The charges and fees imposed on a borrower purchasing a home these days can be dizzying, even for some seasoned professionals.  Seems like every time something is done on your file, or on your behalf, someone else gets to charge a fee for that.  Some of these fees are just inevitable, and quite frankly, brought on by the government required paperwork that the different people working on your loan file have to contend with every day.  Other fees can be managed, and depending on your individual circumstances, can add up to a big difference when the dust settles several years after your closing.

I don’t want to get into a finance lecture, but there is a relationship on any given day between the interest rate you might pay and the points (origination fee and discount points) that you are being charged.  Speaking strictly in an apples to apples context, (let’s say a 90 percent loan, fixed rate, for 30 years), you would typically be given the choice of getting a lower interest rate with higher points being charged, or a higher interest rate with lower points being charged.  Technically, an inverse relationship.  The lower the interest rate, the higher the initial juice.  The higher the interest rate, the lower the initial juice.  Of course, the lender is in it for the long term, and ultimately, will get just about what was expected to be the average return for the portfolio.

A borrower though, has control over what he chooses, and more importantly, has some idea as to for how long he’ll have the loan before either paying it off by either refinancing or selling.  Why is that important?  Simple.

If you are purchasing your dream home and intend to stay in it for the next 30 years, then the calculations might work in your favor if you opt for higher upfront juice, and a lower interest rate over the life of the loan.

If you know that your circumstances are going to change, and that you’ll most likely be selling your home in the next 2 or 3 years, it might make more sense to pay a slightly higher interest rate, but not have to pay so much juice at the beginning.

This is a simplistic analysis, and of course, requires a little more discussion with you and your loan officer.  Ultimately, the solution is nothing more than an 8th grade math story problem that a sharp pencil and calculator can figure out.  Yes, assumptions are being made, and you are placing your bet on those assumptions.

Even more extreme – if in fact you know for sure you are going to bail in a year or two, the lender (assuming you’ll stay in the loan for the ‘average’ period of time) could potentially pay you a premium if you opt for a rate that is higher yet.  That’s correct.  Instead of a charge for origination fees and discount points, the lender is giving you a credit instead.

Now, of course, nothing is as easy as it may seem, as there are other factors that influence what the correct choice is.  However, being a well informed borrower can make a big difference in working with your loan officer to choose just the right loan program for your particular needs.

Homeowner’s usually know that they are entitled to certain tax benefits when they are owner-occupants.  From an income tax point of view, mortgage interest and real estate taxes can usually be deducted when calculating federal income tax liability.  Homeowner’s also know that they are entitled to a “General Homestead Exemption” – a tax break reducing the assessed value of a property.  Senior Citizens living in their home typically can apply for an additional “Senior Exemption” and so on.

However, can a tenant take advantage of a “General Homestead Exemption”, worth about $500.00 in tax savings?

According to Mark D. Armstrong, the Kane County Supervisor of Assessments, the answer might just be yes!  Here is what Mark has to say in his ask Mark section of the Kane County website:

What then are the most important factors in deciding whether to make an offer on a home?

The tried and true answer has in the past been Location, location, and location.

In part, that still remains a large part of the decision, but other factors need to be looked at as well.

The National Association of Realtors recently published an article detailing some things that may not be obvious to a home buyer.  See what you think:

10 Things to Consider Before Making an Offer on a Home

by: Michele Lerner

If you’ve narrowed down your choice of a home to one, you may be eager to make an offer and get negotiations started. If you’re buying in a tight market where sellers have the upper hand you may even feel pressured to put in an offer the moment you see a house.

It’s always a touchy subject – especially at the next family get-together.  Aunt Mary is thinking about selling her home, and Cousin Jim is toying with the idea of buying.  Thankfully, Sue-Ellen just got her real estate license and is prepared to jump on in and help both. Right?

My advice?  Let Sue-Ellen practice on someone who won’t dis-invite her from the next Thanksgiving dinner!  Harsh, I know, but real estate involves getting a number of different professionals involved.  Real estate is a career for not only realtors, but also real estate attorneys, loan officers and processors, underwriters, appraisers and many others a consumer will ever notice.  I know, Sue-Ellen will be miffed and won’t compliment the corn-bread you made, but until she’s got 100, even 200 deals under her belt, best to stick with the people that know – know not only values, neighborhoods, and the technical end of contracts, inspections and disclosures; but most importantly, know other people. As an example:  I recently had a transaction where there were questions raised about subsidence in the front yard – the buyer and the buyer’s agent speculating it was as a result of a defective sewer line.  I believe that this concern was quickly anticipated and resolved due to the professionalism of both realtors, as they were able to ask and answer the questions posed by the buyer.  I’m not sure this would have been the case if one of the realtors had been a rookie, or not had the specific knowledge she had about the other houses in the neighborhood she had encountered with the same problem, and what solution the solution would be. Bottom line.  It’s easy to select houses to show, or create a listing and upload it to the MLS.  The hard part comes in dealing with the problems that will arise.  You are putting the largest investment you own into someone else’s hands.  A rookie?  Really? There is a reason they are known as real estate  professionals. If you still can’t shake Sue-Ellen, have her partner up with someone that can act as a mentor.  She’ll at least keep talking to you that way!

It starts with an idea – to buy a new house, sell your current house, or both.  Just a simple idea – nothing really, but eventually, you start getting a little excited and begin checking out prices, neighborhoods and mortgage interest rates.  Some people make a career scouring the interest for houses, but only the lucky few get to live their dreams.

How do you start?  Well, you’ve got a good start already – as visualizing the dream, making the decision – is of utmost importance.  However, once that initial hurdle has been cleared, it’s time for some serious business – curating your team, THE team that will either help you sell or buy a home.  Start early, ask a lot of questions, get comfortable with the people that you’ll essentially marry between now and the day you do you closing.  Divorces can be messy – and usually involve a property split, splitting you from you money.  Consider for a moment, you are hiring agents – employees, to help you conduct probably the most complicated transaction in your life.    If you were getting minor surgery done, you would want the best doctor, the best surgeon?   Your Internist/Family Practitioner has a specific place in the medical field – a gate-keeper, if you will.  More complicated matters get referred out to those that know better how to deal with them.   Just as with the medical profession, so too is how the law has evolved.  Yes, there are many, many, general practice law firms that provide a great service for many people.  Indeed, many Internists might take a stab at lancing an abscess.  However, there is a sophistication and compartmentalization that has prevailed in the real estate industry that makes it difficult for a generalist – realtors, loan officers, attorneys all included in this statement, to function well, and represent their clients well, without meeting minimum thresholds of experience and competence.

Most professionals have their little niche that they practice in.  A realtor may just farm a certain community and even then, within a certain price range – he just ‘gets it’ when it comes to houses and individuals that fit well within his parameters.  Some loan officers are expert in high income clients with large mortgages – as others are expert with minimum down FHA purchasers of modest homes.  Both of these loan officers have their own challenges.  Both, also, will likely realize that they are not suited to venture into the foreign territory of the other guy.  It’s the professionals that don’t understand those limits that create chaos when doing a real estate closing.

Find professionals early, that are experienced and competent in the market segment that you are interested in.  He or she must be able to communicate with you, and even at times stand up and be the adult in the room.  Team members must be able to communicate with each other.  Just as a skilled surgeon has his scrub nurse, many team relationships have gone on for several decades, and more.  There is a real good reason for that, and it should not be discounted when curating your team!

But please – do it early enough in the transaction in order to avoid future problems.

It was the best of times.   It was the worst of times.  It’s tax time!!!

Yep, it’s that time again.  Time to settle up with the IRS as to what income you’ve earned, and what you owe the Feds.  Said you did a short sale, or were foreclosed on?  Well, there may be more to filing taxes than you think.

Life probably sucks if you own real estate.  I don’t even want to look up the statistics as to what percent of homeowner’s are underwater, owing more than what their home is worth.  Right now, if you have the ability to purchase real estate, there are incredible values out there, both in real dollars, and relative values when compared to household income.

Has the market hit bottom?  I sure hope so; but I’ve thought that before.  I’ve had clients make the difficult decisions of bailing on their homes when they realized that making future mortgage payments on the home would simply be throwing good money after bad.  As difficult as it was, there are people that have, after walking away from their homes, turned around and bought similar homes, in similar neighborhoods, for a fraction of what they owned on their original home.  The astute client’s ears perk up when I use the term exit strategy when discussing their current mortgage situation.

Is it worth throwing good dollars after bad?  More than one client has realized that they will never dig themselves out of their negative equity hole.

What’s a good exit strategy for you? I can’t answer that.  My advice is simply to be aware of your alternatives, and cognizant of where your choices today will leave you 5 or 10 years from now.

Now, let’s take a look at my analysis of some relative values.

Of course, it’s pretty obvious that actual dollar values are depressed.  However, digging deeper into the analysis shows you that the relative values are at historic lows.  I’m not a financial analyst, but I’m guessing a stock market guru, if presented with this type of under-valued stock, would grab it in a heartbeat!

The depressed real estate market has created a lot of opportunity for potential buyers.  At no time in my lifetime has the actual cost of real estate ownership (when compared to household income) been so low. Real estate is currently a bargain.

There are some pitfalls, however, for buyers looking to purchase, especially first time buyers looking to leverage the great values available in condominiums that are available today.  While FHA financing is a valuable option for a homebuyer, certain FHA rules, when dealing with condominium purchases, can be exasperating.

Loan modifications, even with the Obama HAMP program started in March of 2009 aren’t always a “slam-dunk”.  They can be difficult to understand, exasperating to apply for, and, once approved (if your are one of the lucky ones) hard to maintain as the underlying problem leading to the mortgage modification has not been solved (you are still unemployed).

Remember, your lender doesn’t have to approve your mortgage modification.  The HAMP rules provide that if your lender will lose more money doing a modification, as compared to foreclosing on you, they don’t have to grant you the loan modification.

The good news is that other alternatives are available for those that can’t do a loan mod, but still find themselves unable to make their mortgage payments.  While these alternatives may still result in you not owning your home, they do provide you with some control over the situation.  The modification rules are set up to require your lender to offer you alternative resolution scenarios should the loan modification not work out.  The most common of these alternatives include a deed in lieu of foreclosure, or a short sale.  Yes, the conclusion of both of these alternatives is that you don’t own your house anymore.  However, they do give you a little control over your own destiny.

Zoning laws are often confusing, making something OK if was built or converted a long time ago (“grandfathered in”) or making that same building NOT OK, if you were to try to build it today.

If dealing with the former, property owners need to be aware of the various requirements a municipality might have when dealing with older, non-conforming, dwellings.  An action that may seem counter-intuitive at the time may in fact be just the needed action necessary to preserve a non-conforming status for a building.

Check out this video: