Credit Myth #2: Having your credit report pulled will ruin your scores

After spending over 16 years in the mortgage lending industry I have identified seven myths that consumers commonly hold regarding their credit score. Over the course of the next few weeks I am going to breakdown each myth and help you better understand how your credit scores are determined so that you can achieve a better outcome for your next loan application.

The second myth is that having a lender pull your credit report will ruin your credit score. It is true that credit inquires will reduce a consumers credit score. For each consumer the impact will be different, but for most the adverse effect is very small. In fact, according to THIS ARTCILE one credit inquiry will only reduce a person’s score by less than five points. Take a moment to watch this short video to learn about the special exception that applies to the mortgage industry pulling your credit:

Please contact me today to learn more about how your credit will impact your next home loan process.

Reverse Mortgages as a Retirement Tool

It is no secret that the baby boomer generation is entering retirement with troubling financial circumstances.  On average baby boomers are carrying more debt, less savings, and fewer guaranteed retirement pensions than previous generations.  Need proof?  SEE HERE or HERE.

The Home Equity Conversion Mortgage (HECM), also known as a ‘reverse mortgage’, may offer a solution for those retirees who have not accumulated enough retirement savings but have substantial equity in their homes.

The Journal of Financial Planning has done a great job of devoting space to research around the topic of using reverse mortgages as a retirement tool.  In the February 2017 issue THIS ARTICLE was featured in which the author compares the usage of a reverse mortgage to an immediate annuity as a funding vehicle.

For those interested in learning more about the basics of a reverse mortgage the author does a nice job summarizing key points in the section entitled ‘The HECM Product’.

In addition, through analysis the author finds that reverse mortgages can generate higher levels of retirement income for couples when compared to the income generated from an immediate annuity.  The opposite is true for individuals.

I hope you find it an interesting read!  Please feel free to contact me if you want to learn how a reverse mortgage can fit into your retirement plans.

Understanding Tax Deductions on a Residence

I am often asked by customers to explain the tax deductions associated with owning a home.  Although I am a CERTIFIED FINANCIAL PLANNER™ I always feel hesitant to answer this inquiry because I am not a licensed tax preparer and the tax code is so dynamic I want to be careful not to misjudge a person’s circumstances.

I came across THIS ARTICLE written by two competent tax professionals and thought I would share it.  It does a great job of summarizing the tax advantages of owning a primary & second residence as well as the capital gains exclusion.

The article also touches on the possible advantage of unmarried couples co-owning property in high cost housing areas.

Should I prepay my mortgage?

As a Certified Financial Planner™ and Mortgage Professional I often get asked whether or not it makes sense to pay-off your mortgage.  As with any financial decision there are always trade-offs.  Often times money that could be used to pay down or pay off a mortgage can also be used to invest for other accumulation goals (i.e. retirement, emergency savings, college).  I came across this post by one of my favorite online financial experts and thought I would share.

A gray house and calculator on wood background with copy space for your message

The column focuses on comparing returns versus the cost of borrowing which is an important part of the equation.  The other piece I would emphasize in risk tolerance with regard to finances.  The nice thing about paying down or pay-off a mortgage is it offers a guaranteed return.  With other investments, including US government debt, there are varying degrees of risk.  Aside from the comparison of returns its important that individuals make an honest assessment of their ability to accept that risk.

Hope this helps!

Making Your Offer as Competitive As Possible

If you are a prospective homebuyer in the Portland housing market then I don’t need to tell you how competitive it is. The most recent Case-Shiller Home price Index showed that Portland leads the nation in year-over-year home price appreciation and a separate study released by United Van Lines showed that we lead the nation in attracting new residents.

The impact in our housing market is that there is very strong demand and not enough supply to accommodate it. These conditions will likely evolve over time but for now it is making it hard for homebuyers to compete.

I will be writing a series of posts that will outline strategies a prospective homebuyer can do to optimize their chances in having their offer accepted by a seller.

Here are the topics I will be covering:

  1. Completing & Communicating a comprehensive pre-approval
  2. Know your limits
  3. Accommodate the sellers’ timeline
  4. Eliminating a home sale contingency
  5. Buy the home then do the mortgage
  6. Avoid FHA & VA
  7. Let the lender pay your closing costs

Do you have any ideas for getting your offer accepted? Please comment below.

Budgeting help

As a CERTIFIED FINANCIAL PLANNER(TM) and mortgage professional I have shared countless conversations with customers on the various challenges of setting up and maintaining a household budget/ spending plan.  I know that I personally use Quicken for my household but that program can be a little cumbersome for folks (it helps to have some level of accounting background if a person wants to use Quicken).

Savings, money, deposit.

That said, I was in a meeting today with some real estate professionals and they were raving about   I went on the website and polked around and I love their mission and methodology.  Full disclosure: I have not used their free trial so I can’t say how easy or hard it might be to use but if you are a person looking for budgeting help this might be a tool to check out.  Good luck!

Interested in buying a home with a tax exemption?

Did you know some homes in Portland qualify for a 10-year property tax exemption?  This can save a homeowner thousands of dollars each year.  In order to qualify for the limited tax exemption the sale must meet the following requirements AND be identified as an eligible property on THIS WEBSITE.proptaxxxxxx

Here are the requirements from the City of Portland website:

Sale price cap: The property must sell for no more than the sale price cap established annually by Portland Housing Bureau (PHB) — no more than 120% of the annual median sale price (or appraised value if an owner/builder) — currently $291,000 (as of January 2014). Escrow must notify PHB if a property is selling over the established price cap. If the exemption is already in effect, it will be terminated and escrow must request the amount of any taxes exempted due from Multnomah County to be paid at closing by the seller.

Occupancy: The property may not be rented at any time (both prior to initial sale and after homebuyer qualification); properties which are rented are subject to termination of the exemption. Homebuyers must occupy the property as their primary residence.

Affordability: Homebuyers at initial sale (who will be both on title to the property and occupying the home) must earn no more than 100% median family income for a family of four — currently $68,300 (as of January 2014), adjusted upward for households larger than four persons.

Honoring the Roth IRA

In case you missed it yesterday was the national Roth IRA Movement day where personal finance journalists and bloggers focused on educating the public on the Roth IRA.  As you know one of my professional core values is education so although I do not manage investments (IRA’s or otherwise) I love the idea of educating folks on various topics of personal finance.

I wanted to highlight THIS POST by Mike of the Oblivious Investor blog in which he does a nice job of laying out the pro’s & con’s of contributing to a Roth IRA versus a traditional IRA or 401K.

Good Reasons to Contribute to a Roth IRA

In many cases, a Roth IRA is the right choice. For example, Roth IRA contributions are likely preferable to saving via tax-deferred accounts if:

  • You think there’s a meaningful chance that you’ll have to spend the money in the not-so-distant future. (Remember, Roth IRA contributions can be withdrawn free from tax and free from penalty at any time.)
  • You think your marginal tax rate will be higher in retirement than it is now.
  • You think your marginal tax rate will be approximately the same in retirement as it is now, and you want to take advantage of the fact that Roth IRAs do not have required minimum distributions (RMDs).
  • You have no idea how your tax bracket in retirement will compare to your current tax bracket, so you’re “tax diversifying” by using some Roth savings and some tax-deferred savings.
  • You’ve maxed out your 401(k) and you earn too much to be able to make deductible contributions to a traditional IRA.
  • The investment options in your 401(k) are terrible, and you’ve already contributed enough to get the maximum employer match.
(For reference, the above list is not meant to be exhaustive. There are other, less common reasons why you might want to contribute to a Roth. But I think that covers the major ones.)

Not-So-Good Reasons to Contribute to a Roth IRA

There are also, however, some commonly-cited yet unconvincing arguments for contributing to a Roth IRA, including:

  • “Tax-free” is better than “tax-deferred.” It certainly sounds better. But the commutative property of multiplication tells us that paying, for example, a 25% tax now leaves you with the same after-tax amount as paying a 25% tax later. So unless you expect your marginal tax rate to increase between now and retirement, “tax-free” (via a Roth) is no better than “tax-deferred.”
  • You’ll pay less tax with a Roth than with tax-deferred savings. This is usually true, but that’s irrelevant. All that matters is how much you have left after paying the tax. And, as explained above, if the tax rate is the same, it doesn’t matter whether you pay it now or later.
  • Tax rates will increase in the future. If this is true, it is relevant, but it’s not a sufficient reason to prefer Roth contributions to tax-deferred contributions. Even if legislative tax rates go up, your marginal tax rate could be lower in retirement than it is now if your taxable income goes down dramatically when you retire — as is the case for many people.

Applying for Colleg Aid? Read this article to avoid costly mistakes

Brent Hunsberger published THIS PIECE in the Sunday Oregonian a couple weeks back.  If you or your child are applying for financial aid anytime soon it is worth a read.

Tax Update for 2012-2013

If there is one thing I’ve learned over the years with regard to personal financial planning it’s that reviewing tax changes EARLY in the new year is important.  By the time December rolls around it is typically too late to make any meaningful changes to your tax bill for that year.  This will be especially applicable in 2012 & 2013 when many tax cuts are currently set to expire.  I am in the process of updating my tax summary sheet that focuses on personal & real estate related tax provisions.  I will upload it to this blog once complete.  In the meantime, HERE IS A LINK to a 4-minute summary of what you should know.  Please remember that it’s an election year and many in Washington DC may be extending some of these provisions to help their reelection chances.  In general, tax laws can change during the year and even retroactively so it’s best to talk with a competent tax professional about your individual situation.