Is your home underwater? HARP may help you refinance!

While rates are near historic lows, many borrowers today find themselves unable to qualify for a refinance in large part due to their homes being “underwater” (i.e. a home that is worth less than the amount mortgaged). As property values declined after the U.S. housing bubble burst, the federal government launched a refinance assistance program in 2009 to help borrowers obtain financing when they couldn’t qualify for traditional mortgages. Known as the Home Affordable Refinance Program (HARP), this program was setup by the Federal Housing Finance Agency to help underwater and near-underwater homeowners refinance their properties when their payments were current and they qualified in all other respects for a new home loan.

Nearly three years later, HARP has been able to assist over 900,000 borrowers refinance. In the initial program offering, the loan-to-value was restricted to a maximum of 105% and then increased at a later date to 125% loan-to-value. In its latest iteration, dubbed HARP 2.0, the program now removes the loan-to-value restriction (however individual lenders may have their own restrictions/overlays). It is estimated that HARP 2.0 can help an additional 1.6 million additional loans become eligible for refinancing. While HARP has been out for several years, there is still a lot of confusion and questions regarding the actual qualifications and requirements needed to be eligible for the program. Here are the key features of HARP 2.0 and its basic eligibility requirements;

• HARP has been extended through the end of 2013. 
• In order to be eligible, your existing loan must have been purchased by Fannie Mae or Freddie Mac before May 31, 2009. 
• The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009. 
• Your loan-to-value ratio must be greater than 80%. 
• The 125% LTV cap on fixed rate mortgages has been eliminated (there is still an LTV cap of 105% on adjustable rate mortgages). 
• To qualify, borrowers must be current on their mortgage for the last 12 months. 
• Third party closing costs for title, escrow, recording, etc. will still be required for your loan, as the program does not reduce any fees. However, new appraisals may not be needed to qualify if your loan application receives a waiver exemption. To determine if your mortgage is owned or guaranteed by Fannie Mae or Freddie Mac, please use the following loan lookup tools:

• Fannie Mae = http://www.fanniemae.com/loanlookup
• Freddie Mac = https://ww3.freddiemac.com/corporate 

Since HARP mortgages are underwritten like a conventional mortgage, you will still be required to provide bank statements, pay stubs, W2s, homeowners insurance information, etc. If you are self-employed and/or own rental properties, you will need to provide tax returns.

If you are interested in finding out if your home is eligible for a HARP 2.0 refinance, please contact one of our qualified loan consultants.

6 Steps To Getting Rich

 

To become ultra-rich, it takes creating something such as sticky notes, Facebook or Harley Davidsons. For the rest of us mere mortals, to become rich, it simply takes time and discipline. Heed these steps and you'll be on your way.  

1. Redefine Rich: Some believe $1 million is rich, some believe $10 million is rich. I have a close friend who doesn’t believe he will be truly rich until he is worth $100 million. I encourage a paradigm shift for us all. Rich is not a number. Rich is living your values and priorities. This is different for everyone. It might be children’s education, travel, work, family, reading, gardening etc. Reconsider what a rich life looks like for you and then back into how much money you need to make that rich life a reality. This frees you from some number we are socialized to believe is rich, the pursuit of which is anxiety inducing and the attainment of which surely does not meet expectations.

2. Pay Your “Me” Bill First: Literally the first bill you should pay after receiving your paycheck is to your savings. Your first stop should be your company retirement plan such as a 401(k). Plow as much in as the plan allows and you can afford. If you can put money away in addition to this, well, even better! Why not pay yourself last? Because, after the mortgage, food, gas, a new piece of clothing, and the bar tab we all know there won’t be anything left.

3. Spend It All!: Misleading? Maybe, but the liberating aspect of Paying Yourself First is you can spend everything that’s left. It becomes your choice how to allocate the money that’s left. Notice I said “spend it all”, not “spend more than it all”. In other words, avoid using savings or credit card debt to supplement your income. Instead make changes to your expenses. I assure you this process is very therapeutic because you are in control and doing something good for yourself.

4. Embrace Growth: Your greatest leverage is in getting your money to work for you. If you are too conservative with your savings and have it mostly in cash, CDs and bonds you’re not using your greatest resource to your advantage. Growth assets such as stocks and real estate are what will give you the most bang for your buck over time. By way of example:
- $10,000 at current one year CD rates of 1% would be worth a bit over $12,000 in 20 years.
- That same $10,000 invested in growth investments at a 10% return would be worth a bit over $67,000 in 20 years.

Sure, you need to stomach the ups and downs of growth investments, but if you don’t need the money anytime soon it pays off in spades. Separately, ask yourself whether you are putting your money in an appreciating or depreciating asset. CDs, bonds, stocks and real estate are appreciating assets and they work for you. Cars, boats and motorcycles are depreciating assets and you work for them.

5. Avoid Errors: Becoming rich is hard work. Prevent anything from stripping you of the nest egg earmarked for your life priorities. For instance, adequate insurance coverage is a must to prevent unexpected financial catastrophes such as an earthquake destroying your home. Swinging for the fences with risky investments that promise to get you rich quick almost always turn out to be financially devastating. Spending beyond your means and being stuck with high interest rate debt is financial suicide. Deviating from your investment plan when the market ebbs and flows is why the average mutual fund investor has annual returns of 4% when the average mutual fund is 8%. Success is far more dependent on the avoidance of mistakes than it is on victories.

6. Be Boring: Becoming rich is slow, boring and uneventful. More than anything else it requires tremendous patience and discipline. It is like watching your own child grow. You don’t notice any changes day to day, but one day you wake up to a full-grown adult child and realize that the small and unnoticeable daily progress worked.

People often spend a lot of time hoping they will invent the next sticky note, win the lottery, inherit millions or invest in the next Apple when it is $2 a share. Don’t wait and hope. Take control yourself, follow the above tips and one day you’ll likely wake up to a full-grown nest egg that supports your life's priorities.

Contributed by Kevin Mahoney, CFP^®, Integris Wealth Management

Be the first to find our 3 "hidden" eggs to win a $10 gift certificate to Amazon.com!

The Contest:
- The 1st 10 people to email us the correct numbers on our 3 "hidden" eggs by 5pm PST on Friday April, 6th will win a $10 gift certificate to Amazon.com.
- Like us on Facebook for an additional $10 on your Amazon.com certificate! (you must find the eggs to qualify)

Where the eggs are:
- On our Facebook page
- Right here...on our Blog (you might want to read About us...hint hint!)

How to claim your prize:

1. Send an email to: CustomerCare@mtgcapital.com with subject line: I found the eggs!
2. In the body - send in the correct numbers (each egg has a number written on it).
3. Indicate the name that should be on the Amazon certificate along with the email address to send the certificate to.
4. IF you have "Liked" us on Facebook, please let us know your Facebook name.
   

Winning names will be posted on our Facebook Page (first name, last initial)

Have Fun!

Contest Fine Print:
- Contest ends 5pm (PDT) 4/6/2012.
- Mortgage Capital Associates employees are not eligible to win.
- In order to claim a prize, egg #'s must be correct and a valid email address must be given by 5pm (PDT) 4/6/12.
- Amazon.com certificates will be sent via email by April 13, 2012.

Save money this Spring with energy-saving upgrades and repairs!

Spring cleaning is typically thought of as a time to clean out those closets and dust the cobwebs off the many boxes you have stored in your garage. However, with data indicating that people are staying longer in their homes these days, it may be time to think about a project to “spring clean” your home with important upgrades or repairs to improve your home’s value as well as to save you money in the long run. Recent housing data also highlights an increase in building permits, which means that people are starting to take advantage of the mild winter and spring to make these types of repairs and improvements in their homes.

There is no doubt that the longer you stay in your home, the more likely upgrades and repairs will be required. Most people tend to handle repairs or upgrades in their homes on an “as-needed” basis. If you are considering other upgrades or repairs to your home, it may be a good time to make it a project and handle energy-saving upgrades as well. With rising energy costs, these types of improvements can provide long-term financial and energy savings benefits which also improve the comfort and livability of your home. These can range from easy changes such as the kind of light bulbs you use, to bigger projects like upgrading to insulated windows and solar panel systems. Here are 3 ways you can save on your energy bills:

Step 1 - Assess where you will save the most.
Many companies now perform Energy Assessments as the first step of a home energy upgrade. This assessment typically involves a comprehensive evaluation of a home’s current energy use, which is performed by a Participating Contractor and verified by a third party consultant. This assessment will identify which specific home energy upgrades will result in the most energy savings. The assessment should take into account the varying local/state rebates and incentives offered for making energy-efficient changes.

Here is an example:
http://lacountymakeovercontest.org/county/los_angeles/energyAssessment.html

Step 2 - Implement the improvements/upgrades.
What kind of changes can you expect to make? Well, much of it will depend on your location and age of your home. Here are some examples of changes people have made to improve their energy efficiency while driving down energy costs:

- Upgrade to insulated windows
- Upgrade to light-emitting diode (LED) or compact fluorescent lamp (CFL) light bulbs
- Add/replace insulation so there is less heat loss in the winter, and less cooling loss in the summer (this will also allow your heaters/air conditioners to run more efficiently)
- Service major appliances such as heaters/air conditioners to ensure they are operating at their peak efficiencies
- Upgrade kitchens to Energy Star rated appliances
- Install dual flush toilets, low flow showerheads, and faucets to conserve water
- Install solar panels to generate your own electricity and reduce energy costs
- Install a solar hot water heater
- Seal doors/windows that have gaps

Part of your Energy Assessment will include an analysis of your savings. If you implement one or several of the recommended changes to help you save on energy, you should know how long it will take before the initial investment pays off for you. Some of these changes may have a long payback period that won’t benefit you financially for several years. If you don’t intend to stay in your home for that long, it may not make financial sense to implement the more costly measures. So, be sure you understand these numbers. It may be the case that you’re not making the changes for purely energy-savings reasons, so you may not need to recoup your costs right away (or ever). Just know ahead of time what you want to accomplish, so that you have a clear understanding of whether or not it’s doable.

Step 3 - Consider your options for financing the home upgrades.
It is not uncommon for people to use the equity from their home to finance certain home improvements. If you are considering this or just want more information on whether it makes sense to do this, you can contact our office for rate and payment information to take “cash out” of your home equity.

Lastly, whether or not you decide to take on a project to implement more major upgrades or repairs to your home, you can always look into local/state renewable energy incentives. Many areas have programs sponsored by the city or state to incent homeowners to reduce energy use. Why not take advantage of these, especially if you already in the process of making upgrades or changes to your home? Some of these rebates or incentives are no-brainers (i.e. an incentive you would receive from the city by using a certain type of light bulb).

Here is one site that helps homeowners nationwide find local incentives for renewables and efficiency:
http://www.dsireusa.org/

The bottom line is there are many things you can do to help drive down the long-term energy costs in your home. It may be worth the effort this spring to consider short and long-term energy savings upgrades or repairs, not only for financial reasons, but to conserve resources for generations to come. You may be surprised by how much savings are available to you!

11 things you must know about Social Security

Whether you already receive Social Security retirement benefits or not, below are 11 things to know so you can maximize your retirement benefit and sound erudite at your next cocktail party.

General

1. Social Security is believed to be solvent for another 30 years without changes to the system. It is far healthier financially than Medicare.

For Those Already Receiving Benefits

1. You will enjoy a 3.6% inflation increase in benefits in 2012.
2. Your benefit may be taxed. Find your tax filing status and “provisional” income bracket below to find out what you might be in for.

For Those Not Yet Receiving Benefits

1. The Social Security tax is 12.4% (employer + employee) of the first $110,100 of annual income. There is no Social Security tax on income above $110,100, which makes it a regressive tax – the more you make the less you pay proportionally.
2. To qualify for Social Security benefits you need 40 credits. 1 credit is earned for each $1,130 of earnings, but a maximum of 4 credits can be earned each year. In other words 10 years of even reasonable income gets you your 40 credits.
3. Your benefit is based upon your 35 highest earning years. If you have 30 years of earning $75,000 and 5 of earning $5,000, working an additional 5 years to replace the $5,000 years with $75,000 years will have a noticeable impact on your benefit.
4. Due to budget cuts the Social Security Administration has suspended the practice of mailing annual Social Security statements for those under the age of 60 as well the ability to request a statement. You can however get a benefit estimate via http://www.socialsecurity.gov/estimator/ or by calling 800-772-1213, and surprisingly, those answering the phones are quite helpful and knowledgeable.
5. Each worker has a “Full Retirement Age” (“FRA”), which is currently 66. Social Security is based upon taking benefits at this age. However, you can elect to begin benefits anywhere from age 62 to 70. Each year benefits are not taken increases your benefit by roughly 8%, which is a VERY good return, particularly considering the return is not subject to stock market risk.
6. Whether you take your benefit at 62, 70 or anywhere in between is mathematically identical if you die at the age Social Security expects you to die. Your life expectancy can be found via http://www.socialsecurity.gov/OACT/population/longevity.html. If you don’t expect to reach this life expectancy, you are generally better off taking your benefit earlier. If you expect to outlast this life expectancy and can afford to postpone taking your benefit, you are generally better off doing so.
7. If you take your benefit prior to FRA you are subject to the earnings test, which can reduce your benefit. In years prior to FRA, your benefit is reduced $1 for every $2 earned in excess of $14,640. In the year of FRA, your benefit is reduced $1 for every $3 earned in excess of $38,880 until the month of FRA.
8. If you qualify for your own benefit, but it is nothing to write home about, you may be able to get more money by piggy-backing a spouse or ex-spouse’s benefit. You are able to receive the higher of your own benefit or 50% of your spouse’s benefit or your ex-spouse’s benefit if you were married 10 years and haven’t remarried. The benefit is reduced if you take it before your FRA.
   

Social Security benefits are complicated and important. Spend time getting to know how it works so you can maximize your benefit for yourself and your loved ones. Oh, and have fun at your next cocktail party….

* All figures are 2012 based and change each year

Contributed by Kevin Mahoney, CFP^®, Integris Wealth Management

Is it time to invest in a rental property?

Low home prices and near record low interest rates have spurred many borrowers to consider making an investment in rental property. But does this make sense for you? While there is always potential to make a profit through the ownership of rental property whether it’s through the appreciation of the property or through monthly rent (cash flow), the key factor is buying smart. You should know when to buy, how much you can qualify for, how to determine the current market value of a property, and most importantly get pre-approved before submitting offers. Here are some key areas of consideration and tips when choosing to buy investment/rental property:

Market Timing

Real estate markets and interest rates are both extremely cyclical, and these cycles have a direct and important effect on your ability to make a profit. You are less likely to profit if you are buying a property that’s priced high or is over-valued while at the same time interest rates are high. If the return on your investment is based on appreciation (and not necessarily rental income), you may be tied to this property for longer than you expected to be if you buy during a seller’s market. So, before deciding to purchase, you need to consider your exit strategy based on best and worst case scenarios. This is important even if the property is to be held for long-term appreciation.

Bargain Homes

With 28% of homes still underwater, there are likely to be plenty of bargain opportunities that can provide cash flow as rentals and appreciate when the market turns around. Bargains are found by purchasing properties through a short sale or foreclosure, probate properties, sellers who are facing divorce and bankruptcy, and FSBO (for sale by owner) properties.However, keep in mind that bargain prices do not always equal good investments! A run-down house in a declining neighborhood may be cheap to buy, but if you are looking for cash flow, you need to consider tenant stability in the neighborhood as well as your own experience with working with tenants. In a declining neighborhood, you may want to consider working with a local property manager who may better know how to vet potential renters as well as what the laws are associated with tenant issues should they arise. It may be better to pay a little more for homes in solid neighborhoods with low crime rates and neighbors who show pride of ownership. Location can also be important to potential renters who may need access to public transportation, shopping malls, schools, business centers, or other amenities. The more you have to offer, the more likely you are to attract the right kind of tenant. This will also pay dividends to potential buyers if you decide to sell your home at a later date.

Investment Strategy

Purchasing a property for investment should be done within the confines of your overall investment strategy/portfolio. In addition, how you manage the property is important. Do you need a longer-term investment where cash flow doesn’t matter? Do you have the resources to flip a property to make short-term profits? Or do you simply need cash flow? As a tip, properties purchased for long-term appreciation should be held in a separate company from properties that will be sold in under a year to avoid issues with the IRS.You should also verify, perhaps with your financial advisor or planner, whether you have enough assets to handle the ups and downs that could come with investing in a rental property. Any time your rental property remains vacant, you will still have to pay for the mortgage. A good rule of thumb is to ensure enough asset reserves for covering up to six months of mortgage payments. Even if you never have to use these funds, it is there if you need it, and you can also use the money for unexpected repairs. If you plan to fix up and sell the home for a profit, this financial cushion could also be tapped in the event that you must hold onto the property for several additional months due to varying real estate market conditions.

Your Buying Power

Once you have determined your strategy and timing, before you can shop, you should know how much buying power you have. Work with your loan officer to understand what considerations are important before starting a property search. Once you find that property you wish to purchase, a pre-approval is a necessity in this market if you are not using all cash to purchase the property. Many real estate agents will ask for a pre-approval letter upfront, to show that you can qualify for the purchase of the property. Feel free to contact your loan officer with any questions regarding rental properties or to obtain a pre-approval!

Related Articles:
As home prices fall further, is it time to buy?

It's not too late to use these tax tips!

We are well past the tax year-end of December 31st, and the tax filing deadline (April 17th this year) is right around the corner, but there are still ways to minimize your tax burden. Read on to make sure you are taking advantage of your options.

1. Retirement Contributions

You have until April 17th to make a Traditional IRA or Roth IRA contribution for 2011. Depending upon your employer retirement plans, you may even be eligible to deduct your Traditional IRA contribution.

2. Deductions

Organize your expenses. While expenses you incur after year-end can’t be used for this upcoming filing, if you organize your 2011 expenses, chances are you will uncover some deductions you weren’t aware of. And if you use the standard deduction of $5,800 for singles or $11,600 for married couples you may find you get more bang for your buck by itemizing. There are the common deductions most taxpayers know about like home mortgage interest, but there are more obscure ones to be aware of, like miscellaneous deductions and medical deductions. Miscellaneous deductions, which includes things like tax preparation fees, investment management fees, job-hunting expenses and professional association dues can be deducted to the extent they exceed 2% of your Adjusted Gross Income (AGI). Medical expenses can also be deducted to the extent they exceed 7.5% of your AGI.

3. Any IRA Distribution (other than a Roth IRA)

If you have made $5,000 in non-deductible contributions to your retirement accounts, the assets grow to $6,000 and you withdraw the entire amount, only $1,000 is taxable. Many people overlook this because the tax form from the custodian shows a $6,000 withdrawal. Be sure to account for any “basis” in your retirement account withdrawals on your tax return since that portion should not be taxed.

4. Required Minimum Distributions

The IRS requires that you take Required Minimum Distributions (RMD) from retirement accounts starting in the year you turn 70 ½. If you reached age 70 ½ in 2011 and didn’t take your RMD, you’re in luck because you can still take it by April 1st, which is the grace period allowed for your first RMD only. If you miss the deadline, the IRS imposes a 50% penalty on the amount you should have withdrawn. Ouch!

5. Heed the Rules

The IRS doesn’t like when taxpayers don’t play by their rules. If a taxpayer doesn’t file a return or extension by April 17th a penalty of 5% of the tax due is imposed every month up to 25%. If the taxpayer doesn’t pay the tax, there is a penalty of 0.5% of the tax due every month up to 25% plus interest. If the taxpayer is just lazy and negligent in preparing their return, a 20% “accuracy” penalty of the tax due is imposed. And fraud? Well, aside from the possibility of wearing a zebra suit the IRS slaps offenders with a 75% penalty. Fortunately, avoiding these penalties and interest is in your control and there is still time to avoid it all.

6. Investment Property

If you purchased investment property in 2011 and are new to such a venture it pays to organize your records and be aware of the tax treatment of related activity, such as:

• To qualify as an investment property your personal use of the property cannot exceed the greater of 14 days or 10% of the days the property is rented during the year. For instance, if the property was rented for 300 days of the year, your personal use can be up to 10% or 30 days without jeopardizing the investment property status.

• Rental income is taxable in the year received, not the year the rent applies to.

• Security deposits are not taxable, although any amount you do not return due to property damage is.

• You can generally deduct any costs incurred to get the property ready to rent and those to maintain it, such as advertising, cleaning, repairs, homeowner’s dues, insurance, management fees, supplies, utilities, yard maintenance and any travel to the property if that is the primary purpose of the travel. If the primary purpose of the travel is other than the property you are limited to deducting the portion of your travel dedicated to the property.

• While repairs are deductible, improvements are not, but can be capitalized and depreciated. Examples of improvements are putting in a new patio or upgrading a kitchen.

• Investment property is considered a passive activity. In short, this means that your property losses can only offset property income and not earned income from a job. An exception to this comes into play if you own 10% or more of the property and make the major decisions about the property, in which case you can offset other income up to $25,000. This benefit does however phase out between $100,000 and $150,000 of Modified Adjusted Gross Income.

If you’ve gotten his far, you hopefully found one or two things that will keep an extra buck or two in your pocket this tax season, which we hope is a painless one for you!

Contributed by Kevin Mahoney, CFP^®, Integris Wealth Management