UNDERSTANDING TRADITIONAL MORTGAGES

When shopping for a mortgage, consumers have more choices than ever before. Many lenders now offer specialty mortgages that help make homeownership more affordable but have risks that consumers should fully consider (see our brochure on specialty mortgages). But for most consumers, the traditional fixed-rate mortgage and adjustable-rate mortgage (ARM) continue to be excellent options. However, even these traditional financing options require a number of important decisions. Should you get a 15- or 30-year loan? Should you get a fixed-rate mortgage to lock in today’s interest rates for the term of the loan—or take an adjustable-rate loan with a lower current rate and payment, but with the risk of rate and payment increases in the years ahead?

You can also tap the equity in your home by refinancing your existing mortgage, taking out a second mortgage, or obtaining a home equity line of credit. This brochure helps you consider these options as well.

We hope this brochure will help you understand traditional mortgages and make the choice that is best for you.

Fixed-rate mortgages

With a fixed-rate mortgage, you are guaranteed the same interest rate over the life of the loan. Your monthly payments never change, and the loan is paid off completely over the term you select.

Adjustable-rate mortgages

The initial interest rate on an adjustable-rate mortgage (ARM) is generally lower than that for a fixed-rate loan. However, with an ARM, the interest rate may increase or decrease in the future, and the size of your payments will go up or down along with the rate.

Most ARMs are “hybrids,” meaning that the interest rate is “fixed” for a certain number of years—after which the rate begins to “float.” The most common ARMs fix the initial rate for three, five, or seven years. ARMs are probably most appropriate for people who have sufficient financial resources to handle potential payment increases or know that they plan to sell their home around the time the loan’s interest rate is set to change.

Important features of adjustable-rate loans

Before agreeing to an ARM, you should ask the following questions:

How long does the initial interest rate apply?

How frequently can the interest rate change?

How is the adjusted interest rate determined? (Generally, a specified amount—the “margin”—is added to a current published rate—the “index.”)

How high can the interest rate go?

Does the loan set a minimum interest rate?

Are there any limits on how much the interest rate can change each year?

Do the monthly payments still pay off the loan even if interest rates increase? (With some loans, the amount you still owe—your “loan balance”—can increase rather than decrease each month. This is called negative amortization.)

What is the maximum monthly payment that you could be required to pay?

Potential pitfalls of ARMs

Even small changes in your interest rate can increase your monthly payment significantly, resulting in “payment shock.” Even a change of 1% or 2% in interest rates can result in a very big jump in your monthly mortgage payment. For example, if the interest rate on your mortgage changes from 4% to 6%, your monthly payment could rise by as much as 50% (from $1,000 to $1,500).

ARMs can be complicated, and many specialty ARMs (with risky terms appropriate only for a small group of borrowers) are now being marketed widely. Be sure to avoid loans with terms that you don’t understand. Get a copy of our brochure on “Specialty Mortgages: What Are the Risks and Advantages?” to learn more about these ARMs.

Understanding Home Equity

People who have paid down their mortgage or seen their home’s value rise have equity in their home. Equity is the difference between the home’s value and what you owe the mortgage lender. One benefit of homeownership is the ability to build equity. Homeowners draw on equity for emergencies and for retirement income. Equity also allows you to pass wealth (the home or the money made by selling that home) from one generation to the next.

Refinance loans

In recent years, many people have refinanced their home loans to take advantage of low interest rates. Some have also refinanced in order to obtain cash. In a refinance, you pay off your mortgage with a new loan. In a “cash-out refinance,” you increase the size of your debt in order to get cash at the closing table that you can use for other purposes.

In any refinance, it’s important to ask about the fees you will pay. Sometimes, even substantial fees are easily hidden, as lenders may roll the fees into the loan balance. Of course, increasing the loan balance decreases your home equity.

Borrowing against your equity

Many people borrow against their equity. Two options for doing this are a traditional second mortgage and a home equity line of credit.

With both methods, you use your house as collateral—which means that you risk losing your home if you can’t repay the loan according to its terms. The lender decides how much money to make available by considering, in part, how much of the mortgage debt you still owe.

Traditional second mortgage loans

A second mortgage provides a predetermined amount of money that the homeowner is obligated to repay over a fixed period. Second mortgages generally come with fixed interest rates. Home equity lines of credit

A home equity line of credit (HELOC) is a form of revolving credit. Generally, you can borrow up to a certain amount (the “credit limit”) over a predetermined period of time (the “draw period”).

The repayment terms of HELOCs vary. For example, many HELOCs are structured so that monthly payments cover only interest for the first ten years.

A HELOC generally carries a variable rate. If you consider a HELOC, you should ask the same questions about how this rate is set (and may change over time) that you would ask when considering any other adjustable-rate mortgage.

If you sell your home, you will have to pay off or refinance your HELOC.

Home Improvements by Landscaping

The art of arranging or modifying the features of the grounds around a home to improve the property from an aesthetic and/or practical standpoint.

This definition, however, raises the questions, “Aesthetic for whom?” and “Practical for whom?” The issue of aesthetics, in particular, is fraught with subjectivity. Frankly, what I find to be attractive landscape designs might not excite you at all. But this does not mean that nothing needs to be said about landscape aesthetics for the do-it-yourselfer.

You may have your own distinct tastes, but there are still useful guidelines to discuss that will help you achieve maximum aesthetic impact on your landscape. If your property is destined for the real estate market, please consult my ideas on home landscaping to learn specifically about sellers’ guidelines; essentially, you will need to take into account the tastes of potential buyers. If, instead, you are landscaping simply to suit your own tastes, you’ll want to keep in mind the general design guidelines for landscape aesthetics discussed in the following pages.

Practical Do-It-Yourself Landscape Design: Energy Conservation With Trees, Land Use

How will your yard be used? Do you have children who are active outdoors? Will you be landscaping with dogs? Do you yourself plan on using your yard for exercise, sports, or entertaining? Answering these questions will help narrow down the possible landscape designs best suited to your needs. Extensive lawn space is useful in a yard that will see a lot of social barbecues, badminton and ball playing. But if you are more interested in turning your yard into a retreat meant for serenity, solitude and contemplation, the role of turf grass may be reduced drastically in favor of trees.

The various aspects of practical landscape design are too numerous and too complex to discuss at length here. Undoubtedly, however, one aspect that warrants inclusion in any introduction to landscape design is energy conservation. A well-planned incorporation of trees and shrubs in your yard, as in the following examples, is an effective means of energy conservation:

• Deciduous trees can be planted to the south and west of a home to serve as shade trees, reducing summer air conditioning costs. Because such trees will drop their leaves in winter, they won’t deprive your home of sunlight when you need it.
• Evergreen trees planted to the north and west of a home can serve as windbreaks. By breaking the wind, such trees will reduce your heating costs in winter.
• Likewise, shrubs used as foundation plantings can reduce heating costs, creating an insulating dead air space around the home. Plant the shrubs a few feet away from your foundation.

But after such practical concerns have been addressed, you’ll still want to make your landscape design as aesthetically pleasing as possible. An introduction to aesthetics is as much a part of do-it-yourself landscape design study as is an introduction to its practical side.

FIRST-TIME HOMEBUYER TAX CREDIT

Frequently Asked Questions

In 2008, Congress enacted a $7500 tax credit designed to be an incentive for first-time homebuyers to purchase a home. The credit was designed as a mechanism to decrease the over-supply of homes for sale. For 2009, Congress has increased the credit to $8000 and made several additional improvements. This revised $8000 tax credit applies to purchases on or after January 1, 2009 and before December 1, 2009.

Tax Credits — The Basics

1. What’s this new homebuyer tax incentive for 2009?
The 2008 $7500, repayable credit is increased to $8000 and the repayment feature is eliminated for 2009 purchasers. Any home that is purchased for $80,000 or more qualifies for the full $8000 amount. If the house costs less than $80,000, the credit will be 10% of the cost. Thus, if an individual purchased a home for $75,000, the credit would be $7500. It is available for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009.

2. Who is eligible?

Only first-time homebuyers are eligible. A person is considered a first-time buyer if he/she has not had any ownership interest in a home in the three years previous to the day of the 2009 purchase.

3. How does a tax credit work?

Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual’s income tax return. Thus, a qualified purchaser would figure out all the income items and exemptions and make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax return a person has total tax liability of $9500, an $8000 credit would wipe out all but $1500 of the tax due. ($9,500 – $8000 = $1500)

4. So what happens if the purchaser is eligible for an $8000 credit but their entire income tax liability for the year is only $6000?
This tax credit is what’s called “refundable” credit. Thus, if the eligible purchaser’s total tax liability was $6000, the IRS would send the purchaser a check for $2000. The refundable amount is the difference
between $8000 credit amount and the amount of tax liability. ($8000 – $6000 = $2000) Most taxpayers determine their tax liability by referring to tables that the IRS prepares each year.

5. How does withholding affect my tax credit and my refund?
A few examples are provided at the end of this document. There are several steps in this calculation, but most income tax software programs are equipped to make that determination.

6. Is there an income restriction?
Yes. The income restriction is based on the tax filing status the purchaser claims when filing his/her income tax return. Individuals filing Form 1040 as Single (or Head of Household) are eligible for the credit if their income is no more than $75,000. Married couples who file a Joint return may have income of no more than $150,000.

7. How is my “income” determined?
For most individuals, income is defined and calculated in the same manner as their Adjusted Gross Income (AGI) on their 1040 income tax return. AGI includes items like wages, salaries, interest and dividends, pension and retirement earnings, rental income and a host of other elements. AGI is the final number that appears on the bottom line of the front page of an IRS Form 1040.

8. What if I worked abroad for part of the year?
Some individuals have earned income and/or receive housing allowances while working outside the US. Their income will be adjusted to reflect those items to measure Modified Adjusted Gross Income (MAGI). Their eligibility for the credit will be based on their MAGI.

9. Do individuals with incomes higher than the $75,000 or $150,000 limits lose all the benefit of the credit?
Not always. The credit phases-out between $75,000 – $95,000 for singles and $150,000 – $170,000 for married filing joint. The closer a buyer comes to the maximum phase-out amount, the smaller the credit will be. The law provides a formula to gradually withdraw the credit. Thus, the credit will disappear after an individual’s income reaches $95,000 (single return) or $170,000 (joint return). For example, if a married couple had income of $165,000, their credit would be reduced by 75% as shown: Couple’s income $165,000 Income limit 150,000 Excess income $15,000 The excess income amount ($15,000 in this example) is used to form a fraction. The numerator of the fraction is the excess income amount ($15,000). The denominator is $20,000 (specified by the statute).

In this example, the disallowed portion of the credit is 75% of $8000, or $6000 ($15,000/$20,000 = 75% x $8000 = $6000) Stated another way, only 25% of the credit amount would be allowed. In this example, the allowable credit would be $2000 (25% x $8000 = $2000)

10. What’s the definition of “principal residence?”
Generally, a principal residence is the home where an individual spends most of his/her time (generally defined as more than 50%). It is also defined as “owner-occupied” housing. The term includes single-family detached housing, condos or co-ops, townhouses or any similar type of new or existing dwelling. Even some houseboats or manufactured homes count as principal residences.

11. Are there restrictions on the location of the property?
Yes. The home must be located in the United States. Property located outside the US is not eligible for the credit.

12. Are there restrictions related to the financing for the mortgage on the property?
In 2009, most financing arrangements are acceptable and will not affect eligibility for the credit. Congress eliminated the financing restriction that applied in 2008. (In 2008, purchasers were ineligible for the $7500 credit if the financing was obtained by means of mortgage revenue bonds.) Now, mortgage-revenue bond financing will not disqualify an otherwise-eligible purchaser. (Mortgage revenue bonds are tax-exempt bonds issued by a state housing agency. Proceeds from the bonds must be used for below market loans to qualified buyers.)

13. Do I have to repay the 2009 tax credit?
NO. There is no repayment for 2009 tax credits.

14. Do 2008 purchasers still have to repay their tax credit?
YES. The $7500 credit in 2008 was more like an interest-free loan. All eligible purchasers who claimed the 2008 credit will still be required to repay it over 15 years, starting with their 2010 tax return. Some Practical Questions

15. How do I apply for the credit?
There is no pre-purchase authorization, application or similar approval process. All eligible purchasers simply claim the credit on their IRS Form 1040 tax return. The credit will be reflected on a new Form 5405 that will be attached to the 1040. Form 5405 can be found at www.irs.gov.

16. So I can’t use the credit amount as part of my downpayment?
No. Congress tried hard to devise a mechanism that would make the funds available for closing costs, but found that pre-funding would require cumbersome processes that would, in effect, bring the IRS into the purchase and settlement phase of the transaction.

17. So there’s no way to get any cash flow benefits before I file my tax return?
Yes, there is. Any first-time homebuyers who believe they are eligible for all or part of the credit can modify their income tax withholding (through their employers) or adjust their quarterly estimated tax payments. Individuals subject to income tax withholding would get an IRS Form W-4 from their employer, follow the instructions on the schedules provided and give the completed Form W-4 back to the employer. In many cases their withholding would decrease and their take-home pay would increase. Those who make estimated tax payments would make similar adjustments. Some “Real World” Examples

18. What if I purchase later this year but can’t get to settlement before December 1?
The credit is available for purchases before December 1, 2009. A home is considered as “purchased” when all events have occurred that transfer the title from the seller to the new purchaser. Thus, closings must occur before December 1, 2009 for purchases to be eligible for the credit.

19. I haven’t even filed my 2008 tax return yet. If I buy in 2009, do I have to wait until next year to get the benefit of the credit?

You’ll have a helpful choice that might speed up the process. Eligible homebuyers who make their purchase between January 1, 2009 and December 1, 2009 can treat the purchase as if it had occurred on December 31, 2008. Thus, they can claim the credit on their 2008 tax return that is due on April 15, 2009. They actually have three filing options.

• If they purchase between January 1, 2009 and April 15, 2009, they can claim the $8000 credit on the 2008 return due on April 15.
• They can extend their 2008 income-tax filing until as late as October 15, 2009. (The IRS grants automatic extensions, but the taxpayer must file for the extension. See www.irs.gov for instructions on how to obtain an extension.)
• If they have filed their 2008 return before they purchase the home, they may file an amended 2008 tax return on Form 1040X. (Form 1040X is available at www.irs.gov)

Of course, 2009 purchasers will always have the option of claiming the credit for the 2009 purchase on their 2009 return. Their 2009 tax return is due on April 15, 2010.

20. I purchased my home in early 2009 before the stimulus bill was enacted. I claimed a $7500 tax credit on my 2008 return as prior law had permitted. Am I restricted to just a $7500 credit?

No, you would qualify for the $8000 credit. Eligible purchasers who have already claimed the $7500 credit on a 2008 return for a 2009 purchase may file an amended return (IRS Form 1040X) for the 2008 tax year. This amended return will enable them to obtain the additional $500 credit amount.

21. If I claim my 2009 $8000 credit on my 2008 tax return, will I have to repay the credit just as the 2008 credits are repaid?

No. Congress anticipated this confusion and has made specific provision so that there would be no repayment of 2009 credits that are claimed on 2008 returns.

22. I made an eligible purchase of a principal residence in May 2008 and claimed the $7500 credit on my 2008 tax return. My brother, who has never owned a home, wishes to purchase a partial interest in the home this spring and move in. Will he qualify for the $8000 credit, as well?

No. Any purchase of a principal residence (or interest in a principal residence) from a related party such as a sibling, parent, grandparent, aunt or uncle is ineligible for the tax credit. Since you and your brother are related in this way, he cannot qualify for the credit on any portion of the home that he purchases from you, even if he is a first-time homebuyer.

23. I live in the District of Columbia. If I qualify as a first-time homebuyer, can I use both the $5000 DC credit and the $8000 credit?

No. Double dipping is not allowed. You would be eligible for only the $8000 credit. This will be an advantage because of the higher credit amount, plus the eligibility requirements for the $8000 credit are somewhat more easily satisfied than the DC credit.

24. I know there is no repayment requirement for the $8000 credit. Will I ever have to repay any of the credit back to the government?

One situation does require a recapture payment back to the government. If you claim the credit but then sell the property within 3 years of the date of purchase, you are required to pay back the full amount of any credit, including any refund you received from it. A few exceptions apply. (See below, #24). Note that this same 3-year recapture rule applies, as well, to the $7500 credit available for 2008. This provision is designed as an anti-flipping rule.

25. What if I die or get divorced or my property is ruined in a natural disaster within the 3 years?
The repayment rules are eased for many circumstances. If the homeowner who used the credit dies within the first three years of ownership, there is no recapture. Special rules make adjustments for people who sell homes as part of a divorce settlement, as well. Similarly, adjustments are made in the case of a home that is part of an involuntary conversion (property is destroyed in a natural disaster or subject to condemnation by eminent domain by an authorized agency) within the first three years.

26. I have a home under construction. Am I eligible for the credit?

Yes, so long as you actually occupy the home before December 1, 2009.

WITHHOLDING EXAMPLES: Note: The impact of estimated tax payments would be the same.

Situation 1: Sally plans her withholding so that her withholding is as close as possible to what she anticipates as her income tax liability for the year. When she fills out her 1040, her liability is $6000. She has had $6000 withheld from her paycheck. She also qualifies for the $8000 homebuyer credit.

Result: Sally’s withholding satisfies her tax liability and reduces it to zero. She will receive a refund of the full $8000.

Situation 2: Nick and Nora file a joint return. Nick is self-employed and makes estimated payments; Nora has taxes withheld from her salary. When they compute their taxes, their combined withholding and estimated tax payments are $11,000. Their income tax liability is $9800. They also qualified as first-time homebuyers and are eligible for the $8000 refundable tax credit.

Result: Ordinarily, their combined estimated tax payments and withholding would make them eligible for a refund of $1200 ($11,000 – $9800 = $1200). Because they are eligible for the refundable tax credit as well, they will receive a refund of $9200 ($1200 income tax refund + $8000 refundable tax credit = $9200)

Situation 3: Cesar and LuzMaria both have income taxes withheld from their salaries and file a joint return. When they file their income tax return, their combined withholding is $5000. However, their total tax liability is $7200, generating an additional income tax liability of $2200 ($7200 – $5000). They also qualify for the $8000 first-time homebuyer tax credit.

Result: Cesar and LuzMaria have been under-withheld by $2200. Ordinarily, they would be required to pay the additional $2200 they owe (plus any applicable interest and penalties). Because they are eligible for the refundable homebuyer tax credit, the credit will cover the $2200 additional liability. In addition, they will receive an income tax refund of $5800 ($8000 – $2200 = $5800). If they owed penalties and/or interest, that amount would reduce the refund.

Rooms and More Rooms in Luxury Homes

What kinds of rooms might go into a luxury home? The possibilities are as varied as lifestyles.

I recall a luxurious mansion in Houston’s lovely River Oaks that had, in addition to every other conceivable room, a luggage room. It was a sensible space that accommodated the traveling owner’s large collection of leather suitcases, trunks and garment bags. When a trip was planned, the butler would retrieve the appropriate luggage and assist with the packing.

When expense and space are not restrictive issues, the floor plan of a luxury home can truly reflect the lifestyle of its owner.

Some of the more common possibilities might include:

* A large morning room off the kitchen for casual family dining. This is simply an expansion of the traditional breakfast room.
* Large formal dining rooms still prevail and are a must for indoor formal entertaining.
* A butler’s pantry between the kitchen and formal dining area that may be equipped with china cabinets, lined flatware drawers, crystal storage and wine refrigeration.
* An oversized and well-organized pantry in the kitchen that has room for a freezer.
* A temperature-controlled wine room that might even accommodate a tasting table or two.
* A game room that might hold a pool table, arcade games and even a karaoke stage.
* A high-ceilinged music room for the grand piano and other musical enjoyment.
* Forget strip closets. Luxury homes demand oversized and highly organized walk-in dressing rooms.
* Personal gyms are a common requirement in luxury homes. They are typically located off the master bedroom or near outdoor amenities.
* The plush home theater with cushy seats, popcorn machine and huge screen have become very popular.
* A home library offers a quiet room for books, reading and reflection.
* A conservatory provides a glass-walled transition between the luxury residence and its natural surroundings–and is a lovely spot for casual entertaining.
* A sunroom may be located anywhere in the home, but provides a casual place to enjoy sunshine and views.
* Home offices are often a requirement for busy owners and their staff.
* A large laundry and project room may have multiple washers and dryers, a steam closet, and cabinets for project storage. It should also have space for a large, multi-purpose table.
* A snoring room off the master bedroom. Enough said….

Common to luxury homes in San Diego are loggias and fully-equipped outdoor kitchens, which allow for year round outdoor dining and entertaining. It is also not uncommon to find poolside cabanas, dressing rooms and steam rooms. In mountain communities, luxury chalets will likely have mud rooms and ski lockers.

As suggested earlier, it is the lifestyle and taste of the affluent that will ultimately determine the configuration of their luxury homes.

Refi for Real Estate Investors

Good News for Investors!

We now have the chance to read through the recent Stimulus/Spending Bill that was passed largely unread by our Congress. The earmarks and pork anger many, but there is good news on the real estate front:

Owners of second homes and other real estate investments will now be able to refinance their mortgage loans if they are guaranteed or held by either FannieMae or FreddieMac–and if the current value is no more than 5% over the mortgage amount.

Many real estate investors, though, have no idea whether their loans are guaranteed or owned by Fannie or Freddie. However, you may call Fannie directly at 1-800-7FANNIE or visit their site. If you complete the form on Freddie Mac’s site, they will advise you as to whether they are guaranteeing your loan or not.

To qualify for this real estate refi, there may be no late payments (30 days or more) for last year. FICO and credit scores, though, are not considered–nor will private mortgage insurance start anew.

This could be a great help for many investors and second home owners who thought only primary homes could benefit from the Fannie and Freddie refi’s. This may also be a potential Godsend for tenants who face eviction because of foreclosures. This may allow investment property owners to keep their properties–and their tenants in place.

President Obama’s Proposed Fiscal Year 2010 Budget

When President Obama released his proposed Fiscal Year 2010 Budget in late February, the headline grabber was his proposal to limit itemized deductions for individuals earning more than $250,000 a year. This limitation would reduce the value of not only mortgage interest deductions for this group, but would also reduce the value of their deductions for state and local taxes, including property taxes.

NAR responded quickly with letters of opposition sent to the President and to every member of the House and Senate. We also purchased advocacy ads in the leading Inside the Beltway newspapers. In Washington, no proposal ever completely dies. Many, many proposals, however, do go dormant.

Here are some quotes from very authoritative sources to illustrate the general perception that the proposal to limit deductions has gained limited traction.

“Some of the reforms and offsets contained or referenced in the budget, such as the limitation on itemized deductions, raise concerns and will require more study as we determine the best policies for getting America back on track.” Chairman Max Baucus (D-MT) Senate Finance Committee.

“One major proposal, to limit itemized deductions for wealthy taxpayers, has already raised doubts among prominent Democrats in both chambers.” Washington Post, March 10, 2009

“The apparent first casualty is a big one: a proposal to limit tax deductions for the wealthiest 1.2 percent of taxpayers…But the chairmen of the House and Senate tax-writing committees, Senator Max Baucus of Montana and Representative Charles B. Rangel of New York, have objected to the proposal, citing a potential drop in tax-deductible gifts to charities.” New York Times, March 10, 2009

“I am always glad to have any allies and defenders [on the right], but I do favor almost all of Obama’s agenda, right down to having the rich pay more of their freight in this great country. It’s just not the right time. We need to declare a war on unemployment and solve it before we let it get out of hand. We need to stop house-price depreciation.” Jim Cramer, Inside Politics Newsletter, March 10.

Anticipated Tax Bill and Budget Timetables:
The House and Senate tax-writing committees do not expect to craft another tax bill until the fall, at the very earliest. This projected schedule is, of course, subject to change. Note, though, that if there is a second stimulus with a tax package before fall, it’s unlikely that Congress would include any revenue raising proposal like the Administration’s itemized deduction limitation.

The tax-writing committees also have extensive jurisdiction over health care, so their agenda for the next several months is expected to all be health care-related.

The House and Senate Budget Committees have jurisdiction to set the dollar amounts by which various congressional committees must raise revenues or curtail spending. They do not, however, have any jurisdiction that permits them to specify which provisions and programs the committees modify. Thus, even though this recommendation comes through the budget process, the budget committees may only give directives to committees in gross dollar amounts, not by specific provisions.

Eternal vigilance is the name of the game in taxation. We do not anticipate shining a light on this now-dormant proposal in coming months, but we will remain intensely focused on it.

10 Things Every Remodeling Contract Should Include

Home Renovations:

The contract is a critical step in any remodeling project  it holds the job together and ensures that all parties agree to the same vision and scope.These are the key elements that every remodeling contract should have:

1. The contractors name, address,phone number and license number.

2. Details on what the contractor will and will not do.

3. The approximate start date and completion date.

4. A list of materials for the project in your contract. Including information about the brand name,model,color ,size and product.

5. All required plans,study them carefully for accuracy. Approved them and identify them in your contract before any work begins.

6. Make sure a termination clause is in your contract. With the right to cancel without any penalty within three business days of signing the contract.

7. Make sure the financial terms are spelled out in a way that you understand, inclusive of the total price,payment schedule and any cancellation penalty.

8. A mediation clause which you’ll need in the event a disagreement occurs.

9. Consider the scope of the project and make sure all items you’ve requested are included.

10. A warranty covering materials and workmanship for a minimum of one year. The warranty must be identified as “full” or “limited”. The name and address of the contractor,distributor or manufacturer who will honor the warranty. Also make sure the time period for the warranty is specified in the warranty.

FORECLOSURES

Perhaps the most well-known method of obtaining foreclosure properties is buying them at the auction. The foreclosure auction is a live bidding process, just as you may have imagined. The auction is typically conducted at a public place, such as a courthouse or even at the property itself. In some states, the county Sheriff or his deputy will conduct the sale. In other states, a referee appointed by the court will conduct the sale. Although the process is slightly different from state to state, the basics idea is the same – the property goes to the highest bidder. The first bid will usually be made by a representative of the foreclosing lender. The lender can bid up the amount that is owed to him, without actually tendering money. If nobody else bids, the lender gets the property. In a majority of cases, nobody will show up but the auctioneer and the lender’s representative. Thus, in most cases, the lender gets the property; the less equity in the property, the less people that show up at the auction.

Buying at the auction is not for everyone, especially beginners with limited funds. You need cash, and lots of it, to buy properties at auction. If you have access to a large credit line or have a money partner, you can sometimes find real bargains at foreclosure auctions. Do not get too excited, though, because most properties either have too little equity for people to bother with, or have so much equity that a large crowd will show up to compete. Despite what you see on late-night television, a real steal at the auction is very unlikely.

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