Homes loans credits

Risks And Benefits Of Investing In Home Foreclosures

admin — Fri, 17 Jul 2009 17:47:20 +0000

House prices in 2009 may not be showing much movement upward in places like California, Nevada, and Florida, but they are starting to stabilize too. That, along with a special first-time home buyer (courtesy of the Federal stimulus package), may mean it’s a good time to look at buying a home. Even if you don’t live in these areas, some great deals can be obtained through investing in home foreclosures, which are at a record high. Just be sure you understand that this isn’t an investment without a downside. There can be some substantial risks, as well as benefits, when you choose to invest in a foreclosed home.

Risks

The first obvious risk is that the market may not have bottomed out. However, this can be offset by the fact that you can receive up to $8,000 credit on a first home through the stimulus package. If you buy the foreclosed home as a rental, rather than a primary home, you will not be able to take advantage of that credit. Be sure to understand what it takes to qualify so that the money you spend is not later eaten up in lost equity, should prices take another dive.

A foreclosed home cannot be guaranteed to be in good condition. If you don’t understand the market, the neighborhood, or the signs of a poor buy, it’s best to leave that to someone who does. It’s a very easy thing to swoop in a think that buying a home at $1,000 is going to make you rich. Instead, it could land you with unpaid back taxes, city fines, outrageous repair or replacement bills, and more. Don’t just buy because the price is right. Make sure to do your due diligence.

Benefits

If you are confident and experienced enough to take advantage of the fallen house market prices, you can stand to make a small fortune. Even if you don’t sell right away, if you buy in a good neighborhood, you can rent out the homes until the market improves, generating a positive cash flow from a small down payment.

Visible and General Historical Stock Regularities

admin — Tue, 23 Jun 2009 20:43:25 +0000

What can you learn from these graphs? Actually, almost everything that there is to learn about investments—and I will explain these facts in great detail soon.
• The history indicates that stocks oﬀered higher average rates of return than bonds, which in turn oﬀered higher average rates of return than “cash.” However, keep in mind that this was only on average. In any given year, the relationship might have been reversed. For example in 2002, stock investors lost 22% of their wealth, while cash investors gained about 1.7%.
• Although stocks did well (on average), you could have lost your shirt investing in them, especially if you had bet on just one individual stock. For example, if you had invested $1 into United Airlines in 1970, you would have had only 22 cents left in 2002—and nothing the following year.
• Cash was the safest investment—its distribution is tightly centered around its mean, so there were no years with negative returns. Bonds were riskier. Stocks were riskier, yet. (Sometimes, stocks are called “noisy,” because it is really diﬃcult to predict what they will turn out to oﬀer.)
• There was some sort of relationship between risk and reward: the riskiest investments tended to have higher mean rates of return. (However, the risk has to be looked at “in context.” Thus, please do not overread the simple relationship between the mean and the standard deviation here.)
• Large portfolios consisting of many stocks tended to have less risk than individual stocks. The S&P500 fund had a risk of 17%, much less than the risk of most individual stocks. (This is due to diversiﬁcation.)
• A positive average rate of return usually, but not always, translates into a positive com- pound holding rate of return. United Airlines had a positive average rate of return, despite having lost all investors’ money.
(You already know why: A stock that doubles and then halves has rates of return of +100% and –50%. It would have earned you a 0% total compound rate of return. But the average rate of return would have been positive, [100% + (−50%)]/2 = +25%.)
• Stocks tend to move together. For example, if you look at 2001–2002, not only did the S&P500 go down, but the individual stocks also tended to go down. In 1998, on the other hand, most tended to go up (or at least not down much). The mid-1990s were good to all stocks. And so on. In contrast, money market returns had little to do with the stock market. Long-term bonds were in between.
On annual frequency, the correlation between cash and the stock market (the S&P500) was about zero; between long-term bond returns and stock market around 30%; and between our individual stocks and the stock market around 40% to 70%. The fact that investment rates of return tend to move together will be important.

Transfer by Combined Sale and Gift

admin — Thu, 18 Jun 2009 18:39:25 +0000

Sale and gift can sometimes be effectively combined. In fact, if property is sold at a low price, the difference between the market price and the selling price is considered a gift. If the gift is large enough, federal gift taxes will be due.
Reduced purchase price, low interest rates, and easy terms could be considered in the nature of a gift. In some cases, these are designed to offset the child’s contribution to the farm business. Lower than market interest rates may result in unfavorable income tax results. The differences between the rate used and I.R.S. rates may be treated as income to the buyer with no deduction to the seller.
If a combination of sale and gift is used, the agreement should be carefully worded in writing. This may prevent misunderstandings between the farming child and the other children.

Transfer by Gift

admin — Mon, 01 Jun 2009 18:38:31 +0000

Parents in position to do so may, if they wish, transfer property to the younger generation by gift. When the gift is made early in life, the knowledge of ownership usually results in added enthusiasm and energy in developing the property by the donee and learning to care for it under the guidance and advice of the donor.
Transfer of the property at an early age is usually restricted by economic considerations and by the reluctance of parents to part too early with worldly goods. The economic reason is, of course, the most important. In many cases, the parents need all of their property to provide income in later years.
A gift is very easy to make. Land may be given by a deed properly signed, acknowledged, and delivered. Delivery of the deed is very important. Personal property can be given by handing over the property with the apparent intention of making the recipient the present owner. There must be a manual transfer of the property itself or of something symbolic of it. It is best, however, to evidence the intention of the donor by written instrument.
Most gifts are made inter vivos – that is, by a person who may be in no immediate expectation of death. Ownership of property transferred by gift inter vivos vests absolutely and at the time the transfer is made.
A gift made by a donor in expectation that he will die of some immediate threat of death is known as a gift causa mortis. Such a gift is frequently conditional so that if the donor does not die as expected, the transfer of ownership is nullified. The courts generally hold that ownership passes at the time of the gift to the donee, but that it reverts to the donor if he does not die as he expected. That is, the donor can recover the property if he survives the peril that caused him to make a gift causa mortis.
Advantages
• A gift can be given at any age and provides ownership security for the recipient.
• Knowledge of ownership may encourage development of the property under the guidance of the donor.
• A gift may reduce net income taxes. A younger person may be in a lower tax bracket; thus he would retain more of the earnings from the asset.
• A gift may help to reduce estate taxes by removing assets from the estate and by establishing the value of the assets at the time the gift was made, thus avoiding the effects of inflation.
• Individuals may make gifts of up to $12,000 per recipient per year without any federal gift tax consequence.
• Oklahoma imposes no state gift taxes while state inheritance taxes are imposed on estate transfers above a certain amount.
Disadvantages
• Unless the parents have other income, a large gift may work a hardship on them later in life. Loss of purchasing power through inflation should be kept in mind.
• Transfer by gift may result in family disagreements.
• Gifts may be subject to federal gift taxes if larger than $12,000 per recipient per year.
• If assets are declining in value, gift taxes today may be higher than estate taxes would be later.
• In some cases, the donee may not have sufficient maturity to manage the assets wisely.
• If the child is having financial problems and the gift is not sufficiently large to pay the creditors, the creditors may attach the gift property and the family inheritance may be lost.

Reserving a Life Estate

admin — Mon, 18 May 2009 18:38:17 +0000

The parents can deed a remainder interest to the child and reserve to themselves a life estate. This is a method of assuring lifetime income for the parents. The child actually owns an interest in the land, but the right to use the land belongs to the parents during their lifetime. The parents, if they so desire, could give a lifetime lease to the child. The property is still subject to estate taxes when the parents have retained a life estate and have deeded a remainder interest to a child but the property is not subject to regular probate.
Advantages
• The child is assured of having the farm and the parents are entitled to income during their lifetime.
• If the parents have no other property, no regular probate proceeding will be necessary to determine fact of death and terminate the life estate. In this procedure, an estate tax return is prepared and a certificate of tax clearance is obtained from the tax commission. The cost of this shorter probate procedure is much less than the cost of a regular probate proceeding.
Disadvantages
• Conflicts regarding management of the property may arise between the life tenants and remaindermen.
• The child could sell his remainder interest to an uncooperative person. The parents could prevent this by inserting a clause in the deed that states, “if the child transferred his rights during the lifetime of either parent, the remainder interest would revert to the parents.”
• It is hard to value what the child is getting.
• The laws are unclear regarding how mineral interests are handled in a life estate.
• Once the life estate is created, parents cannot change their mind about how the property will be distributed at their death. Thus flexibility to handle changing circumstances is cancelled.
• Creditors of the child may be able to reach the child’s remainder interest and if the child has financial difficulties, his inheritance may be lost.

Appraisal Factors that Restrict Approval

admin — Sun, 08 Mar 2009 10:27:35 +0000

The existence of certain physical factors may make the property ineligible for maximum financing. In such cases, the lender may reject the loan outright or impose a much lower Loan-to-Value ratio limit. Some of the factors that may cause such ineligibility include the following seven appraisal findings.
1. Economic obsolescence
2. Major functional obsolescence
3. Declining property values
4. Deferred maintenance
5. Rural property < 25% built up
6. Buildings are not typical of the area
7. Items that affect the marketability or livability of the property
When faced with any of the above conditions, the property owners must review the situation carefully. Some factors, such as functional obsolescence, deferred maintenance and livability, are within the owner’s control. Other factors, unfortunately, are not.

Information Collected By Appraisals

admin — Sun, 08 Mar 2009 10:24:28 +0000

The appraisal includes a large variety of information that must be read and analyzed by the loan officer or processor. The appraisal examines the property to determine its worth and to provide the lender with a risk assessment.
Whether the house will be single-family, multi-unit, condominium or construction affects the type of information that the appraiser must gather, which partially explains why the appraisal for a four-unit building costs more than the appraisal for a single-family home.
The appraisal must contain the market value and an analysis of the following eight data categories:
1. Property & lender information
2. Neighborhood description
3. Site description
4. Improvements to the site
5. Cost approach analysis
6. Market data analysis
7. Income approach analysis
8. Reconciliation of value estimates
9. Additional support documents

How Lenders Handle Appraisals

admin — Sun, 08 Mar 2009 10:23:01 +0000

For residential mortgage loan underwriters, appraisal reports normally have a shelf-life of three months. If the appraisal report is older than three months but less than twelve months old, most lenders will accept it as long as the appraiser can issue a re-certification letter, which states that the appraiser has reviewed current data and that the original value estimate is still valid.
When the appraisal report is completed, mortgage lenders will submit it to the underwriter. The underwriter will review the appraisal data to confirm that the property meets the program requirements. The underwriter will occasionally submit the report through a formal appraisal review, conducted by an in-house specialist or an independent appraiser. The goal of the appraisal review is to double-check the final value. If the appraisal review returns with a lower appraisal value, the underwriter must accept that lower value.
There are two types of appraisal reviews:

Desk review. Most lenders, especially for conforming loan programs, conduct simple desk reviews—nominally at their desk. Such reviews simply go through a checklist of items as they analyze he appraisal report for completeness and acceptable conclusions.

Field review. Many non-conforming lenders, especially when dealing with high-LTV loans, will order a field review of the appraisal. An independent third-party appraser will be contracted to review the appraisal report and then actually verify the accuracy of the data, elements and procedures used by the original appraiser.

Note that with larger jumbo loans and larger property sizes, many lenders will require a second appraisal report.
Lite Appraisals
Increasingly, many conforming lenders require and accept lighter versions of the standard appraisal report for their underwriting. Instead of a full-blown appraisal report, an exterior or “drive-by” appraisal is deemed acceptable. This exterior-only appraisals do not require the research and legwork of the standard appraisal report; so the costs are usually significantly lower.
Commercial Property Appraisals
Appraisal reports for commercial and industrial properties are more detailed and researched. As such, they tend to cost at least $1,000 for a small apartment building. They usually take a more narrative approach, unlike the residential property appraisal which uses a standard form to list the facts.

Purpose of Appraisal Reports

admin — Sun, 08 Mar 2009 10:20:14 +0000

Lenders process appraisal reports with two goals in mind:
1. Determine the subject property’s fair market value.
2. Confirm that the subject property meets the parameters of the specific loan program.
The most important element that the appraisal report provides is the market value of the property. This element is the main difference between the appraisal and building inspection, which focuses the property’s structure and mechanical equipment. To compare the descriptions contained within this article with an actual appraisal report, please go to the sample appraisal report.
The appraised market value determines the LTV and consequently limits the amount of money that an applicant may borrow on a property. This appraised value normally is a reconciliation of at least two or three value calculation methods.

Value indicated by market data (sales comparison) approach. This is the average selling price of recently sold properties of the same type, quality and location as the subject property—with adjustments. All appraisal reports will normally contain this approach.

Value indicated by income approach. This estimate deals with income-producing properties and takes into account the rental rates in the property’s area, neighborhood or region.

Value indicated by cost approach. This estimate is based on how much it would cost to build a comparable house—less depreciation. All appraisal reports will normally contain this approach.

After obtaining the necessary data for the above valuation methods, the appraiser will then arrive at a best estimate of value. This final estimate is the appraisal value, which is determined through a reconciliation of the different value approaches.
Appraisers are not supposed to produce appraisal reports for the purpose of meeting specific valuation goals set by the party ordering the report. However, most appraisers will inform the loan officer if preliminary estimates show that the appraised value will fall below the contract price or loan target. In such a case, the full appraisal order can be canceled.

Analyzing Appraisal Reports

admin — Sun, 08 Mar 2009 10:18:36 +0000

Mortgage lenders have begun exploring methods for decreasing or eliminating the need for full appraisal reports. Automated systems are being developed to provide acceptable estimates of appraisal values, with a simple analysis of online records and no appraisal inspection and report. However, such programs are still in their infancy.
Full appraisal reports are still the norm for mortgage loans. This article will review the following elements of the residential property appraisal: