Buyers Expected to Gain More Leverage This Year as Inventory Across US Rises

Home values saw their smallest monthly increase since May 2012, up just 0.2 percent in January from December according to the latest Zillow Real Estate Market Reports. Year-over-year, U.S. home values rose 6.3 percent in January, down from peak gains of 7.1 percent in August 2013. This slowdown is in part due to the rise in inventory of for-sale homes across the country. The number of homes listed for sale on Zillow was up 11.1 percent annually in January, the fifth straight month of rising year-over-year inventory.

According to Zillow Chief Economist Stan Humphries, home shoppers should expect to have more buying power this spring as more inventory comes onto the market and home prices start to level off. This slightly more balanced market is another step on the road back to normal, and will help offset the impact of rising mortgage rates and more expensive homes for buyers.

Inventory rose year-over-year in 82 percent of metro areas covered by Zillow, with the largest inventory gains coming in some of the areas that were hit hardest by the housing recession, including Las Vegas (up 42.8 percent), Phoenix (up 30.5 percent) and Sacramento (up 26 percent). These metros also experienced significant cooling in the pace of home value appreciation in January, as buyers had more homes to choose from and were less apt to engage in the kinds of bidding wars that helped drive prices up so quickly last year.

Want to know what the current state of the housing market is where you live?  Dive into Zillow’s data, available all the way down to ZIP code and neighborhood levels, here.

Skip Credit Repair Clinics and Do It Yourself Instead!

When you’re planning on buying a home, your credit score will have a big impact on your interest rate and loan terms. If your score falls on the lower end of the scale, you’ll pay a higher interest rate. Dip too low, and you may not get approved at all.

Boosting your credit score can help you find a better mortgage deal, but be careful how you go about it. Companies promising to repair your credit for a fee may seem like a good bet, but you’re better off saving your money and rebuilding your credit yourself.

Credit Repair Clinics

Credit repair clinics all have the same promise – they’ll fix your credit seemingly overnight. But as the saying goes, if something sounds too good to be true, it probably is. Rather than use legitimate tactics, “Credit repair companies simply bombard the credit bureaus with letter after letter in the hopes of getting legitimate, accurate information removed from your credit report,” said Michael Mack, consumer lawyer and founder of the Bankruptcy Credit Foundation.

While this occasionally works, Mack warned that the results don’t stick. Many creditors will do a soft-delete, meaning the negative mark will reappear on your credit report 60 to 90 days after the credit repair clinic has done its work.

As a result, you’ll end up paying the clinic either by the month or per item deleted, and the cost can add up quickly.

DIY Credit Repair

Repairing and rebuilding credit scores yourself is free and something anyone can do. Mack recommended starting by ordering a copy of your reports from Equifax, TransUnion and Experian. By law, you’re entitled to free copies once per year through AnnualCreditReport.com. Once you have your reports, order your credit scores through an authorized website like myFICO.

Look for “obvious errors and inaccuracies like wrong name, address, accounts showing twice, collections which continue to be reported twice for the same account,” Mack said. If you find errors, send a certified letter to the credit bureaus asking them to investigate and correct the problem. Send a letter for each error you find. “Even though this is more time-consuming, you will get better results.”
Pay off your old debts through a negotiating tactic known as goodwill letters.

“Even negative items on your credit report that are accurate can be legally and ethically and permanently deleted through goodwill letters,” Mack said. “State politely how you were late, or how you were delinquent, and what you’re doing to correct your bad habits.” You can offer to pay the debt, or settle for a portion of the amount owed in exchange for the creditor removing the negative remark from your credit report, he said.

Meanwhile, pay your bills on time each month — payment history accounts for 35 percent of your credit score — and keep your credit card balances low. Mack recommends keeping your balance under 9 percent of your total available credit limit.

Avoid These Mistakes

Don’t close old accounts: “Closing accounts hurts your score,” Mack said. Instead, pay off the balance and leave the account open.

Don’t apply for several new credit-card accounts: “FICO allows ‘rate shopping,” Mack said. “You can apply for 20 different mortgages in a 45-day period and it only accounts as one inquiry under FICO. Likewise you can apply 20 different times for a car loan or installment loan and it only accounts for one inquiry. But with revolving credit it’s different, and the more inquiries you have in a 12 month period, the lower your FICO score.”

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6 Ways Renters Can Get the Most for Their Money

For many renters, a large chunk of their monthly paycheck goes to paying the rent. As a general rule, Americans should spend no more than one-third of their income on housing. In reality, the rising cost of rent in some of the nation’s largest metros has forced renters to spend a much larger portion of their income on housing. If you’re searching for affordable housing in an expensive city, here are some ways to make sure you’re getting the most bang for your rental bucks.

Negotiate the lease

Don’t accept everything on the rental listing as set in stone. Talk to the landlord before signing the lease to see if they can lower the rent or include perks like parking if you commit to a longer lease. If you’re renting a single-family home you can also try to negotiate a discount by offering to take care of yard work, property maintenance, or snow removal on the property.

Find a roommate

Getting a bigger apartment doesn’t have to mean sacrificing affordability. For those who don’t mind sharing an apartment, splitting the rent with a roommate will allow you to increase your budget to find a larger apartment, but keep costs down. For example, instead of footing the bill for a $1,000 studio apartment by yourself (and don’t forget about utilities), you can split the costs of renting a 2-bedroom for $1,700 and get more square footage to boot.

Take advantage of referrals

Find out if your apartment community gives residents rent discounts if they help fill vacancies. Give your landlord a hand in marketing those apartment vacancies by referring people in your network looking for a place to live. Saving your property manager some marketing dollars can translate to a pretty significant savings on rent for the month.

Find a place that has extras included

All those monthly water, gas, electric bills add up. Keep an eye out for listings that have utilities included in the rent during your apartment search. Compare costs and do the math to make sure the rent and included utilities aren’t more than what you would pay if you metered for them separately. Amenities such as an on-site gym, access to public transportation, and a high Walk Score can also help you save on your costs each month.

Share the Internet with a neighbor

Don’t have a roommate to split the utilities with? Talk to a neighbor or two to see if they’d be willing to share Wi-Fi connection. Dividing up payments will give everyone online access at a fraction of the cost.

Make energy-efficient changes

Investing in a few eco-friendly, low-cost changes in your apartment will make reducing energy costs almost effortless. Replace light bulbs with LED bulbs, and install low-flow fixtures on showerheads and faucets. Cut down on seasonal utility usage by installing insulated curtains, insulating windows with plastic film, and covering electric outlets.

With some planning, renting in an expensive area doesn’t have to deplete your bank account. What are some ways you’ve saved on living costs? Share with us below.

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It’s Tax Time! See Tax Breaks for Homeowners

Calling all homeowners! With tax season rapidly approaching, it’s time to get your paperwork in order and consider all the ways to minimize your tax liability.  Whether you’ve got a single-family home, a town house, condo, or even a floating home, there are various home-related expenses that you should be sure to deduct. We suggest starting with these:

Mortgage interest

The mortgage interest deduction has long been the most-beloved tax benefit of homeowners since it’s such a big money saver (especially in the early years of a home loan).  In fact, Americans save around $100 million every year by claiming this deduction, which you can take on both your primary and secondary homes, providing your loan is less than a million dollars, and providing you itemize your return.

Mortgage points

The IRS sees points — percentage-based fees which a lender charges to originate a loan — as form of mortgage interest paid in advance.  Assuming you meet certain requirements, you can therefore deduct these points, in full, in the year that they were paid. So, for example, if you paid two points on a $250,000 mortgage in 2013, you can write off $5,000 on your 2013 tax return. What if you refinanced a mortgage last year? Then, you would have to deduct the points over the life of the loan. That means you can deduct 1/30th of the points a year if it’s a 30-year mortgage.  Granted, that’s only $33 a year for each $1,000 of points you paid, but every little bit helps.

Property taxes

Once you see what you, (or the holder of your escrow account), paid in property taxes in 2013  —  (find that number by looking at the annual statement you recently received from your lender; or if your taxes aren’t included in escrow payments made with your mortgage payments, then look at your cancelled checks)  —  enter that amount on your Federal form. Property taxes must be taken as an itemized expense. The tax you pay – each year – is deductible, for as long as you own the home. See Schedule A, line 6.

Home improvements

In what may be considered a sign of market confidence about the long-term prospects for the recovery, homeowners took on all sorts of remodeling projects last year. Chances are, you did, too.  Whether you added square footage, put on a new roof, or made other “capital improvements” to your home, know that the money you spent on these projects – which increase your home’s value (as opposed to non-eligible repairs which just return something to its original condition) – can help lower your tax bill when you sell your home. Try using a free tool like Zillow Digs to get a sense for how much a remodeling project will run you and whether it will be a good return on your investment.
And as always, save your receipts!

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Happy Valentines Day!

Self-Employed? The Mortgage Rule You Need to Know

When applying for a mortgage, lenders will classify you as a wage earner employee or self-employed. Furthermore, if you also own a business or a percentage of a business, you might be considered self-employed even though you are a W-2 wage earner. If this is you, here’s what you’ll need to know to complete a mortgage application.

To start with, here are the income classifications for lending:

Employee: Individual is a W-2 wage earner and receives a paycheck. Taxes are withheld from the paycheck.
Self-employed: This includes everything else — a sole proprietorship, any business entity where income is derived or lost (including all affiliated corporations), and income derived from real estate or dividend income.

Where the Two Worlds Intersect

Bona fide employees who also have an ownership interest in the company can actually be considered self-employed. For example, if you’re a W-2 wage earner employee and you also have more than a 25 percent ownership interest in the company that employs you, this would earmark you as‘self-employed for the purposes of completing a mortgage application. If you happen to be a W-2 wage earner, but you have a percentage of ownership in another business, you would be considered both an employee and self-employed.

Business Ownership and Getting a Home Loan

Your federal income tax returns are required for the purposes of documenting your ability to repay when securing a new mortgage. On your tax returns, as a sole proprietor you file a Schedule C, and this income carries over to Schedule A. Most sole proprietors don’t have separate business entities, so corporate returns are not required as it is 100 percent ownership. However, things are different when you have an ownership interest in a company.

Schedule E identifies whether there is additional business income and/or that you are an owner in an additional business.
If an additional business is present on the return, the mortgage lender will require a K-1 to determine the percentage of ownership.
Mortgage Tip: If you own 24 percent of a business, you are not considered self-employed for the purposes of the loan application, and the lender will not need to obtain the corporate income tax returns. However, if you own 25 percent or more of a business — whether it’s your current employer or another business entity, as identified on the K-1 — then, yes, you’ll need to provide additional income tax returns for the entity in addition to your personal tax returns for obtaining the mortgage.

Why All Income Examination Matters

An ability-to-repay analysis is required on all mortgage loans. Simply providing W-2s, pay stubs and personal tax returns is not enough if you have more than a 25 percent business ownership interest in another company. If you’re receiving additional income from another business, and that income is tied to your personal tax returns necessary for securing that mortgage, it becomes necessary for the lender to have the additional tax returns because they support your reported income and subsequent ability to repay. Lenders are required to average your income in most cases during the past 24 months (including the business income) and that averaged income or loss will be used on the application in accordance with obtaining the new mortgage.

A financial word to the wise for the self-employed: You don’t need to provide the additional tax returns if you are a small minority share owner in a company.

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How To Make Your Home For Sale Stand Out In The Crowd

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Getting Your Home Ready To Sell...5 Interior Painting Mistakes to Avoid

In his role as the “Paint Doctor” for Purdy — longtime makers of handcrafted paint brushes and roller covers — Bruce Schneider fields queries from intrepid do-it-yourselfers on a regular basis. Who better to ask about the most common problems that homeowners encounter in their interior painting projects?

No. 1: Choosing inferior applicators

Solution: “To get the job done right, you need good quality tools,” Schneider says. “It always boggles my mind that people are willing to spend $40 or $50 on a gallon of premium paint but decide to go cheap on the applicators. Later, when they see a hair on the wall or lumps of roller lint under the paint, they’ll realize the mistake. Investing in good brushes or rollers up front is worth the extra expense.”

No. 2: Improper preparation

Solution: “It may seem obvious, but you always want to do repair work first so that your walls are smooth, clean, dry and free of loose debris before you begin painting,” Schneider advises.

 

No. 3: Overextending each dip of the brush or roller

Solution: DIYers often continue applying a dip of paint until the brush or roller becomes dry. The problem? “When you overextend each dip, the paint can dry in the brush bristles, and the fabric on rollers can mat down,” he cautions. “Be sure to always maintain a smooth line of paint. Once the paint appears to break up, it’s time to re-dip.”

No. 4: Breathing the wrong way

Solution: The way you breathe when painting — especially when cutting in near edges — can affect the steadiness of your hand. “When you need to be precise, hold your breath or breathe out,” Schneider suggests. “Your body moves more when you’re breathing in.”

No. 5: Letting touch-up paint dry out

Solution: To extend the life of your leftover paint, try these tricks. “For water-based paint, place a piece of clear plastic wrap directly on the surface of the paint, then reseal the container,” Schneider offers. “For oil-based paint, add about a half-inch of water on the surface before resealing.”

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Do You Own the Air Above Your Home?

Most of the time, you only hear about “air rights” in crowded urban centers, such as New York City, where vertical living is the norm and space is at a premium. Still, every homeowner should have an understanding of air rights in general. Do you own the air above your home by default? And if so, what can you do with those rights?

Most people own the air rights above their homes, up to a point.

In real estate, air rights, which refer to the empty space above a property, are one type of development right. Before the 20th century, anyone owning property also owned the unlimited air rights above it, as well as the ground beneath it. Then and now, most property ownership laws are based on the Latin doctrine, “For whoever owns the soil, it is theirs up to heaven and down to hell.” (For more about ownership of the ground beneath your house, see “Do You Own the Land Under Your Home?”)
But with the arrival of airplanes in the 20th century, air rights became more limited. Homeowners only had rights to the airspace above their home that they could reasonably use. This restriction was necessary; without it the airline industry would never have taken off because airplanes would be trespassing everywhere they flew.

Your air rights probably may not enable you to build higher.

Every town and/or neighborhood has zoning restrictions. Those restrictions generally prevent a homeowner from, say, building a small office high-rise on their property in a residential neighborhood, even though that homeowner owns the air rights to their property. Have a small home but want to go up a few stories? Zoning restriction will likely restrict you from building out too much, even though the air above is yours.
Air rights can have more significance in places like New York.
In dense urban areas such as New York City where there is high demand but limited land on which to build, air rights can have potential value. Not using the air above your building? A developer may acquire those rights to build out an adjacent property. This article from the New York Times lays out how a few lucky homeowners took advantage of the opportunity to sell their air rights.

Your air rights don’t necessarily have any market value.

But, even though the homeowners in the example above were able to cash in,  doesn’t mean that the air above your property in NYC is valuable. The public often assumes “there is a market value for air rights in a particular neighborhood or zoning district, and that amount should be applied to the remaining buildable feet within the zoning envelope,” says Miller Samuel Inc. President and CEO Jonathan J. Miller.

“The reality is that the value of air rights is based on what options the adding property owners have if they were to acquire the rights,” Miller explains. “In other words, if the subject property has plenty of air rights to sell but none of the adjacent property owners are able to use them, then the seller has no one to sell them to. If the buyer needs to obtain a zoning variance first, then it would be risky to purchase the rights until the variance was secured.”

Air rights don’t mean you own your view.

Air rights don’t have any direct relationship to the views from your property (except maybe your skylight). In a hilly, view-laden city like San Francisco, views aren’t protected. You may have a great view, but it could disappear if local zoning laws allow the owner of a vacant lot next door to build a McMansion. You may have some say in your neighbor’s construction project, however. In some cities and towns, neighbors are allowed to voice their concerns at a public hearing before any building permits are granted.

Not sure about views and air rights? Ask questions.

Are you uncertain about views or the air rights above or next to a home you want to purchase? Visit the local planning department. Ask them what can be built on the property you want as well as the adjacent properties, and ask about height restrictions. When it comes to air rights, the bottom line is that you probably own them. But they’re only valuable if someone else can actually use them for development purposes.

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