Archive for the ‘Home Ownership’ Category

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.” 

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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).   

Property Taxes — what you need to know.

August 31, 2006

Ah, one of the two certainties of life . . . taxes. 

At this time of year (in Georgia at least) property tax bills are being sent out by county and city governments, and, as is the case each year, the bills create a certain amount of concern and confusion with homeowners.

Here are some things that you need to know about your property tax bill:

1 — Property taxes are paid yearly in either one or two installments.  In Gwinnett County, for example, the tax bill comes out around August 15th and the first 1/2 installment is due on September 15th and the second 1/2 is due on November 15th.  

2 — If you have an escrow account for your taxes as part of your mortgage payment, the due date(s) for your property taxes were taken into account when establishing your escrow account.  If your tax bill $$ amount increases, your monthly payment will go up accordingly. 

3 — If you have an escrow account for your taxes, you still may receive a copy of the tax bill in the mail.  This is normal.  Some counties will send out dual bills — one bill to the mortgage company and one to the homeowner.  If you have an escrow account and you receive your tax bill, simply make a copy of the tax bill and send it in (the original bill) with your next mortgage payment (you keep the copy).  Or, better yet, look to see if your mortgage servicer has a special address listed for property tax bills (usually can be found on the back of your monthly statement or on the mortgage servicer’s website).  If you receive the bill and you do not have an escrow account, then you (stating the obvious) will need to write a check to pay the taxes . . . hopefully, from the account that you set up when you closed on your mortgage to deposit $200 — $300 per month in to in order to make your 4.5% return (in lieu of having an escrow account).

4 — You are responsible for the ENTIRE amount of the bill.  If you purchased your home this year, the proration of taxes (a $$ credit from the seller to you, or a $$ credit from you to the seller) should have been taken care of at closing.  This proration of taxes can be found on the front page of your HUD-1 settlement statement.  The dollar amount is prorated to the day of closing and is based on the most recent issued tax bill.

For example, if you purchased your home this year on July 31st, because the tax bill would not have been issued yet, the tax proration would be based on last year’s tax bill amount.  Your escrow account should have been set up with about 11 months worth of taxes, and with the seller’s 7 month tax credit on the front page (for the time in which they owned the house, but that you are going to be paying the tax bill for – January 1 through July 31st), it should have had you putting (net) about 4 months of your dollars worth of taxes into your escrow account.

In this same situation, because the tax bill had not come out for the year, if the taxes for this year are higher than the taxes for last year, there should be verbiage in your sales contract that would allow you to request the seller to pay the difference (prorated, of course, for the amount of time they owned the house).

5 — The tax bill will usually be in the name of the owner “of record.”  So, if you purchased your home this year, the tax bill will likely still be in the name of the previous owner.  Because most people put a mail-forward on their address when they leave, it is pretty common that the tax bill will be forwarded to the previous owner.  For Georgians, this situation will be corrected when you file for your Homestead exemption (see next point).

6 — In Georgia, homeowners receive a discount to their property taxes for any property which is their primary residence (Homestead exemption).  If the previous owner had this exemption on the property, you will still receive that benefit for the first year.  You will be responsible for filing your own Homestead exemption with the county the following calendar year.  For county specific information related to Homestead exemption, go to my website for helpful links and details.  If your home is within the city limits (and you pay county and city property taxes), check with your county/city tax offices to make sure that your Homestead exemption will filter down to the city records as well. 

7 — If you purchased your home as a newly-constructed house, your property taxes probably had to be estimated.  Property taxes are based on the condition and value of the property as of January 1st, so if your property was a vacant lot at the time, the actual taxes had be estimated to set up your escrow account.  This situation creates the most confusion, because . . . if the taxes were under-estimated, not only will the monthly payment need to increase to make up the difference for next calendar year, but you will have a balance due to your mortgage servicer (in other words, if your tax bill for 2006 was $2,000 and your mortgage company estimated $1,500, your payment will need to increase by $42 per month to get ready for the 2007 tax bill AND you were short $500 for your 2006 tax bill — to which you will need to either write a check or spread the amount over the next few months.  In this situation, most mortgage servicers will give you 3 to 6 to 12 months to pay back the shortage.  So, if you chose to spread it out over the next 12 months, your payment would go up another $42 per month . . . a total of $84 per month . . . ouch.)

8 — If you receive a large escrow refund check as part of a yearly escrow analysis, check all the facts before you spend the money.  Mortgage servicers are required to review your escrow account every 12 months, and because they are only allowed to keep a certain amount of money in your account (based on taxes, insurance and an allowable cushion) refunds sometimes occur.  In the situation above (new construction), if the escrow account were reviewed prior to the tax bill being issued, it could look like the taxes were only $400 for the year (based on a vacant lot) and your escrow account — based on $1,500 for the year — was outside of the limits.  So the escrow account is recalculated; the homeowner receives a refund check for $800 and some change; the mortgage payment is reduced $92 per month and when the actual bill comes out, there are all kinds of problems.

The scenario described above can also happen on a property owned by someone with additional property tax exemptions — a senior citizen exemption, for example.    

9 — Follow your property tax payments to make sure that the bill is paid correctly.  Some mortgage servicers send monthly statements, others provide online-access to your account.  So, double-check your account to make sure that your taxes are being paid correctly.

10 — Review your tax bill for accuracy.  Your property taxes are based on the assessed value of your property (according to an independent assessment by the county).  If this value is too high, then you are paying too much in property taxes and need to find out the process for disputing this information with the county.  Be smart about this one . . . I had a client once call me and tell me he was angry because he thought the county’s assessed value was too high — $350,000 assessed value, almost $50,000 more than he paid for the house.  “How much would you sell your house for today?” I asked.  “Probably not less than $390,000 or $400,000 . . . but that’s not the point,” he replied.  Really?? . . . Seems like the point to me (that’s what I thought I should have said, at least).  I also had a client once call and tell me that the value listed on their assessment was too low . . . yeah, probably not going to want to argue with the county on that one.

So, that’s what you need to know about your property taxes . . . and, as you may already know . . . “knowing is half the battle” (famous show-ending advice from tv-cartoon-super-soldier GI Joe).

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If your house could talk . . .

August 10, 2006

it would probably say something like this . . .

“Help me . . . help you. Help me, help you.”

When people talk about real estate, the first phrase that comes to mind is usually “location, location, location.” While I find this to be absolutely true, if “location” is number one on the list, then home maintenance is number two (although annoying neighbors can supercede number two at anytime depending on distasteful yard-art, lack of lawn care, cars on blocks, etc). Anyway, when general home maintenance is neglected, it is at the expense of not only the quality of your home, but at the expense of the quantity of your dollars you can expect to net from the sale of your house.

So in addition to the old adage, “location, location, location,” I think I would like to add a new buzz-phrase to real estate — courtesy of Jerry Maguire (in the locker-room and very much at the end of his rope talking to an air-drying, prima dona wide-receiver Rod Tidwell). “Help me . . . help you. Help me, help you.”

As the inventory of homes available for sale increases, buyers become more demanding (supply goes up, demand stays the same, prices go down — so said my 9th grade economics teacher) and more demanding buyers will usually call on more demanding home inspectors . . . and more demanding home inspectors can cost you thousands of dollars in repairs. And, hey, if you are going to end up paying for the repairs anyways, why not do some of them while you are in the house so you can enjoy them.

Bottom line — help yourself, help your house, help your bank account.

For a great calendar of “to-do’s” to help keep your home in great shape, check out this list of monthly home maintenance ideas.

 

Congratulations homeowner . . . hello junk-mail.

April 26, 2006

One of the not-so-joyous joys of home ownership is junk mail.  Regardless of how you answer your preferences on a privacy-policy with a lender of mortgage broker, you are going to get junk-mail.

And here are a few reasons why . . .  

Reason # 1:

Because you purchased a home (assuming that you needed to take out a mortgage on the house) the mortgage information is public record and is recorded at the county courthouse.  The transfer of title is recorded in the form of a Warranty Deed and the fact that you have collateralized the property with a mortgage is recorded in the form of a Security Deed.  Because this information is accessible by the general public (hence the term, public records) companies and solicitors have access to your name, your property address, your lender/investor, whether or not your loan has Private Mortgage Insurance, or PMI, and your original loan amount.  And, for those of us in Georgia, because the Warranty Deed is stamped with the state of Georgia’s transfer tax amount paid (which costs $1 per $1,000 of the purchase price), the price that you paid for your home is easily determined as well.  For example, if the Warranty Deed is stamped with the seller paying $200 in transfer tax, then the property must have sold for $200,000.

Junk mailers and solicitors gather the information from the courthouse (or purchase it from a directory-consumer list company) and use it to send you everything from coupons, to flyers, to notices about refinancing.  Some of the refinance and second mortgage solicitations are the worst and most misleading going so far as using phrases like, “Please call immediately concerning your Hillside Lending mortgage . . . ”  Just to give you an idea of HOW misleading they can be, listen to this — I came home from work one day and opened a piece of mail and it was addressed to me and said it was from the “Loan Acquisition Department” concerning my second mortgage with “XYZ Bank.”  It said that I needed to call immediately, that there was an issue with my account, and they needed to speak with someone as soon as possible.  A 1-800 number was included with the letter and, assuming that my mortgage had been transferred or sold to another company, I picked up the phone and called.  I was SHOCKED when the under-skilled (and probably under-paid) telemarketer answered the phone and started asking me details about my second mortgage, current loan amount, interest rate, etc.  When I asked for the “Loan Acquisition Department” she didn’t even know what I was talking about and when I mentioned the letter, she didn’t even try to fake it . . . she just said, “Oh, yes sir, we would like to talk to you about refinancing your second mortgage.”  What!?!  I think I said something about her company being a bunch of crooks, fraudulent at best, and about me calling the Better Business Bureau or the Governor’s office, or something to that effect.  I think her response was something to the affect, “Uh, sir, does that mean that you aren’t interested in hearing about how we can save you up to $100 per month on your second mortgage?”

Reason # 2: 

A lot of loan services offer ancillary services as part of their affiliate companies.  The most popular (at least based on the shear volume of times they send you notice — 1st notice, 3rd to final notice, 2nd to final notice, final notice, “Your Not Protected” seriously-this-is-your-final-notice) and most annoying in my opinion, is the mortgage-life-insurance product sold TO the consumer as a way “to protect their loved ones”, and sold BY the loan servicer as the easiest way to protect their loan.

Please don’t misunderstand me, I DO think that it is a good idea to have enough life insurance to cover your mortgage balance, I’m just not sure that I want my wife to be required to pay off the mortgage in the event of an untimely death.  (Mortgage-life-insurance is usually a declining value life insurance premium that decreases at the same pace as your mortgage balance and in the event of your death, the policy is used to pay off the mortgage).  If you would like a recommendation for a life insurance agent (and good friend of mine) who would be willing to walk you through the planning process to determine what products are best for you, please give me a call.

Reason # 3:

The privacy policy of the mortgage broker or loan servicer may allow for them to sell certain information or share information with affiliates.  Read carefully!

So, to reiterate something you will find out every time to walk down your new driveway and open your new mailbox, let me be the 381st person to let you know, “Congratulations, you’ve been selected . . . “; “Do not bend, important information inside!”; “Important account information enclosed”; “Please Respond with 5 days”; “Time Sensitive Material Enclosed”; “You May Have Won $1,000,000 dollars!!”

. . . yeah, so, good luck with that.