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Should You Help Your Child Buy a Home? Here are Some Options.

by Joanne Hiller

The real estate market's a tough place for first-time buyers. Young home buyers often lack the savings for a down payment and tougher lending criteria means that some cannot qualify for a mortgage. Traditionally parents have helped their children mount the property ladder by giving them cash for a down payment. If cash is in short supply, other options include co-signing a home loan or arranging a lease-to-own scenario.

Help With the Down Payment
The simplest way you can help your kids financially is by giving them cash to increase their down payment. A bigger down payment typically means lower interest rates, more deals to choose from and a more lenient lending criteria. Aim for a deposit of at least 20 percent of the home's value. If you're giving your child down payment money, plan on losing that money and not getting it back. Lenders prefer the money to be a gift, because if the parents treat the cash as a loan, it is considered a second mortgage on the property. Keep your dollar advance below the annual gift tax exemption limit, and you shouldn't run into any tax problems.

Buy the Home as an Investment and Have the Kids Pay Rent
Parents own the real estate, which they can sell to their children when their ready, keep as an investment, or sell to someone else. Do the sums before you consider this option. If you need a mortgage, you'll have to come up with a larger down payment than you would for your primary home, typically 30 percent. Like any landlord, you'll have to pay the mortgage regardless of whether your tenant pays the monthly rent. Moreover, this approach may be great for you but it doesn't do much for your kids. They don't get a stake in the house and they're not really building up any responsibility.

A lease-to-own arrangement is also known as a land contract or purchase installment contract. Under this arrangement, you essentially act as your child's mortgagee. You buy the home and give your child immediate possession, and he or she pays you the purchase price in agreed installments. When they've paid you back in full, the home is theirs. A lease-to-own arrangement requires specialist tax advice and must include a written contract.

Co-Sign the Loan
If your child has a low income, low credit score or a poor credit history, co-signing their mortgage may get them past otherwise prohibitive lending criteria. This isn't for everyone though. If your child doesn't make his or her mortgage repayments, the bank will come to you. You'll have to be able to afford any outstanding mortgage on your own home, as well as your child's mortgage payments if they can't or won't pay. Making good your child's delinquency may have a devastating effect on your credit and cash flow, so if your child cannot get a loan in his or her own right, ask yourself why before you agree to co-sign the loan. If they're in a starter job and simply haven't had the time or the income to establish a credit profile, they may be worth the risk. If they can't get a loan because they have a history of credit card defaults and late bill payments, the chances are they'll default on this loan too.

Buy Jointly
Two or more incomes increases your child's buying power, but you take on 100 percent liability for the loan. If he or she misses a payment, the lender may ask you to make good the default. There may be tax implications too, especially if the property isn't your main home. On the plus side, you'll both own a stake in the house. You can agree to split any capital appreciation in whatever percentage you choose, if the home is later sold.

7 Mistakes to Avoid when Investing in Real Estate

by Joanne Hiller

There is money to be made in real estate, but you need to think about real estate investing as the business it is. Here are some common mistakes that beginning investors should avoid.

1. Getting emotionally involved.
This is the biggest and most common mistake beginning investors make. Emotions and business do not mix well. In this case, falling in love with a property will almost always ensure that you pay too much to make it profitable.

2. Paying too much.
To make money investing, you have to find a good deal. Look for properties that need a little fixing up. Your goal is to find a distressed property that you can purchase for around 70 percent of comparable listings.

3. Ignoring schools.
Good schools attract good renters. Conversely, only the most desperate renters are willing to subject their children to failing schools. And renters in desperate financial situations are not renters you want occupying your property.

4. Buying a low-priced home in a bad neighborhood.
Property that is situated among vacant or foreclosed homes will not be enticing to future renters. Property in neighborhoods that experience vandalism and other crime is not worth the investment. Before you buy, make sure that this is a neighborhood that renters will want to live in.

5. Putting too much of your own money down.
This is not your home; it is your investment. As such, you should choose a property that will bring enough rent to cover the mortgage even if you put little money down. When you keep your funds liquid, they are available for emergency repairs and upgrades.

6. Forgetting to calculate taxes.
Sometimes high property taxes mean that your rental property is in an area with great schools and other quality infrastructure. However, sometimes it simply means the area is overtaxed or has poorly managed local government. If your proposed rental property includes high property taxes, make sure that the area’s desirability compensates for the extra cost.

7. Disregarding local trends.
Check out the area’s employment opportunities. Are they growing or shrinking? Find out about any scheduled future development. Is the area adding parks, shopping, or even a public transportation hub? Proposed new condominiums and apartment complexes could indicate a growing community, which is good news. However, new condos and apartments also mean competition for the best renters. Weigh the pros and cons of local trends before you invest.

Ideas for a Greener Life

by Joanne Hiller
You do your part by recycling all of your newspapers, aluminum cans and plastic bottles with the numbers 1 and 2. Does it help? Yes, but you can do more. Recycling keeps usable materials out of the landfill, but it also requires energy. If you are ready to go beyond that first step, try any of these ideas.

Before you replace, consider a repair.
Oh no, your favorite coat's zipper is torn, and you are no seamstress. You could rush out to snatch up a coat on sale, but the greener choice is to take your coat to a tailor for repair. You might not make a sizable dent in the landfill, but if everyone stopped revolving a few of their possessions at breakneck speed, it would make a difference.

Support your local farmer.
No time for gardening? When you buy shares in a local farm, you have a win-win-win situation (which, by the way, a greener lifestyle usually is):
  • You get superior, delicious, fresh produce and other farm products (eggs, dairy, meat).
  • Your local farmer gets upfront cash to invest in his farm.
  • Because participating farms are local and usually organic, you save the environment from transportation pollution, toxic pesticides and fertilizers.
Change one household task to a greener habit.
Pick a chore, any chore, and green it up. For instance, you can make your laundry more eco-friendly by washing only in cold water, replacing the dryer with a clothesline whenever you can, and using a homemade laundry detergent with earth-friendly ingredients. Just one area of change will conserve water, energy, and keep your water supply cleaner. You will also save on your utility bills.

Give your trash a toss.
The environmentally conscious company Burt's Bees saved $25,000 per year when they decided to dig through their trash to reduce waste. They were able to reduce their waste from 40 to 10 tons per month. Your household might not be producing as much trash as a large company, but an inventory of your garbage might reveal surprises. What can your family do?

Preach what you practice.
Your children may already be environmentally conscious, but do not underestimate the power of your influence. Future generations will have to balance preserving the environment with the needs of the people, and that is not an easy or enviable task. Involve your kids in discussions about how your family can make a difference.

Innovative recycling is not only commendable but a healthy, nurturing lifestyle. Hopefully, one day environment-friendly practices will be the norm.

Clean Up to Keep "Curb Appeal"

by Joanne Hiller

Whether a house attracts attention as someone drives or walks by can make or break a potential sale. A house can have all kinds of interior upgrades and renovations but may take forever to sell because of how it's perceived "at the curb."

Don't let potential buyers slip away. Impress them with a yard that says, "This is just the beginning of a not-to-be-missed property."

Clean up the clutter, daily.
Rake up dead or dropped leaves, clean your gutters, and pull weeds. Stand at the curb and take an objective look at your front yard. Are the branches of that gorgeous tree starting to curve downward? If you're unsure about doing it yourself, hire a professional to trim your trees. Does the "decorative" rock in your biggest tree well look like it doesn't belong? Then get rid of it. Is the walkway leading to your front door dotted with unripe fruit, cones or seeds that have dropped from your favorite tree? Be diligent about cleaning them up every day.

Keep your lawn healthy and maintained.
Mow your lawn weekly to keep it looking trim. Minimize dry or damaged spots by watering and fertilizing the grass on a regular basis.

Decide on a focal point.
Choose a colorful, lush, eye-catching accent for your yard. Here are a few possibilities: a shrub with brilliantly hued flowers (such as bougainvillea); a window box with cascading plants, heliotrope, geraniums or mums; multi-colored flowers lining a walkway.

Why ask for an FHA Loan?

by Joanne Hiller

The real estate market is beginning to make a comeback, interest rates are low, and you want to buy a house. If your credit score is mediocre or you simply haven't been able to save for a down payment, don't assume you will miss this buyer's market. An FHA (Federal Housing Administration) mortgage may make it possible for you to pursue the American dream of home ownership.

FHA loans are financed through conventional lenders. FHA insures the loans, minimizing the lender's risk. A variety of loan programs are available, ranging from standard home loans to property rehab and refinancing, as well as loans for delinquent mortgage holders.

Although the "upfront" FHA mortgage insurance premium recently rose to 2.25 percent, it can still be financed over the term of the loan. It does not need to be paid out of pocket at closing. For most buyers with household incomes of less than $100,000, the upfront portion of mortgage insurance is tax deductible in the year it is paid, on homes purchased between 2007 and Dec. 31, 2010. An annual (non-deductible) mortgage insurance premium will also be assessed.

The required down payment on an FHA mortgage is currently only 3.5%―much lower than most conventional mortgages. Even many buyers with credit scores below 580 can qualify with a 10% minimum down payment, and a previous bankruptcy won't automatically disqualify you. Down payment requirements decrease and better rates are available to buyers with higher credit scores. FHA interest rates are significantly lower than those for conventional mortgages when a small down payment is made.

One of the most attractive features of an FHA mortgage, especially with interest rates at their current historic lows, is assumability. An FHA mortgage locked in at today's low interest rate can be assumed at the same rate by a qualified buyer in the future. This makes FHA loans an excellent choice for buyers who may want or need to sell the home before it is paid off. If you have plans to convert the property into a rental after living in it for a while, you may be able to qualify for another FHA loan on your next home while still holding the first one as a rental.

About one in every three mortgage loans made today is an FHA loan. While FHA is part of HUD, buyers aren't limited to purchasing HUD homes with FHA loans. Most homes on the market today will qualify for FHA loans. Additionally, many "fixer-upper" homes qualify for FHA 203(k) loans, which are based on the projected value of the property after it is repaired.

Gov. Rick Scott and politicians from the Tampa Bay area to the Washington beltway rang the warning bell last year. So did real estate agents struggling to sell homes in flood-prone areas of Florida.

Soaring flood insurance rates, they warned, threatened to wreak havoc on property values throughout the state. In the cross-hairs, in particular, was Pinellas County, which had more older, low-lying homes facing a sharp flood insurance increase than any other county nationwide.

Now there's evidence that a congressional fix early this year to stall the harshest of the rate hikes coming under the National Flood Insurance Program has stabilized property values. At least in ground zero of Pinellas County.

In fact, the market rebound from the flood insurance scare has been strong enough that Pinellas property owners receiving their tax bills in the fall may be surprised to discover home values are rising by double digits nearly across the board, even in flood-prone neighborhoods like Shore Acres in St. Petersburg.

On average, property values are expected to be up 11 percent countywide, said Pinellas County Property Appraiser Pam Dubov, who is prepping notices of proposed taxes to send out in August in advance of the November tax bills. In at least one beachfront neighborhood, in the East Lake area, and in one Midtown neighborhood, property values jumped more than 30 percent. Only in a couple of neighborhoods are values down, and then by less than 3 percent.

One reason for the higher values: Even though home sales plummeted in some areas during the flood insurance crisis at the end of the year, there was never a corresponding drop in asking prices before the market rebounded.

Shore Acres is typical of what happened. It started out 2013 strong. But sales came to a virtual standstill late last year amid worries that older homes would lose their decades-long lower flood insurance rates when they changed hands. Anecdotal reports surfaced of buyers of such homes seeing flood rates explode tenfold. Out of 46 sales in Shore Acres last year, only two occurred in the fourth quarter.

Hit by a groundswell of complaints, Congress intervened in March, passing a measure that repealed the biggest of the rate hikes being rolled out under the Biggert-Waters Flood Insurance Reform Act of 2012. At the same time, Lloyd's of London and other private insurers pushed into the market, driving flood insurance rates lower.

The housing market responded with gusto. In the first half of this year, Shore Acres already has had 26 sales with an uptick in prices.

The result: Home market values in Shore Acres for tax purposes are running 16 percent higher than the previous year.

"Their sales certainly dropped off, but then they bounced right back up," Dubov said.

Home values are based in large part on sales prices. In Pinellas, the median sales price in 2013 was $153,000, up from $134,900 in 2012; in Shore Acres, the median sales price was $283,500, up from $236,725 a year earlier.

Other area counties saw a similar price jump: Median sales prices in Hillsborough County were $175,000 last year (up from $148,000 in 2012) while Pasco sales prices were $133,000 (up from $115,000).

So, what will Dubov tell perplexed homeowners who saw their neighbors laboring to sell their homes last year?

"I do expect to hear from some people, knowing you can't please everyone," she said. "I also expect some people will be very relieved that their property values didn't go the other direction, putting them back underwater (owing more than their home is worth)."

Under the Save Our Homes cap, no matter how large of an increase in market value, the tax bill for a homesteaded resident will not go up more than 3 percent a year. The cap is even lower if there is a smaller rise in the Consumer Price Index.

Dubov's office is supposed to calculate the market value of homes as of the end of 2013, based on sales volume and sales prices, taking out sales costs and Realtor fees. However, Dubov took into account a broad pickup in early 2014 as assurance that a late drop in 2013 in the number of sales was "a temporary blip" and not part of a trend. "I'm not going to gut the market on prices that never fell," she said.

The story could easily have been radically different if Biggert-Waters had not been partially repealed.

"It had great potential to do harm. It stopped the market for a while," Dubov said. "And now, it appears to not really be having a big effect.

Jake Holehouse, a local insurance agent and activist fighting the rate increases under Biggert-Waters, said the marketplace has not only returned to stability but is heating up toward 2006 levels in some places — like high-end condos in downtown St. Petersburg.

The "biggest thing that never happened," Holehouse said, was Congress' decision to keep a flood map "grandfathering" provision in place for older homes. That means as long as a house remains in compliance and has a construction date of 1971 or newer, its flood map will remain unchanged for the lifetime of the property.

"That's the biggest driver of confidence" among buyers, he said, who would otherwise have to worry about such a home getting rezoned under a new map, triggering much higher rates.

The emergence of private flood insurance options — from Lloyd's of London to Florida insurers like Homeowners Choice and Security First — has greatly helped to stabilize the market, Holehouse said.

Over time, flood rates are expected to continue rising and some insurance agents fear Lloyd's and others will dramatically raise rates after establishing a presence in the flood market.

Gordon Chernecky of Shield Insurance of Tampa Bay, a longtime agent for homeowners and flood policies, is worried any euphoria over surviving the flood insurance mess will be short-lived.

Too many of the sales in flood zones are from cash buyers who don't buy flood insurance, Chernecky said. Moreover, he said, the delay in sharper flood rates is only temporary. His bet: Congress will let FEMA hike rates dramatically over time and private insurers, like Lloyd's of London, will drop the lure of relatively cheaper insurance.

"Lloyd's has been this angel from heaven, but they've come and gone before," he said. "This is a big problem coming down the road. People are still really oblivious to what's going on."

For now, though, Dubov gives kudos to Capitol Hill for stepping up.

"We'll never know what the impact would have been if Congress had decided not to act," she said.

Displaying blog entries 1-6 of 6

Contact Information

Joanne Hiller
Coldwell Banker Residential Real Estate
110 Island Way
Clearwater FL 33767
Fax: (727)446-2691