tubing. The tubes are typically installed under the room's flooring, but are also applied in walls and ceilings on occasion.
Radiant heating works by heating the floors of a room which then heats the mass of the room. Unlike air duct systems, the heat stays lower in the room and temperature remains constant throughout.
There are other reasons why homeowners and builders are moving towards radiant heat, too:
- Dust- and mold-circulating air ducts can be eliminated making the home more allergen-free
- Without ductwork, heating and cooling is much more quiet
- Heating bills are lower by up to 20 percent because the water in the pipes doesn't need to be as hot as the water in a traditional radiator
That said, installing radiant heating can be expensive.
Radiant heating is recommended for construction projects in which rooms are completely gutted, or for a new room additions to a home, or for new homes built from scratch.
Homeowners wanting to retrofit a room (or rooms) for radiant heating should talk to an experienced contractor for opinions and cost comparisons.
Source
Perks of Radiant Heating
Leslie Banker
REALTOR.org
http://www.realtor.org/RMOArch.nsf/pages/ArchCoach200802?OpenDocument
(Image courtesy: Moser, Inc)
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.
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:
- TurboTax
- H & R Block
- Personal accountant
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.
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 (as well as other closing costs) may be tax-deductible, too. Therefore, be sure to provide any settlement statements from the previous calendar year to your accountant during Tax Season.
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.
Source
FHA Loan
Wikipedia, April 1, 2008
http://en.wikipedia.org/wiki/FHA_loan
