Conventional Financing Verses Government Financing

After the real estate bubble burst in 2007 we saw a significant shift in the type of loans that most people chose to pursue. Prior to 2007 there were all sorts of options available from zero down, interest only , adjustable rate mortgages and even negative amortization type loans. After 2007 and going forward the most popular non-conventional loan (especially for first time buyers) was the government backed FHA loan which only required 3.5% down and allowed for marginal credit scores. These types of loans were probably the go to loans for most people trying to get into or back into the market for the last 6-7 years. It could be argued that this type of loan helped jump start the home buying wave that has turned into quite a current feeding frenzy. The down side or unintended consequences from this large investment by our U.S. Government  is they have created a rather large mortgage portfolio that has huge risks that come with such extreme leverage and this is resulting in them needing to increase their mortgage insurance premiums. As of April 1, 2013 the FHA mortgage insurance will increase again, and then after June 3, 2013 the mortgage insurance will remain for the life of the loan as opposed to dropping off at a certain point on loans issued prior to June 3^rd.

What does all of this mean? If you are in the hunt for a home and need a mortgage you should really evaluate the cost of an FHA loan over a 30 year period especially in relation to the mortgage insurance question. Currently there are some 5% down payment conventional programs where the overall cost might be less than an FHA backed mortgage, making the conventional route now a little more appealing. This is not for everyone but you should have a good mortgage advisor/coach along with a good Realtor that knows their stuff to properly advise you and protect your interests. Each person’s interests are different and you should use caution before getting caught up in the frenzy of making a bad decision when it comes to obtaining a loan. Some rural areas located in El Dorado County, Amador, Sacramento County, Placer County and others have USDA funds available for 100% financing and a good mortgage advisor can help you with that.

As we see conventional financing make a comeback it may be wise to evaluate a 15 year mortgage, especially in light of the potential changes that may be coming in relation to the Mortgage Interest Deduction (aka MID) that is currently being discussed in Congress. The old rule of thumb might have been to carry a high mortgage balance for 30 years that in turn provided a large write off for tax purposes and for some this may still be a good strategy. As the political debate over the MID continues, I believe that we should have a contingency plan in the event that it is modified or eliminated and this is something you should discuss with a tax or financial professional.

We have someone on our team Christi Shea (Stanford Mortgage) who can help with all types of mortgage scenarios and she can be reached at (916) 941-3429. For all of your Real Estate needs remember; “The Southwick Team will always point you in the right direction”.

 

April Events – El Dorado, Amador, Placer, Sacramento, and Yolo County

April Events

The calendar says that we have now officially entered the spring season and the weather seems to be cooperating although anything can happen in Northern California so don’t pack the umbrella’s or coats quite yet. There are a number of events, musicals, plays and concerts happening throughout the month of April and here are just a few things that are happening in El Dorado County, Amador County, Placer County, Sacramento County, and Yolo County that you might want to mark on your calendar.

The Sacramento Rivercats have their season opener on April 4^th and this baseball season is already looking to be another exciting year for our local team. You should check out their schedule and take in a game or two this year if you can.

The Imagination Theater in Placerville will feature Disney’s “The Little Mermaid” from April 5-28. The Sacramento Theater Company will host the Broadway Cabaret Series “As If We Never Said Goodbye” from April 4-14. The California Music Theater will feature “Billy Elliott the Musical” from April 9-14. Don’t’ miss the highly acclaimed Broadway Play 42^nd Street which will be playing at the Runaway Stage Productions in Sacramento. If you are a magic enthusiast then you want to mark April 14^th on your calendar as Three Stages in Folsom will once again feature “It’s Magic” which was a sold out event last year.

Here are three concerts for you to mark on your calendars for the month of April. Jackson Rancheria will host The Spinners on April 7, Three Stages in Folsom will feature Merle Haggard and the Strangers on April 8^th, and Vicki Lawrence will be playing at the Thunder Valley Casino in Lincoln.

There are two big events you don’t want to miss if you can fit them in to your schedule. The beautiful town of Auburn will host the Auburn Wild West Rodeo and Stampede on April 21-28 and Yolo Fairgrounds in Woodland will feature the Scottish Games on April 27-28.

As you can see there are plenty of options in the month of April to catch a concert, a festival or an event that fits your schedule and budget. For a more detailed listing of events please click on the attached PDF for April Events or visit/bookmark my web site; http://placervillerealestateguy.com/ and be sure to keep an eye out for our May Events schedule coming soon as well as a list of upcoming County Fairs in Northern California.  If you have an event that would like to get posted; please be sure to let us know so we can be sure to get that in our future publications.

 

Where Real Estate and Taxes Meet – Be Informed

I have been involved in the Real Estate field long enough to know where my boundaries are in relationship to what I know and what I think I know. After 25 years in the business I would like to think that I know a lot about the ins and outs of real estate but I can tell you that when it comes to taxes I like to defer to tax professionals because they are the ones in the know.

With that said, there have been a number of recent changes to tax laws, tax codes, tax loopholes and the ongoing discussions in Congress regarding tax increases, sequestration, spending cuts, government shut down, and quantitative easing has me convinced that unless we stay informed, the one thing we can count on is less money in our pockets. It was Will Rogers who said; “The only difference between death and taxes is death doesn’t get worse every time Congress meets”. In 1986, Ronald Reagan said in his talk during a White House conference on small business; “Governments view of the economy could be summed up in a few short phrases: if it moves tax it. If it keeps moving regulate it. And if it stops moving subsidize it”. So as you can see, even our 40^th President of the United States was concerned about taxes and protecting our assets and so should we.

If you own a home and have a mortgage you should be eligible to receive a Mortgage Interest Deduction (aka MID) on your taxes if you itemize. For some people this has enormous advantages as the deduction often exceeds the standard deduction allowed by the IRS. The MID is currently being debated by Congress and is at risk of modification or even possibly elimination. For some people this has huge benefits and if this deduction is eliminated it could have enormous consequences if you are counting on this for your overall tax strategy. No one knows what the results will be on the short or long term debate over this issue but you should be talking with your tax advisor to have a contingency plan. I personally am in favor of the MID and depending on your position on the MID’s overall benefit you should also consider getting involved in the political process to protect your interests.

Some of the recent tax changes have also impacted or may impact long term capital gains and this is an area that you should definitely consult your tax advisor about as you plan for your future and the future of your children and grandchildren. If you own rental property or properties that do not qualify as your primary residence as defined by the IRS and you plan to liquidate them now or in the future, you should also consult your tax advisor to evaluate that decision in light of the changes and upcoming changes to the tax code. The benefit of deferring a tax consequence from the sale of a property (sometimes called a 1031 tax deferred exchange) remains a viable solution to your overall tax strategy but that decision should involve the advice of professionals such as  a tax advisor, tax attorney, an asset preservation or exchange company, and a Realtor who are experienced in these matters. If you own property you should have both a short term plan and a long term plan when considering liquidating such an important asset and obtaining professional advice is really in your best interests. Often these types of consultations are very reasonably priced or in some cases there is no charge associated with the initial consultation.

Since there appears to be more changes in the works as Congress debates a number of important issues it would be in our interests to guard and protect those interests, especially as it relates to such an important asset like our homes.

There are a number of other property tax benefits that you should be aware of but for the sake of time that will need to come in a future publication. I usually post a more detailed explanation of these and other topics on my blog – http://placervillerealestateguy.com/ or http://rosevillerealestateguy.com/ and feel free to follow me.

Best regards,

Mike Southwick