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Deductible Dilemma

by Gina McKinley

Phoenix area homeowners have experienced a fair share of insurance claims with the seasonal monsoons and haboobs.  Making sure we have the right amount of coverage balanced with the deductible is more math than I care to do in a month. But to be well protected one needs to do that analysis. Many folks across the country today are finding that their insurance simply does not cover the losses they are facing. Double check of your coverage with your agent, and remember…

The purpose of insurance is to shift the risk of loss to a company in exchange for a premium. Most policies have a deductible which reduces the amount of the claim that is paid by having the insured share in the first part of the loss.38973594-250.jpg

In the process of managing insurance premiums, policy holders often consider higher deductibles to lower the premium. Lower deductibles mean less money out of pocket if a loss occurs but also results in higher premiums. Higher deductibles result in lower premiums but require that the insured bear a larger part of the loss.

A small fire in a $300,000 home that resulted in $2,500 of damage might not be covered if the policy holder has a 1% deductible. If the homeowner can afford to handle the cost of repairs in exchange for cheaper premiums, it might be worth it. On the other hand, if that loss would be difficult for the homeowner, a change in the deductible could be considered.

Homes in high-risk flood areas with mortgages from federally regulated or insured lenders require additional flood insurance. However, each homeowner needs to assess the risk of being able to financially sustain a flood loss on their home when flood insurance is not required. The recent events in south Texas and Louisiana are evidence that the unexpected can happen.

It is important to review your deductible and discuss risks with your property insurance agent so that you’re familiar with the amount and make any changes that would be appropriate before a claim is made.  The FEMA website has information and frequently asked questions about flood insurance.

As always give us a call (480-355-8645) or send us an email (Info@LocateArizonaHomes.com) if you need any assistance with this or need a referral for a good insurance agent to help you walk through this process.

Your Home's Equity Could Be the Answer - 8/31/2017

by Gina McKinley

When I got into real estate years ago, one of the first things I realized was there were months with nothing and others with plenty. Home sales were high and low, so I needed a way way to fill in the gaps, valleys and smooth the road. A Home equity line did the trick. Here is somemore…

 

A home equity line of credit, HELOC, is a mortgage loan made to homeowners to be used on an as-needed basis. A lender, such as a bank, will approve a borrower for a specified amount based on the equity in their home and all the necessary paperwork is signed to authorize the loan.43355754-250.jpg

The line of credit amount is available to the borrower and no interest is due until some or all the money is used. When the money is paid back, the line of credit is again available in full to the borrower.

The specifics of the repayment will depend on the HELOC lender. It may require interest only or it may require amortized payments of principal and interest.

The proceeds from a HELOC can be used to make improvements on the home or anything else such as medical expenses, college tuition or unexpected expenses or other liquidity issues.

Unlike personal credit card interest, the interest on a HELOC may be tax deductible. Your tax advisor will be able to let you know about your situation.

Rates and fees can vary widely on HELOC loans. Borrowers should shop around, compare and get recommendations before deciding on a lender.

The truth is that sometimes folks use HELOCs for other purposes. One purpose might be to buy an investment property or a college condo; or a kitchen update, or even add on to the house. One thing you cannot do is get a HELOC when your house is on the market for sale. SO make sure you reach out before so we can talk through your plans. Give me a call 480-355-8645 or send me an email (Info@LocateArizonaHomes.com) and let me know how I can help.

Which Value Do You Want?

by Gina McKinley

Often, when asked to help someone sell their home, or to just sit and visit about the value of their home, the true value of the conversation ends up being staying in the East Valley, versus moving elsewhere in the state or to another state. Your decision may be based upon the estimated value that I can provide you (and that may even suffice for an estate!). Should you be thinking it might be time to move, a conversation about real estate might be the best way to determine what the plans really are. But read on, there’s more…

What your home is worth depends on why you ask the question. It could be one value based on a purchase or sale and an entirely different value for insurance purposes.Values-250.png

Fair market value is the price a buyer and seller can agree upon assuming both are knowledgeable, willing and unpressured by extraordinary events. This value is generally indicated by a comparable market analysis done by real estate professionals.

Insured value is determined for insurance coverage. Homeowner policies typically have replacement clauses in them and the cost of demolition, new construction and the added complexities of matching existing construction could exceed the cost of new construction.

Investment value is based on the income it can generate during its useful life. This value is dependent on what kind of yield an investor requires to capitalize the value over time. The formula for this is to divide net operating income by the capitalization rate required by the investor.

The assessed value of a home is used to determine the property taxes the owner must pay. This value is determined by the responsible state government agency.

Homeowners are generally more familiar with their home’s market value. Since it can be lower than the replacement cost, owners should review the insured value with their property insurance agent periodically.

There can be a surprising difference in each of these separate values. It is important to know the purpose that it is going to be used for the value.

With my  experience ( since 1998) I am often asked to establish a value for a home here in the East Valley that is being managed by an estate or a trust, and they need to liquidate. A divorce can be another reason to get a value for a home as can the blending of 2 families, or the expansion of another.  Life as a Realtor here in Chandler / Gilbert area can be very diverse. So Let’s Have a conversation about real estate.  Contact me for any information on the value of your home. CALL (480-355-8645) OR EMAIL (info@locatearizonahomes.com).

Home Safe Home - 8/10/2017

by Gina McKinley

My assistant was just talking about of when her family moved to Arizona in 1972.  Neighborhoods were an open and safe community for friends, family, and children to roam the neighborhood.  Children would walk to school, then coming home to the back door being left unlocked for easy entry if mom was not home.  Things have changed with time and the neighborhood Block Watch was set up to have a designated neighbor who was the "eye" on the block.  Times continue to change and a safe neighborhood and community is not as common as it was in the good old days.

Home is a place you should feel safe and secure. Sometimes, we take it for granted and unfortunately, we do need to remain vigilant about things we do that could compromise our safety. Here are a few tips to consider:Home Safe Home.png

  • Everyone loves an inviting home including burglars. Make sure it looks occupied and is difficult to break in.
    • Always lock outside doors and windows even if you’re only gone for a brief time.
    • Lock gates and fences.
    • Leave lights on when you leave; consider timers to automatically control the lights.
    • Keep your garage door closed even when you’re home; don’t tempt thieves with what you have in your garage.
    • Suspend your mail and newspaper delivery when you’re out of town or get a neighbor to pick it up for you.
  • Posting that you’re out of town or away from home on social networks is like advertising your home is unprotected.
  • Equally dangerous could be allowing certain social network sites to track your location.
  • Don’t leave keys under doormats, in flowerpots or the plastic rocks; thieves know about those hiding places and even more than you can think.
  • Trim the shrubs from around your home; don’t give criminals a place to hide.
  • Use exterior motion detectors and yard lighting.
  • Have an alarm system and use it when you leave home and go to bed.
  • Put 3 ½” deck screws in door plates and door hinges.
  • Have good deadbolts on all exterior doors.
  • Exterior doors should be solid core.

Considering a move to a safer home/neighborhood? Let’s chat about your needs. You can contact me at 480-355-8645 or Info@LocateArizonaHomes.com

Other People's Money for College - 7/28/2017

by Gina McKinley

Chandler PARENTS of 1 to 5 year olds: If you have great credit and some down payment (equity in your house) why not buy a rental that will be mostly paid off in 15 years? And the rents or a 2nd or even a re-finance, or sale might pay for ALL of the kids college costs! Read on as there is some great info here…

Consider the goal of funding a child’s college education in the future. If “other people’s money” in the form of a scholarship is not a possibility, there still may be another way to use some “other people’s money.”26458431-250.jpg

A $25,000 investment into a mutual fund paying 5% would earn $1,250 in the first year. Alternatively, the $25,000 as a 20% down payment to purchase a $125,000 rental home appreciating 3% a year would have gone up by $3,750 or three times that of the mutual fund in the first year.

The mutual fund’s growth depends on the value of the money invested. Rental real estate benefits because a 20% down payment controls a much larger asset because you’re using “other people’s money.” Leverage allows the investor to profit not only from the amount of cash invested but from the value of the investment.

With a 20% down payment and current interest rates, a typical rental would have a positive cash flow. In ten years, the equity could be $75,000. On the other hand, the $25,000 initial investment in a mutual fund earning 5% annually would only grow to about $40,000 in the same 10 years. It would require an additional $2,700 each year to reach the same $75,000 value.

Leverage is just one of the many benefits that make rental real estate the IDEAL investment. Whether you are saving for higher education, retirement or wealth accumulation, consider rental real estate. Using single-family homes as investments are attractive because homeowners have a better understanding than many other investments and self-management is a possibility.

In my team's years of recommending this a number of clients have gone through the learning curve of being a landlord and paid for their children’s college education…then sell the home once graduation is past. There may be a refinance to get cash out for certain years or even using the rent payments for the tuition bills. Buy one for each child. But do it early in their life!

If you would like some ideas on financing such a purchase and/or property management please contact me at 480-355-8645 or Info@LocateArizonaHomes.com

Assumptions are an Alternative - 7/21/2017

by Gina McKinley

 

FHA VA Assumption.png

OH do I have a story about a non-qualifying assumption from the mid 1980’s that was done in Chandler! Then the City of Chandler experienced exponential growth, ranking among the fastest-growing municipalities in the country And it was one of the reasons that…

In the late 80’s, both FHA and VA began requiring buyers to qualify to assume their mortgages. The main reason there haven’t been many assumptions in the past 25 years is that interest rates have been steadily going down and if a person has to qualify, they might as well do it on a new loan and get a lower interest rate.

Based on projections by Fannie Mae, Freddie Mac, the MBA and NAR, rates for the second half of 2017 and 2018 are expected to be higher. When interest rates on new mortgages are higher than the rates of assumable FHA and VA mortgages in the recent past, it becomes more advantageous to assume the existing mortgages.

FHA and VA loans originated with lower than current interest rates have great advantages for buyers and sellers.

  1. Interest rate won't change for the qualified buyer
  2. Lower interest rate means lower payments
  3. Lower closing costs than originating a new mortgage
  4. Easier to qualify for an assumption than a new loan
  5. Lower interest rate loans amortize faster than higher ones
  6. Equity grows faster because loan is further along the amortization schedule
  7. Assumable mortgage could make the home more marketable

An Assumption Comparison can help determine the savings and financial benefits of an assumable mortgage with a lower rate.

The process of assuming a loan is similar to getting a mortgage. One has to substitute your credit and liability to the lender for the original borrower and they are released from future liability on the loan. Given the rapid appreciation we have had here in the Phoenix area, often a 2nd mortgage or a HELOC might be needed to fill the equity difference. As a buyer you still need to qualify for both loans, yet if you have a large down payment and a home with a 2013-2016 era FHA loan fits the bill, it may be a possibility. And a great question to ask. It would be my pleasure to help you find a good loan officer to assist you. Just reach out to me at 480-355-8645 or Info@LocateArizonaHomes.com

Family & Friends Mortgage - 7/13/2017

by Gina McKinley

Somehow it just seems right to give your kids a mortgage when they buy a house, if you can afford it. Wouldn’t it be great for someone to pay you 4-5% interest on a secured loan? Yes it is until the IRS sticks their nose into it. THEIRS??? Yep. Read on…

Anytime a lender and borrower can agree on rates and terms, it can be a good match but IRS has specific rules that govern the transaction especially when the parties are family or friends.26614035-250.jpg

The loan must be done in a business-like manner with a written note specifying the loan amount, interest rate, term and collateral. IRS requires that the mortgage be a recorded lien to allow the interest deduction.

Sometimes, a friends and family situation might have a less than normal interest rate on the mortgage. However, the rate charged in the note is regulated by the minimum applicable federal rate which is published monthly by IRS based on current Treasury securities. For July 2017, the rate is 2.57% for terms over nine years.

The seller must report the interest paid to them along with the name, address and Social Security number on schedule B when the buyer uses the property as their principal residence.  A mortgage between family and friends can be good for both parties. It may allow the borrower a slightly lower rate without the expenses of a traditional lender while giving the note holder a higher rate than they can earn in available investments.

Your tax professional can guide the transaction whether you’re a buyer or a seller and your real estate professional can help arrange to have the documents drawn and filed.

When you are faced with the idea of “helping your child” or a friend buy a home in Chandler, or just a loan, make sure you have the right advice. If you have any questions or need a recommendation for a tax professional, please give me a call today at 480-355-8645 or email me at Info@LocateArizonaHomes.com

The Simplest Way to Get More Clients

by Gina McKinley

Getting more clients is often easier than we make it.  We spend hundreds, if not thousands, of dollars on marketing and lead generation, yet we overlook the simplest way to generate business…

Talking to strangers.

Think about it.  Every day we’re surrounded by potential clients.  At the store, in Starbucks, and during our workouts, people who might have real estate needs are no more than a few feet away.

But, we rarely take advantage of these opportunities because striking up conversations with strangers can feel awkward.

That’s why I recommend reading the article “Three Scientifically Proven Steps For Talking With Strangers”.

It’s a quick read (five minutes) and will help make starting conversations with strangers feel natural.

Let me know what you think of it!

P.S. – Wearing your nametag or branded clothing is one way to meet more people, but it requires they start the conversation.  When you’re the one who initiates contact, you’ll find yourself meeting far more potential clients.

P.S.S. - We are a top team in the South East Valley as ranked by Top Agents Magazine and RealTrends. We are currently hiring. The ideal realtor candidate is serious, motivated, integrity, and drive. Please call us today!

Down Payment Problem - Are You Sure?

by Gina McKinley

There are many first time home buyers who think that they need to save up a large amount for a down payment.  Most of the time, waiting to save up funds can either price them out of a market with rising home prices (like the Phoenix area is now, especially in the lower price ranges) and they end up paying more for a house that they could have bought last year for less.  On the flip side, I have also spoken to first time home buyers who hear about the down payment assistance programs and have no money saved at all, and find qualifying difficult.  How much down payment to have can be a fine balance, and there are many different options available.

There is increasing difficulty for first-time home buyers to save for their down payment as indicated in the graph.  Several factors that contribute to this trend include rising rents, rising home prices, student loan debt and flat wages.down payment graph.png

Some would-be buyers feel they cannot buy a home today but a large part of those decisions may be based on inaccurate assumptions.

Nine out of ten non-owners believe they need ten percent or more for a down payment. The typical down payment for first-time buyers is six percent. VA has 100% loan programs as well as USDA for certain qualifying areas and buyers. FHA is known for 3.5% down payments. And FNMA and Freddie Mac have down payments as low as 3% and 5%.

There are gift provisions available for buyers who have an “angel” who would like to help them with their down payment.

There are ways to borrow against a person’s qualified retirement program for a down payment. It isn’t necessarily limited to the buyer but could include a relative. Interestingly, a son or daughter can borrow against their retirement to benefit their parents.

In some respects, having good credit and sufficient income is more important than the down payment. Don’t rely on “common knowledge.” Get expert advice and counsel to see if there is a way to advance your dream of owning a home.

In Maricopa County, we also have government down payment assistance programs like the Homeowners For Arizona, a 5% down payment grant for a conventional loan.  There is also the Home in 5 for FHA loans, where the grant can cover most if not all of your down payment.  However, this doesn't cover closing costs (it can be difficult in competitive price ranges to have the seller pay for them) so you'll still want to have some savings. Knowing what the best loan program for you is prior to looking for a home is one of the many reason's it's a great idea to talk to a lender first.  Contact me today at 480-355-8645 for a recommendation of some of the best loan officers in Chandler, Gilbert, and the rest of the Valley!

Don't Have a CLUE?

by Gina McKinley

For most home buyers and sellers, this is just one of those many documents that crosses their way when they're buying or selling a home.  However, this can have some big implications for some buyers depending on what's on the CLUE report (also known as a claims history report) as well as other people in general when going to renew your home or auto insurance.

If you haven’t heard of a CLUE report, it has nothing to do with the table game searching for a murderer. It is a report showing the insurance claims on your home and car for the past five to seven years.10340976-250.jpg

This database is used by insurance companies to evaluate risks and determine rates. C.L.U.E. stands for Comprehensive Loss Underwriting Exchange. Rates can be increased not only due to legitimate claims but data entry errors also. Sometimes, simply asking a question without filing a claim can be logged as a claim.

For that reason, similar to verifying the accuracy of your credit report, it is important to check out the CLUE report on your home and car. The reports are free and there is a process for correcting mistakes.

An interesting and sometimes costly surprise occurs during the home buying process. The claim experience of the prior seller could impact the price of the premium of the new buyer. For that reason, you can ask for a copy of the CLUE report on the home you’re interested in buying prior to writing a contract.

Lenders will require a new buyer to pay a year of homeowner's insurance up front, and then will calculate a monthly portion of the premium to go into their escrow account.  If there are excessive claims on the report, the premium could skyrocket and the buyer may not be able to qualify for a mortgage on that home, even though the loan amount is in the range they qualify for.  For this reason, it's important to get a copy of the CLUE report as well as contact your insurance agent during the inspection period for a quote.

If you need help getting a CLUE report or a recommendation for an insurance agent, give me a call at 480-355-8645 today!

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Gina McKinley
RE/MAX Masters
2390 W. Ray Road, Suite 4
Chandler AZ 85224
480-355-8645
Cell: 1-480-779-9420
Fax: 480-355-8912

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