Archive for February, 2007

There’s no place like home(stead).

February 22, 2007

This post is specifically for any Georgia homebuyer who purchased their home in 2006 and is hearing the word “homestead” and thinking, “I have heard that word before, and I know it’s important, but I can’t quite remember why.” 

pic_oz.jpg

The state of  Georgia allows for a reduction in property taxes for a person’s primary residence known as the Homestead Exemption.  The following statement is taken from the state of Georgia Department of Revenue website: 

“The home of each resident of Georgia that is actually occupied and used as the primary residence by the owner may be granted a $2,000 exemption from state, county and school taxes except for school taxes levied by municipalities and except to pay interest on and to retire bonded indebtedness. The $2,000 is deducted from the 40% assessed value of the homestead. The owner of a dwelling house of a farm that is granted a homestead exemption may also claim a homestead exemption in participation with the program of rural housing under contract with the local housing authority.” 

In addition to the state’ s Homestead Exemption, certain counties offer additional reductions in property taxes (again, only for a person’s primary residence) in the form of an additional $$ amount deduction or a $$ amount reduction in the assessed value of the property. 

For example, Gwinnett County currently calculates property taxes using the $2,000 state exemption, a $4,000 exemption for the school tax portion or the bill, a $7,000 exemption for the recreational portion of the bill and a $10,000 reduction on the assessed value of the property.  I started to do the calculation by hand as an example to post here . . . and let’s just say, thank goodness for computers and excel spreadsheets.  To make matters more confusing, if your house is located within the city limits (like my house), then the calculation becomes even harder to follow as the majority of your property taxes are paid to the city (and from looking at my tax bill), your city may offer other/additional exemptions as well.  

So here is why all this homestead information is important:

1.  In order to take advantage of the reduction in property taxes, you must complete and file your Homestead Exemption application with your county by the applicable deadline.  Check with your specific county for details, but most are March 1st. 

2.  Because the exemption is based on the owner of title as of January 1st, you will not need to file until the first January that you have lived in the house.  For example, if you closed on your house on June 5th, you wouldn’t need to file until the following January.  Refinancing your property does not affect your exemption.  However, if you are adding or deleting a person’s name to the title, you will need to re-file for homestead.

3.  If you purchased a home from someone who was living in the property as their primary residence, it is likely that they had filed for the Homestead Exemption on the property.  This would mean that your current mortgage payment (and tax escrow payments) are based on the reduced taxes; and if you do not file for the Homestead Exemption, your property taxes (and subsequently, your mortgage payment) will go up.  Also, if you are purchasing a home from someone who has additional exemptions — a senior citizen exemption or veterans exemption, for example — your mortgage payment may start off unusually low, but once their exemption falls off the house the following year, your mortgage payment will be adjusted up (and you will likely owe the loan servicer a lump-sum of money to make up the deficit).  More about this situation at the bottom of the post. 

4.  If you purchase a property in which the owner was not occupying the home as their primary residence (and did not have the Homestead Exemption), your tax bill and monthly mortgage payment will be based on the higher tax amount.  Once the new year arrives, you can file for the Homestead exemption, but unfortunately, your mortgage payment will not reflect the change in taxes until the county has issued a new tax bill for that calendar year.  Once the tax bill has been issued, you should send it to your loan servicer and request that they analyze your escrow account (and lower your monthly payment accordingly).

5.  And possibly the most important . . . if you forget to file for your Homestead Exemption, you probably won’t notice anything until it is too late. 

And here is why . . . Let’s say you purchased a house in March 2006.  The person you purchased the home from was occupying the house as their primary residence, so your monthly payment included $300 per month for your taxes.  In September of that year, the county issues the tax bill and the bill is paid by your loan servicer out of your escrow account.  The following year, the Homestead Exemption falls off the house and you miss the March 1st deadline.  In September the county issues a new tax bill and again the bill is paid by your loan servicer out of your escrow account.  At this point, you will likely receive a notice from your loan servicer (although you may not receive anything until your escrow account is processed through the required yearly escrow analysis by your loan servicer).  The notice states that your tax bill has gone up by $600 per year.  The increase in taxes due is a result of a reassessed higher-value of the home by the county and because the home no longer carries the Homestead Exemption.  (As a side note, in Gwinnett County, the average savings per homeowner was $425 thanks to the Homestead Exemption).  Because of this increase, and because your loan servicer has already paid the bill, you owe them $600.  In most situations, you can spread this payment out over the following 12 months, making your payment increase by $50 per month.  But, in order for the money in your escrow account to be available to pay the 2007 tax bills, your payment has to go up another $50 as well . . . for a total increase of $100 per month.  Ouch.  The following January you can file for Homestead, but your payment won’t be able to be adjusted down until the following year’s tax bill is issued by the county. 

Add the confusion of new construction property taxes to a missed Homestead Exemption filing and you’ve may just find yourself clicking your heels together, wishing you could just go back . . . there’s no place like home(stead), there’s no place like home(stead).   

Some not-so-good fruit and a $10 haircut.

February 9, 2007

In my last post I talked a little bit about how shopping for a mortgage should not be approached the same as shopping for a new TV, or gasoline, or Pop-Tarts.  Most people see this analogy pretty clearly . . . televisions, gasoline and food are commodities.  And for the dictionarily-challenged, Webster’s defines a commodity as “an article of trade or commerce, esp. a product as distinguished from a service. ”

The waters get a bit muddied and the analogy decomposes slightly (like bad fruit) when we compare purchasing a ‘good’ with purchasing a home and ‘purchasing’ or securing a mortgage.  Although, as I mentioned in my last post, it is worth saying again, if you are willing to put up with a little ‘pain and suffering’ to save $100 in closing costs, in exchange for mediocre service, quasi-professional advice and a I-hope-everything-will-close-fine mortgage experience, then you are a brave soul . . . and you can take your $100 knowing it was well earned.  On the other hand, there is something to be said for getting what you pay for — not only the end result, but the process and experience as well.  And in a  service/consulting industry like the mortgage business, sometimes it’s hard to put a dollar amount on that idea until the end of the process (or until you decide to go for the $10 haircut).

But, before we talk about $10 haircuts, let me mention a most-bizarre sign that I read while pumping gas at the Kroger gas-station (which by the way, gives QT a run for their money on price per gallon).  The sign had a photo of a professional looking family-man in his Kroger shirt and tie and blue apron.  I think the sign had his name on it and his title, “Produce Manager.”  And in nice italicized script the sign read, “Kroger produce, the perfect balance of quality and price.”

What!?!!  What does that mean??!!  (my translation)  “Ah . . . Kroger produce, it’s not great, but it’s cheap!” or “Kroger produce, dumpster-quality produce at bottom-barrel prices” or “Our produce is not as good as Publix’s produce, but you’ll save $8 every time you shop!”  Who comes up with these things . . . better yet, who gets paid to come up with these things?  So here’s my idea of the help-wanted ad from Kroger’s Human Resource Department:  national grocer looking for someone middle-of-the-road motivated, with some marketing knowledge and little to very-little experience.  Willing to pay middle to low dollar for compensation in proportion to your lack of experience.  All marginally-interested, mildly-qualified applicants should inquire.

I guess you really do get what you pay for.

So, a client of mine who purchased a house a few miles away from mine, who is now a friend of mine, called me for some local advice. 

Friend:  “Hey, Jeffrey, where can I get a good $10 haircut?” 

My response — “If you are looking for a cheap haircut, then I’m not your man.  Now, if you are looking for a great haircut, I can tell you the best place to go.  But a good – $10 haircut?  I don’t know if there is such a thing.”

pic_dumb3.jpg

So, what does all this have to do with shopping for a mortgage?  Well, mainly this, remember, saving $8 to risk some questionable-fruit, best-case will save you  a few bucks and worst-case will have you gagging at the kitchen sink.  Saving $20 (or more) on a $10 kids-cut, best-case will save you some cash and earn you a dum-dum lollipop and worst-case will have you sitting in your car, yelling at the rear-view mirror, “I said a LITTLE off the top!  What was she doing with the clippers the whole time!  I look like an IDIOT!” (actual phrases used from personal experience).  And  . . . trying to salvage a few dollars in closing costs or save an 0.125% in the rate could have you pulling your hair out a few weeks later wishing you would gone with the best, not the cheapest.

Note to Kroger:  “Kroger produce . . . great produce at great prices.”  Call me and I’ll send you my resume’. 

Shopping for the best . . . (blank).

February 2, 2007

Shopping should be labeled as the great American hobby.  With the invention of the internet (thanks VP Gore . . . ok, fine, thanks VP Gore for “[taking] of the initiative to create the Internet”), the art and skill of shopping and the unquenchable desire to get the best price, the best deal, the best you-name-it reigns supreme.  Even if not on the internet, we (as good consumers, good capitalists and good budget-teers) are always looking for the best deal.  

For most, this same zeal carries over into shopping for a mortgage.  But, unfortunately, shopping for a mortgage is not the same as shopping for the best deal on a new TV, or for the least expensive gasoline (almost always QT by the way) or for the  cheapest box of Pop-Tarts (it’s not even close, it’s always Wal-Mart).  When I started Hillside Lending in 2002 one of my main goals was to always be certain that I was offering my clients the best . . . the best rates with the best service.  Now a lot of people would agree with that statement and even use it as their “slogo” possibly (but come-on, everybody can’t be the best, right).  So, to be totally honest with myself, I decided to re-phrase my idea into this — being certain that I was offering my clients the absolute best combination of rates, closing costs and service.  What about getting the cheapest mortgage?  Or the lowest closing costs?  Why not just those things?

Here’s a funny story:  my brother and I were recently traveling to Orlando, Florida for a family funeral (obviously, that’s not the funny part) and we decided when we were booking tickets for the quickly-planned trip that he would take care of the hotel room and I would take care of the rental car.  So with multiple screens open on my computer (shopping for the best deal on a 2-day notice flight to Orlando), I found the best flight to fit my schedule and used the “click here to add rental car” button to take care of my part of the plans.  Despite knowing better, I clicked on the super-budget deal (we were only going to drive the car from the airport to the funeral home and then back to the airport the next morning) . . . I thought that $14 a day for a rental car was rather inexpensive (read: cheap, i.e. we definitely paid less, if you catch my vibe, paid less, payless), but hey the next level up in price was an increase of more than 25%!  ha.  Yes, the next level up was all of $20 per day.  I wish that I had had my camera with me.  My brother and I, both nicely dressed in dark suits, climbed into one of the dirtiest, muggiest, non-air-conditioned, park-and-ride vans I have ever seen.  We piled in with 15+ Disney-travelers and proceeded to the off-site car rental facility.  As we headed down the road, as if out of a commercial, kids screaming, I’m sweating, mother’s scolding . . . I look out the window and a beautiful Hertz park-and-ride bus goes cruising past us — you could practically see the air-conditioning on the people’s faces.  My brother said to me with a smirk, “Hey, Jeffrey, good job on saving a few dollars.”  “Hey, I saved more than 25%,” I reminded him.  To which he responded, “I think you owe me some money for the hotel room . . . after this, I don’t think we’re even.”  The rest of the story follows the same theme . . . was it a great experience? no.  Was it even a good experience? not really.  Would I use them again? I am sure I wouldn’t.  Did I save money?  yes.

pic_dumb2.jpg

So back to shopping for a mortgage.  How can you make sure that you are shopping for the best?  Well, first you have to determine exactly what that means — the best rate?  the best closing costs?  the best service?  Or the best combination of all three?  And then you have to determine what you are willing to risk (or put up with) — mediocre advice?  slowly returned phone calls?  a not-so-smooth closing?  And then once you’ve done your homework (please do more than just compare good faith estimates), give your business to the person or company who deserves your business the most . . . not because they were the cheapest, but because they really were the best. 

Next time . . . more on getting what you pay for . . . a funny story about a $12 haircut and a more-than-bizarre slogan for selling vegetables.