Webber Camden Neighborhood Association

Housing

Home Investment - Good or Bad

Brought to you by: Mary Beth MB Schultz

In today's uncertain world, most of us look to our homes for security and comfort. But with a modest rise in mortgage rates and some market cooling, is home ownership still a good investment?

The answer, according to a recent report from the National Association of Realtors, is yes! David Lereah, the chief economist at NAR indicates the current housing trend is healthy and returning to a normal rate of price growth. 'We don't need to break a record every year for the housing market to be good - in fact, cooling sales are necessary for the long-term health of this vital sector. A modest slowdown in home sales, coupled with improvements in housing inventory, means the market is in the process of normalization. That will help to bring balance between home buyers and sellers, yet sales will remain historically strong.'

This cooling effect is very good news for home buyers and owners. Even with a small increase on 30-year fixed-rate mortgage rates, housing is still very affordable and the current trend helps to keep the housing market at a more sustainable sales pace.

The experts agree that there is no longer such a tight supply. The result is that home prices will rise much closer to long term normal conditions, which is the overall rate of inflation plus a percentage point or two. This helps keep the door open for first time buyers and preserves the investment advantage for home owners. Now, that's good news for everyone.

Copyright © PropertySource Network 2006

Webber-Camden Home Loan Programs:

New First Time Home Buyers: If a First Time Homebuyer purchases a home that has a current rental property license into owner occupied, the award is $3500 as a direct grant conditioned by a five year residency.

Call The Center for Energy and Environment (CEE) for information about all of WCNO’s home loan programs. Brenda Yaritz, 612.335.5891.

Center for Energy and Environment

The Center for Energy and Environment (CEE) is an independent, nonprofit organization that works to promote public interest through the responsible and efficient use of natural and economic resources. CEE accomplishes this mission through program development and delivery, research and education, evaluation and public policy initiatives. CEE has provided energy, environmental and housing rehabilitation services to utilities, private corporations, neighborhood organizations, municipalities and public agencies for over twenty years. These services include financing, building audits, technical research and training, program design and delivery and evaluations.

Home Financing Facts and Myths

Myths
  • Perfect credit is required for a mortgage
  • A down payment of 20% or more is required
  • PMI (private mortgage insurance) is required with less than a 20% down payment
  • Lenders share personal financial information with each other and the government
  • People who do not have bank accounts cannot buy homes
  • You must have the same job for three years to qualify for a mortgage
  • You have to prove your actual income
  • You cannot get a loan if you have had a bankruptcy
  • You must sell your current home before you can purchase a new home
  • We are only able to lend in one state
Facts
  • Very few borrowers have perfect credit
  • In many cases, a home today may be purchased with no money down
  • Today, many options are available that eliminate the need for PMI
  • Personal information is protected– it is the law
  • A bank account is a good idea, but not a requirement
  • Steady income is more important than how long you’ve been on the job. Income from second and third jobs can also be used in certain circumstances
  • We have many loan products that allow you to simply state your income to qualify
  • There are loans available that accommodate bankruptcies for qualified buyers
  • Interim financing is available for qualified buyers
  • We can lend in all 50 states

CAPITAL GAINS and TAXES

It’s January—time to start thinking about taxes again. Here is a summary of the current rules regarding capital gain on personal residences and investment property. Taxation on the two is very different.

Personal Residence

The current rule permits individuals to exclude up to $250,000 of capital gain from taxation, and married couples filing jointly to exclude up to $500,000. Any amount of gain above these limitations would be taxed. The exemption can be taken per transaction. That means that the determination of whether or not the gain will be taxed is made at the time of sale. What the homeowner does next-- buy a more expensive home, buy a less expensive home, or not buy at all--has no impact on the determination. The current rule does have the limitation, however, that the property must have been used as the taxpayer’s principal residence for at least two of the past five years. If that is not the case, it is recommended that the homeowner speak with an accountant to determine what tax implications the sale of their property may have. For full details, see IRS publication 523 “Selling Your Home,” at www.irs.gov/publications.

Income or Investment Property

It’s a different story for investors. When investors sell property, they pay taxes on capital gain. However, it is possible to sell rental property or land and not pay any capital gain taxes. How? Through Internal Revenue Code 1031, which states:

No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.
Exchanging property for property allows the tax to be deferred to later years. This gives investors a wide range of investment freedom. IRC 1031 Tax Deferral can range from transactions involving the simple trade of two properties to complex, multi-property exchanges. Contact your financial advisor to determine the exchange strategy that is best suited for your situation.