Q. My family is going to be moving soon. We have a dog and a cat. I am worried about how they will adjust to the move. Any suggestions?
A. Moving is an adjustment for humans but it is also difficult for pets. We are responsible for easing the transition and keeping the pet safe. I went to the “Pet Realty Network” and got some suggestions:
1. Keep the pets separated from all the chaos of moving day. If your pet isn’t already comfortable with a crate it would be a good idea to get one and get them accustomed to it. Make sure it is sturdy and well ventilated. Put them each in one in a quiet, well-ventilated place. If you don’t use a crate, still find a quiet place such as a bathroom and put their toys or treats in there with them.
2. Find a veterinarian in your new area and ask if there are any local concerns like Lyme disease or any vaccinations or medications your pet may require. If you are moving to another country, carry an updated rabies vaccination and health certificate. It is important to contact the Agriculture Department or embassy to obtain specific information about bringing a pet into the country.
3. Make sure your pet is wearing a sturdy collar with an identification tag, labeled with your current contact information. It should include your cell phone number and destination location.
4. Keep at least one week’s worth of food and medication with you in case of an emergency. Ask your current vet for an extra prescription before you move. Purchase an extra supply of special food in case you can’t find it right away in your new area.
5. If you are moving far enough away that you will be getting a new vet, get a current copy of your pat’s medical records and vaccinations. Keep your current vet’s contact information handy in case of an emergency or in case a new vet needs more information.
6. Prepare a first aid kit. Being prepared and knowing basic first aid could save your pet’s life. Supplies should include: gauze to wrap wounds or to muzzle your pet, adhesive tape for bandages, non-stick bandages, towels and hydrogen peroxide (3 percent).
7. If you are traveling in a car a crate is ideal. A restraining harness is also good. For cats a well ventilated carrier is best. Don’t leave your pet alone in a parked vehicle. Try to keep your pet on its current eating schedule.
8. Prepare your new home for pets. They are often frightened and confused in new surroundings. When you arrive, immediately set out all the familiar and necessary things your pet will need: food, water, medications, bed, litter box, toys etc. Be cautious of narrow gaps behind or between appliances where your pet might try to hide. Keep external doors and windows closed when your pet is unsupervised. If your old home is nearby, your pet might try to find a way back there. Make sure the new owners have your contact information and a photo of your pet.
Q. I am deciding if I would be better off financially by renting or buying a home. How do I do the calculation?
A. It is really simple. If you bought a $500,000 home your property tax would be around $6,500 a year. This is totally tax deductible. If your payment was $2,500 a month the majority of your payment at first is interest. Let’s say $2,300. That is $27,600 a year. Adding $6,500 and $27,600 equals $34,100 total deduction.
If your taxable income is $75,000 you would pay tax on: $75,000 minus $34,100, or $40,900.
If you have a 28 percent income tax rate your tax would be $11,452 instead of $21,000 for $75,000. If you divide the savings over 12 months, $21,000 minus $11,452 equals $9,548; $9,548 divided by 12 months is a $795.66 a month savings. It would make your effective payment $1,704.34.
Most rents these days are higher than this in our area. A couple of other things you should consider: In the first year many of your closing costs are also deductible. The other factor is appreciation of value. You will keep paying the same payment when your property value increases over the years. I guess this is part of the reason that home ownership is the American dream.
Q. Our family wants to sell our house. We don’t want to buy another home for some time. I am worried about capital gains. Do we have to roll over our gain into a more expensive house to defer the capital gains?
A. The law you are referring to was in place until 1997. That year a new and better exemption for capital gains became the law. If you meet certain criteria, $250,000 for a single person or $500,000 for a couple, you may be exempt from taxation. Here are the criteria:
1. You have lived in the home as your principal residence for two out of the last five years;
2. You have not sold or exchanged a primary residence during the preceding two years;
3. You meet what the IRS calls “unforeseen circumstances,” such as job loss, divorce, or family medical emergency.
The way you calculate gain, start with what you paid for the property originally. Add your costs of purchase, your cost of current sale and cost of improvements over the years. Improvements such as repairs or cosmetic additions such as new carpet and paint don’t count.
For instance, if you paid $300,000 in 1990 and sold this year for $500,000 the initial gain would be $200,000. If costs of purchase were $3,000, costs of sale were $18,000, and cost of improvements (such as a new deck, landscaping and kitchen expansion) was $70,000, that equals $91,000. You would add $91,000 to the $200,000 gain, so your total base would be $291,000. Now, subtract $291,000 from $500,000 for a total gain of $209,000. This is well within the exemption for even a single owner.
You don’t have to buy again to receive this and you can do this again every two years.
‘Echo boomers’ to drive housing recovery
Q. What do you think will drive the recovery of the housing market in the foreseeable and longer range future?
A. There are numerous factors that still can affect the housing market in the near future and beyond. One of them is the age demographic. I found an interesting report by the Joint Center for Housing Studies of Harvard University.
They explained that starting this year 2012 and continuing over the next 20 years, the ‘echo boomers’ (born in the late 1970s and early 1980s) will drive the housing market. The study found that many adults under the age of 35 have chosen to stay at home with their parents instead of purchasing their own home; however, they do believe in the value of home ownership and do plan to buy. Another study found that 86 percent believe they will ultimately own a home and 70 percent felt this was a good time to buy. They just don’t feel the need to rush into it before they are thoroughly qualified. But, the fact is, monthly mortgage payments currently compare more favorably to rents than anytime since the 1970s.
The report projected the impact of the ‘echo boomers’ over the next two decades: If the economic recovery continues over the next few years, echo boomers entering into adulthood should support the addition of about one million new households per year over the next 10 years. The echo boomers have the potential to spur new home demand to an even greater extent than their parents did starting in the 1970s, in the next 20 years.
This new generation already outnumbers the baby boomersat the same age. Even modest immigration will help this group to grow larger. If housing affordability continues at historic lows, more and more of the echo boomers will take the plunge into home ownership
Q. I heard that the government implemented some sort of stimulus to improve the housing market. Could you explain in layman terms what this is and how it will help?
A. The stimulus is called QE3 – short for “Quantitative Easing- Round 3.” I hope 3 will indeed be a charm this time.
This is a policy where the Fed buys up debt instruments or assets in an effort to push down long-term interest rates. Their hopes are that lower long-term rates will stimulate the economy by giving consumers and businesses an incentive to borrow and invest more. (It is now cheaper to borrow). Sometimes the Fed’s actions don’t do as much as theyhoped, as far as moving rates, but QE 3 seems like it will be effective because the Fed has committed to buy up “mortgages” (mortgage backed securities) of $40 billion per month. This represents about 25 to 30 percent of overall mortgage volume; this increase in demand will bring down rates. The Fed has committed to QE 3 indefinitely, too, so rates are expected to remain low for a long time.
Q. Please remind me of what expires at the end of this year pertaining to short sales.
A. It is the forgiveness for state and federal taxes on the forgiven amount on a short sale. So, if you are considering a short sale, now is the time to discuss this with a qualified Realtor and get started. There is just enough time to complete most short sales before the end of the year.
Remember, if you are not behind in your payments, you can still do a short sale. It will not affect your credit to the point that you can’t buy a lesser property immediately afterward. Also remember that a foreclosure is much worse on your credit record.
Q. The real estate terms that you and others use have me confused: Freddie Mac, Fannie Mae, FHA etc. Could you define them? How do I know what type of a loan I have on my house?
A. I conferred with our loan expert, JVM Lending, for an easy to understand synopsis. It is important to be educated on the distinctions of these because effectively over 90% of all mortgages are Fannie Mae, Freddie Mac or FHA loans. This was his explanation.
FANNIE MAE and FREDDIE MAC
Fannie and Freddie are Government Sponsored Enterprises or “GSEs”. Prior to the 2008 “meltdown,” this meant the Federal Government gave them certain advantages. Today, they are (for the most part) owned and operated by the Federal Government.
Fannie and Freddie were set up to “provide more liquidity” for mortgages; they buy mortgages from banks and investors and “bundle them into securities” and sell them on Wall Street. This access to the capital markets brings more mortgage funds and lower rates to borrowers/consumers. Without Fannie and Freddie, rates would be much higher. This is because there is not enough private sector demand for mortgages to keep rates as low as they are.
Fannie and Freddie do not originate loans. They only buy them from other lenders and investors. There is little difference between Fannie and Freddie, other than some minor guideline nuances. They are separate entities doing largely the same thing, although Fannie is much larger than Freddie.
Lenders underwrite loans subject to standards that “Conform” to Fannie and Freddie guidelines. Fannie/Freddie will not buy loans that do not “Conform”. This is why we refer to “Conforming” loans. The “Conforming Loan” is currently $625,000 in our area.
Loans that do NOT “Conform” to Fannie/Freddie guidelines are referred to as “Non-Conforming” loans. They include FHA, Jumbo and Portfolio loans.
NON-CONFORMING LOANS, JUMBO AND PORTFOLIO LOANS
“Non-Conforming Loans” include “Jumbo” and “Portfolio” loans. Jumbo loans have loan amounts that exceed Conforming and FHA limits ($625,000 and $729,000 in the Bay Area). The rates for these loans are higher than Conforming/FHA rates. Portfolio loans are loans that are held by their originating lender; they are not sold to investors.
FHA (Federal Housing Authority) Loans are loans that are underwritten to FHA or HUD (Housing and Urban Development) standards. These guidelines are looser and more flexible than Fannie/Freddie’s (“Conforming”) guidelines. FHA was initially set up to help less well-off borrowers buy homes. But today, FHA has no income limits and borrowers do not have to be “first time buyers”
FHA does NOT buy loans the way Fannie or Freddie does. They only insure them. This is a key distinction. FHA loans are originated, underwritten and funded just like Fannie/Freddie loans. “Ginnie Mae” is the name of a security backed by FHA Loans.
You can call your lender to confirm what type of loan you have and if it is backed by any of these organizations.