YOUR HOME

INEXPENSIVE HOMES ARE DRAWING INVESTORS AND HOUSE FLIPPERS

Last year, when Warren Buffet called single family homes an attractive investment, he was apparently preaching to the choir. Investors and investment companies snapped up 100,000 homes in the first half of 2012 according to real estate research firm RealtyTrac.

Distressed, foreclosed homes in the states hardest hit by the real estate crisis have been purchased at lowball prices by investors who hope to make necessary improvements and then resell fast. After making essential repairs the homes are selling, on average, at markups of $29,000. That is just one of the reasons why, as before the housing bubble, in many areas there are more buyers than homes available.

Some flippers are updating homes to use as rental properties. The ventures should be profitable for years to come considering the high demand for rental homes and an outlook of rising rents.

Blackstone Group spent more than $1 billion on 6,500 foreclosed homes throughout the United States. Most of them will be repaired and rented.

According to Time, house flipping might seem vulture like, but in many ways it's good for communities. At least, homes that are purchased for quick sale get fixed up. Otherwise they become eyesores as they steadily deteriorate drawing people and animals looking for a deserted flophouse.

How house pros flip houses:

• They monitor foreclosure rates which have increased in some cities.
  
  
  
• They analyze pricing and occupancy trends in the neighborhood.
  
  
  
• They pay low dollar for everything. They get in cheap to make repairs and hold the property until it sells.
  
  
  
• If they can't sell they become landlords.

We've found our dream home. Our lender suggests we finance with an open end adjustable rate mortgage. Is that a good idea? That depends on your personal circumstances. The open end mortgage is a legitimate instrument and works well for some people. I personally would rather have a regular ARM or a fixed rate 15 or 30 year mortgage. Regardless of the type of loan you choose, your dream home will require a jumbo mortgage which means you'll borrow at least $625,000. Interest wise, the jumbo can be a good deal sometimes having a lower interest than a regular 30 year fixed rate mortgage.

Today, adjustable rate mortgages account for 30 percent to 40 percent of private jumbo loans at Bank of America and about half of the private jumbo loans by NASB Financial, the holding company of North American Savings Bank.

How ARMs work. All ARMs have a fixed rate for a certain number of years before they become variable usually resulting in a significant increase in the interest rate. A five year fixed rate is typical, but the time period can be as long as 10 years.

Note that ARMs got a bad name during the housing bust because borrowers couldn't afford the higher interest when the original terms expired. Since you are a high net worth buyer your risk of being unable to make monthly payments when the interest rate rises is small.

Open end mortgages. Some jumbo home loan buyers do opt for an open end mortgage which is an entirely different type of loan. It's a mortgage that allows the borrower to increase the amount of the mortgage at a later date. The total outstanding principal must not exceed a certain amount such as 80 percent of the appraised value of the home. The loan is similar to a home equity line of credit which allows home owners to pull equity out of their homes as well as make larger payments on the property.

WOULD YOU ADVISE REFINANCING OUR HOME AT A LOWER INTEREST RATE?

Maybe. When interest rates are low some homeowners rush to refinance before evaluating the true consequences of their actions. A mortgage refinance can benefit you if you intend to stay in your home for the long term, and if it significantly reduces your interest rate. But a mortgage refinance can also be the wrong move.

Don't make a poor decision based on interest rate envy. There's more to it than being able to brag to your neighbors about your lower interest rate.

The objective of a new loan

• The first step when deciding to refinance is to establish a clear objective. For example, if you think you might lose your job, but you have one now, your focus should be to lower your overall payment regardless of the length of the loan. If you want to be debt free by a certain year you need to find a loan that meets that objective.
  
  
  
• There can be an advantage to going to the same servicer that handles your loan now. They may require less documentation, but talk to at least one other lender and compare costs and fees.
  
  
  
• Shop for a mortgage by comparing the APR (annual percentage rate) of each loan, rather than the quoted interest rate. Make sure you will really be saving one-half point or more on the new loan.
  

The HARP Loan

A current appraisal might show that your home is worth less than you assumed. Fannie Mae and Freddie Mac have added fees on loans with a high loan-to-value.

If you find you have little or no equity, you may qualify for a refinance under the government's Home Affordable Refinance Program, or HARP, if you have a current mortgage owned or guaranteed by Fannie Mae or Freddie Mac. The beauty of the HARP program is that it does not require an appraisal. If you suspect you are underwater on your loan this could be a good option. Still, be sure you compare the rate and fees to see if the new loan is worth the cost.

SIX WAYS TO USE LESS ENERGY AND LOWER YOUR HEATING COSTS

Cold weather is here and you're probably wondering how to pay less for heating than you did last year. You could buy an energy audit for a detailed diagnosis of your home or you could do a few things yourself that could lower energy costs significantly, say the experts at CNNMoney.com.

• Check your heating and cooling ducts. If they leak, as much as 30 percent of your heat might be lost. You can cover accessible ducts with less than $100 worth of metal tape or mastic sealant.
  
  
  
• If it's time to replace your top loading washer, a front loader will cost more, but will use a third to a half of the water, and less energy and detergent. Go with cold or warm water to save money.
  
  
  
• Change your furnace filters! And do it every few months. That will save you money on the system you have today. When the furnace needs replacing consider an Energy Star certified model. It could cut power bills by more than $200 a year, says the Environmental Protection Agency.
  
  
  
• Check the insulation in the attic. Floor insulation should stick up over the floor joists, says the EPA. If it's below the joists add more for energy saving.
  
  
  
• Turn the water heater down to 120 degrees to save on energy use. Insulate the pipes and the heater itself with an insulating blanket to reduce heat loss.
  
  
  
• Install a low flow shower head and you'll cut hot water use 25 percent.
  
  
  
• Turning the thermostat down when you are asleep or gone can save up to $200 a year. But a programmable thermostat will turn the heat back on before you wake up or get home. You won't have an icy cold house.

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