Financial Planning

Reverse Mortgage Website

I am getting more and more calls about reverse Mortgages lately, for both refinancing and purchases.

Here is a link to a website at Colbalt Mortgage that is very user friendly and explains the reverse mortgage process.

http://cobaltreverse.com/

Do More With Less

Moving to a smaller home can shift your financial picture in  a variety of ways.

You can lower or eliminate your house payments, reduce future energy or maintenance expenses, and convert your equity to cash for other investments or expenses without going into debt.

Here’s an example:A couple sells their home in Ravenna for $550,000 and buys a 2 br condo in a well maintained nearby older building for $280,000. After paying off their underlying mortgage of $89,000, less closing costs and fixup costs of $18000, they netted around $488,000 at closing.

They paid cash for their condo plus closing costs totaling $284,000, leaving them $204,000 in cash. Their previous monthly payment inculding mortgage, taxes, insurance, and long term maintenance was $1671/month. Their new monthly outlay for taxes, insurance and $248 monthly condo HOA dues is $448/mo. They have and extra $1223 per month to do with as they please, plus the extra time from no more yard work or maintenance.

This is one scenario. I am willing to help you fill in the numbers to develop yours.

Happy New Year

Welcome to 2012!

Our real Seattle estate market ended 2011 on up note, with increased pending sales figures, and it seems 2012 will pick up where it left off. Interest rates remain below 4% and the post-holiday listing inventory is already starting to increase.

Are you resolved to get back into real estate in 2012?

Afordablilty continues to rank high, and in some areas condo payments are below rent. Also prices have seem to have  stabilized in many areas, making the prospect of buying a safer idea.

Here are are a couple of new-years related links. The first is the top 10 retirement articles from Top Retirements blog.  This blog is mostly focused on SE United States, but has great articles even if you are not considering that area.

The second is 12 Retirement Resolutions from US News for your financial planning needs.

Can you think of any  sources of articles on downsizing or retirement that other readers may enjoy, comment below or send me an email.

Here’s to to the best Health and Wealth for all of us in 2012!

Greg

Baby Boomers Empowering Homeownership via Gifts, Loans

Baby boomers are part of a growing trend of assisting children or grandchildren become home buyers, according to a new national survey. The research shows one in five baby boomers has already gifted, loaned or co-signed a loan to support their children or grandchildren in purchasing a home, and more than two-thirds of baby boomers want to provide this type of support in the future.

“With historically low interest rates and competitive listing prices, now is a great time to invest in real estate for those in a position to do so,” said Sherry Chris, president and CEO of Better Homes and Gardens Real Estate LLC, which commissioned the study. “However,” she acknowledged, “In today’s economy, saving enough money for a down payment can be a struggle for young adults. Baby boomers are a unique generation that has driven the economy for the past 30 years. Our data shows that they are using what they’ve earned and what they’ve learned to invest in the future and help their children and grandchildren realize the American dream of homeownership.”

Aside from the good investment rationale, baby boomer respondents indicated the willingness to provide financial support to their children and/or grandchildren was out of love. By providing financial support to assist in the home buying process, respondents stated that they could ensure their children and/or grandchildren would benefit from their estate and fulfill a large part of achieving the American dream.

“We have always understood the value of homeownership and our readers’ passion for making their homes serve their lifestyle needs,” says Jill Waage, editorial director of home content at Better Homes and Gardens magazine. “We’re thrilled to see that younger generations’ interest in homeownership is so strong and that their baby boomer relatives want to help them reach this significant milestone.”

Key findings from the Better Homes and Gardens Real Estate baby boomer survey include:

• One in five baby boomers have already gifted, loaned or co-signed a loan to their children or grandchildren for a down payment on a home.
• Looking ahead, one in 10 baby boomers say they will “definitely” provide their children or grandchildren with financial support for a down payment on a home, and at least half hope to do so.

• • In total, more than two-thirds (68%) of all baby boomers said they want to provide future financial support for their children or grandchildren to purchase a home.
  • Those who have already provided past support are also most confident that they will do so again.
  • Highest interest in providing support is reported among younger (age 45-54), more affluent (household income of $75,000+) baby boomers who have at least one adult child (age 18-34).

• Baby boomers are driven to provide financial support primarily by their belief in the overall investment value for them and/or their children or grandchildren, and the role homeownership plays in fulfilling the American dream.
• Older (age 55+) and more affluent ($100,000+ household income) baby boomers are more likely than their younger or less affluent counterparts to have previously provided financial support.
• Across prior support and future interest, baby boomers show more interest in “gifting” or loaning money; they are least interested in co-signing loans.

About the Survey
Better Homes and Gardens Real Estate, in partnership with Meredith Research Solutions, surveyed more than 1,000 adults ages 45 and older for this study. Data were collected from those who qualified as a baby boomer and who had at least one child or grandchild over the age of 18.

Questions to ask a financial planner

I am noticing  more and more clients are wanting to work with financial planners to get the larger perspective on their financial condition and goals in light of our new economic conditions before they make any real estate decisions.  I think it is a great idea.

My wife and I have started working a couple of times with financial advisors, but found pretty quickly that they seemed to end up recommending vague insurance products as something we needed to have. When we researched the products, we found that they were mainly designed to provide good sales comissions, but not necessarily good results for the policy holders. Furthermore, the interest rates were pretty low, and the investments are not insured.

Another recommended a pile of  mutual funds that her company has. After she left, we compared all the fee-laden funds to simple index funds, and found that 8 of the 10 were outperformed by simple index funds! Now, with the recent Wall St fiascoes, we have been more reluctant to trust our savings to any financial firms at all!

So we have begun researching the idea of working with a fee-only financial planner. I would much rather pay a planner for their time and expertise and have them recommend products that are appropriate for me, not them. To select a planner, I would expect them to work like I do: ask a lot of questions, provide a lot of options,  stick with the process until we have a plan that makes sense, and provide monitoring along the way.

I came across this blog post that has questions to ask a financial planner, and found some of the questions pretty interesting.  Most of them relate to finding a planner who has similar values to mine, and one who practices what he or she preaches by doing personal investments in line with what they recommend for clients.

Does anyone else have any recommendations for planners, or how to find a good one?

Boomers are buying homes to retire in

Most of the news we have seen is about how the echo-boomers are saving the housing market by buying their first home. Now we are seeing a trend of boomers buying their next home now, and taking advantage of lower prices, (especially in resort areas)  and dirt-cheap interest rates.

The strategies have changed, as the above article reports. In the anything-goes market of a few years ago, it was nothing to take a 2nd on y0ur primary residence and buy a transitional home. Now it takes a 2nd home mortgage and an actual down payment, along with professional management if it is out of town.

Another way is to buy your next home in an IRA using a special trust company. This gets a little complex, as the house is strictly an investment that you or relatives can’t live in while its in the IRA. However, when it’s time to retire and move in, the house is taken as a distribution from your IRA.

Reverse Mortgage Rules Changed for the Better

With the difficult economic times, many more borrowers are taking advantage of Reverse Mortgages.  With recent changes, reverse mortgages can now be used to buy a new house, not just to take equity out of an existing one. Also, the loan limit has temporarily been raised to $625,000 as part of the stimulus package.

Here is an article that explains it.

Washington Post
Reverse Mortgages Come to the Rescue
By Mary Beth Franklin
Kiplinger’s Personal Finance
Sunday, August 9, 2009

Reverse mortgages have been around for nearly 20 years, but it wasn’t until the current financial crisis that they caught on. Seniors are turning to these loans to tap the equity in their homes and generate tax-free income to help them ride out hard times.

You can take it with you. A reverse mortgage can be a good option for people who want to relocate or move to a smaller home but don’t want to sink all of their cash into a new house or might not qualify for a traditional mortgage.

New rules that took effect in January allow seniors to use a reverse mortgage to buy a new home. Say you own a house in Massachusetts worth $500,000 and you want to buy a $400,000 house in Florida. If you were to sell your house and pay cash for your new home, you’d have just $100,000 left to add to your savings. But if you took a $100,000 reverse mortgage on the Florida house, you’d have twice the amount left — $200,000 — to add to your savings.

How it works. You must be at least age 62 to take out a reverse mortgage. Plus, your house (current or future) must be your primary residence, and your mortgage must be either paid off or have a small balance. Unlike a traditional loan, there are no income or credit-score requirements, and you may use the money as you wish. The older you are, the higher the appraised value of your home (up to the maximum federal loan limit) and the lower the interest rate, the more you can borrow.

As part of the economic-stimulus package, Congress raised the reverse-mortgage loan limit to $625,500 through the end of 2009. After that, the lending limit reverts to $417,000, unless Congress intervenes.

You can take your payment as a lump sum, a monthly cash payout, a line of credit held in reserve or a combination of all three. No repayment is due until the last homeowner moves out or dies, at which point the home can be sold to pay off the debt. The loan repayment can never exceed the home’s market value (even if it declines), absolving your heirs of any liability.

High fees. You’ll pay the usual closing costs, plus loan-servicing fees, an origination fee of up to $6,000 and interest over the life of the loan. Also, you’ll pay an initial insurance premium equal to 2 percent of the home’s value plus 0.5 percent per month of the mortgage balance.

If you are thinking that a reverse mortage may meet your needs, call Greg Bartell at DownsizeNW at 206-713-2921 for names of local reverse mortgage specialists.

New Bridge Loan Available

With the market heating up again for those good properties that are priced right. If you want one of those, making an offer contingent on your present house selling probably won’t get you the house you want.

The good news is that the bridge loan is back! If you have high equity in your present home, this new product cross-collateralizes both properties, or finances both of them in one loan. This lets you buy your new home, and pay off part of the loan when the older house sells. The payments are high of course when you are carrying both homes, then they come down with the partial payoff.

Contact me for names of lenders who offer this.

Aging in Place

The idea of aging in place seems to be everywhere these days. We boomers like our trends, and aging is place is a popular one right now.

Aging in place refers to staying in our homes as we age, instead of moving to a retirement home or complex, and later avoiding the assisted living and skilled nursing nightmares some of us have seen our parents go through. Partially due to the economic crisis which has eaten into our home equity as well as retirement accounts, the hunker down mentality is more prevalent.

The benefits of aging in place are not having to move, and being around familiar surroundings and friends, preserving as much as we can of our same lifestyle; along with saving the cost of a move, and having to begin paying rent.

Being able to age in place does require some adjustments, though. Chances are the house will have to be adapted so it is easier to use as capabalities change. This is known as universal design, and involves changes to counter heights, floor coverings, door openings, adding grab bars, etc. If there is not a bedroom and bath on the main level, a lift can be considered.

Another change is a need for a support network of friends, family and care givers who can help out with home maintenance, shopping, and transportation. Often children don’t live nearby, or are not available to help with these chores. A notable solution to this is a community based organization in Boston called Beacon Hill Village. It’s an organization of volunteers who help each other meet these needs for a reasonable cost, and also provides a strong sense of community. In fact, there is a similar organization starting in North East Seattle called NEST.

Hanging onto a larger older home can also make sense if you want to share it. It can be as easy as renting out rooms to friends (like the “Golden Girls”) or the house may lend itself  to converting a part of it to an accessory unit, or mother in law apartment. With the slow economy and foreclosures, families are sometimes moving into to the same house, either gown children boomeranging back home, or older parents or grandparents moving in with children.

A big question still is “where will we age in place”? Some people I talk to would never leave their home. Others like the concept of staying home as they age, but can’t see aging in their same house. Many feel their present home is way is too large, or will be too expensive to maintain in the future on a fixed income. Others also feel it is easier to find something else smaller nearby rather than to go through the remodeling process or finding roommates.

No matter where you live in the area, there is a good chance there is a suitable apartment, condo, or one-level home nearby that would work better.

These days, most real estate conversations go to the subject of values, and whether they are going up or down. The answer to that question is, of course, “both”. Some areas and housing types are holding their values pretty well, and others are still declining. Now, homes in desirable areas that are close to transportation and amenities are doing well if priced low enough. The larger homes in the outer areas seem to be harder to sell, and are declining in price far more.

Interestingly, this coincides with what both planners are planning, and builders are building. Our future growth will be smaller homes in existing redeveloped areas. Transportation is a very important factor. In my career, I have noticed that what planners plan and builders build is usually what goes up in value.

So, if you are concerned about values going forward, you may want to factor this in the equation. If you live close in, in a smaller house, aging in place in your present home may make sense, and turn out to be a good investment going forward. On the other hand, if you are thinking of moving, and are in a larger home on an outer area, a move may make more sense.

Popular Conversion Tax Holiday has Ended

It used to be a tax loophole, now the loophole is closing. sometimes called a conversion, I am referring to the ability to avoid capital gains tax on an appreciated investment home or vacation property by converting it to a personal residence. Up until Congress started looking for sources of tax revenue to pay for last summer’s housing bill, you could buy an investment property, or 1031 exchange into one, have it increase in value, then move in to it. After living in it for 2 years, you could sell it as your residence, and use the regular exclusions of $250,000 of gain for a single person. or $500,000 of gain for a married couple, thus eliminating the capitol gains tax on the combined gain of all the propertes! But…now the party’s over.

From now on, you will owe capital gains tax on the total gain times the ratio of time it was an investment property or second home divided by total years of ownership. This tax on the period of time you occupied the home falls under the $250,000 and $500,000 exclusions. Here’s a Kipplinger article on the subject.

New Retirement Strategies for After the Crash

After the financial challenges our economy has had, we are all, working or retired, facing new challenges. If you are retired now, it can be more challenging with less resources.

I read this article today at RIS Media about 4 possible solutions.

1. Revisit your budget, and see if other assets can be better utilized to generate income.

2. Get a reverse mortgage. Most people know about these, in which the lender pays you your home’s equity in return for access to the proceeds of your home’s sale after you no longer need it. What many people don’t realize is that you can downsize and buy your next home with a reverse mortgage!

3. Get a life settlement from your life insurance policy. You can get a lump sum now for your life insurance policy that is greater then its surrender value. See your financial planner for details on this.

4. Adjust your Social Security. If you are drawing Social Security now, it may be possible to discontinue, and start again later when you will receive a higher payment.

Again, for more information, see the info and links at the article here.

Will You Outlive Your Assets when you Retire?

Here’s an alarming article that says 3 out of 5 Americans who are approaching retirement age are in danger of outliving their assets without increasing their rate of savings immediately.

The article also discusses life annuities, and a bill before Congress to relieve some of the tax associated with these annuities.

Articles are good at giving general advice, but to find out how your situation will look when you retire, it’s best to work with an experienced financial planner. In the meantime, you can visit our Financial Calculator page.

Is it time to sell the McMansion?

Despite the slower market right now, shifting demographics say it may be time to downsize now.

As usual, it’s all about the Baby Boom. Here’s some facts:

• The baby boom is just starting to downsize.
• As Boomers who want to downsize, many of us want smaller homes that are closer-in.
• The generation behind the baby boom is smaller, less prone to buy large houses, and is inclined to live in higher density, closer-in areas.
• Housing economists predict the average household size and average home size will be shrinking in the future.
• Presently, there is an over supply of condos and townhomes on the market.

This brings up two questions. 1. Who will buy our mcmansions in the ‘burbs in the future? 2. If smaller homes and condos will become more popular, their prices should rise faster than the overall market, and doesn’t it make sense to buy now, when they are being sold at a discount due to over-supply?

This sounds like a sell-high, buy-low strategy.