In this section you will find information designed to
help you get the best deal on a mortgage,
1031 Exchanges, as well as buying pre-construction
condos in Florida!


According to the non-profit organization
THE FANNIE MAE FOUNDATION,
these questions should help you make the best decision
when searching for a home mortgage:


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1. Company Name and Phone Number: Write down the name of the loan officer with whom you speak, so you can get back in touch if you decide to apply for a loan at that financial institution.

2. Mortgage Type: Your task will be simpler if you've narrowed your search to the type of mortgage loan you prefer. When comparing mortgages among lenders, compare the same loan among the lenders you call...In other words, compare a 30-year fixed rate to a 30-year fixed rate, a one-year Treasury ARM to a one-year Treasury ARM, etc.

3. Interest Rate and Points: Interest rates change often, even daily. Make sure you record the date of your rate quote. Try to call all lenders on the same day so you have an accurate comparison. Another way to evaluate rates is by examining the Annual Percentage Rate (APR). It indicates the "effective rate of interest paid" per year. The figure includes points and other closing costs and spreads them over the life of the loan. While the APR provides you with a common point for comparison, it's important to look at the whole product before deciding which mortgage to get.

4. Interest Rate Lock-ins: When a lender agrees to hold the quoted rate for you, this is called a "lock-in." Ask when can the rate be locked in, at the time of application or only upon approval? Will the lender lock in both the interest rate and points? Can you get a written lock-in agreement? How long does the lock-in remain in effect? Is there a charge for locking in a rate? If the rate drops before closing, must you close at your locked in rate or can you get the lower rate?

5. Minimum Down Payment Required: Ask the loan officer what the lowest allowable down payment is, with and without private mortgage insurance. If Private Mortgage Insurance (PMI) is required, ask how much it will cost. Find out how much is due up front at closing and the amount included as monthly premiums. Ask if you can finance the up-front cost of mortgage insurance. Also ask how long MI will be required. In some cases, you may be able to cancel the MI when your loan balance drops below 80 percent of the original value of the property or when a new appraisal establishes that your mortgage is 80 percent or less of the new appraised value.

6. Prepayment of Principal: Some lenders charge borrowers a prepayment penalty if they pay the loan off early. If you think you may sell your home before the loan is paid off (most mortgages are repaid early) or plan to make principal payments before they are actually due, you need to know if there will be a penalty and for how long it will remain in effect. Some penalties are in effect only for the early years of the loan.

7. Loan Processing Time: Loan approvals can take 30 to 60 days or more. Peak business periods, particularly when rates are dropping and many homeowners are refinancing, can affect a lender's response time. Ask each lending institution for its estimate, and see which can promise very short approval times. If interest rates are rising or you have an urgent need to get moved in, these "express" services may be the answer.

8. Closing Costs: Closing costs are fees required by the lender at closing and can vary considerably from one financial institution to another. Ask specifically about the application fee, origination fee, points, credit report fee, appraisal fee, survey fee (if required), lender's attorney fee, cost of title search and title insurance, transfer taxes, and document preparation fee.


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If you're shopping for an adjustable-rate mortgage (ARM),
ask the additional questions that follow:

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9. Financial Index and Margin: The interest rate on an ARM is determined by adding a margin or spread to a specified financial index. This is called the fully indexed rate. Find out both the financial index used (Treasury Certificate of Deposit, Cost of Funds, etc.) and the margin (that is, how much higher is the ARM rate than the index rate?).

10. Initial Interest Rate: Is the initial rate quoted the fully indexed rate or a lower introductory rate, sometimes called a teaser or discount rate? A teaser rate may sound like a bargain today but it may turn out to cost you more in the long run. This low rate lasts only until the first adjustment. After that, you will be charged the fully indexed rate, at which point your payments may become unmanageable.

11. Adjustment Interval: How often can the interest rate be adjusted - every six months, one year, three years, five years? A loan that adjusts its interest rate after six months is called a six-month ARM; after one year; a one-year ARM; etc.

12. Rate Caps: Rate caps limit how much your interest rate can move, either up or down. Periodic caps limit the change per adjustment period, and a lifetime cap governs the maximum amount the interest rate can increase or decrease over the life of the loan. For example, you may find a one-year ARM with a 2 percent periodic cap and a 6 percent lifetime cap. If this one-year ARM is originated at 8 percent, after the one-year adjustment period it could be adjusted upward to as much as 10 percent, or downward to as low as 6 percent, depending on the movement of the index. Remember to consider the adjustment interval when comparing rate caps. The one-year ARM just described could reach its lifetime cap of 14 percent (original interest rate of 8 percent plus lifetime interest rate increase of 6 percent) in three years if interest rates rose steadily. A three-year ARM would just be making its first adjustment after such a three-year period.

13. Payment Caps: Payment caps may appear similar to rate caps, but don't be misled. While they can limit how much your monthly payment increases, they don't restrict the interest rate from going up. Many ARMs with payment caps have no corresponding interest rate caps. As a result, you may end up paying the lender less than the amount of interest you owe each month. If this happens, this unpaid interest is added to your loan balance, and the principal amount you owe increases rather than decreases with each payment. This is called negative amortization and generally should be avoided.

14. Conversion to Fixed-Rate Loan: Some ARMs let you convert to a fixed rate mortgage at specified times, typically during the first five years of the loan. Because the convertibility feature is often an added expense (some lenders charge an extra point, for example), find out the exact conversion terms and how much it would cost you to convert your ARM to a fixed rate loan. You'll want to compare this cost with the costs incurred and the interest rate savings you might gain by refinancing your mortgage to a fixed-rate loan. This will help you decide the relative advantages of each option to determine which is most cost effective for you.



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Still have questions? Feel free to contact us.
Our many years of experience can help point you in the right direction.

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What You Need to Know about Buying "Preconstruction".
Preconstruction sales are those real estate transactions that
are initiated prior to a particular project being constructed.

Since 1990, we have seen condominium prices along the Emerald Coast go from $80 per square foot to more than $200 per square foot. Supply just can't quite seem to stay fully ahead of the demand, fueling further growth and development.

Buying condominiums on a "pre-construction" basis is extremely popular along the Emerald Coast today. It is not only a great way to get a great buy on a condo, but has proven to be a very profitable venture for the investor.

Developers today have to prove to their lender that demand exists for their proposed project. They need to "pre-sell" a certain number of units in a proposed condominium development (often 75%) before the lender will finance the construction. These pre-sales are accomplished through the use of the "Reservation Agreement".

This is basically a non-binding agreement in which the prospective purchaser tenders a deposit (usually 10% of the purchase price) and agrees to purchase a condominium based on the "proposed" prices, amenities, floor plans, etc. Your deposit goes into an interest bearing account (normally with an attorney). You may cancel this agreement at any time and receive a full refund.

Once the developer has acquired the necessary number of pre-sales/reservation agreements, the developer is ready to proceed to the "hard contract" stage. At this point, the developer has received his recorded "condo docs" and is ready to begin construction. Florida law requires that prospective purchasers of a new condominium development be afforded a 15 day recision period. This means that after signing a contract to purchase a new condominium, the buyer has 15 days to review all condominium documents. If, during this period, the buyer changes his/her mind, the buyer receives a full refund of their deposit.

Once you execute the official sales (hard) contract and once the recision period has passed, the sales contract becomes binding on the purchaser AND the developer. At this point, you will also probably be required to make an additional earnest money deposit. Typically, a 20% total deposit is required.

Now you are set. You've chosen the unit, reviewed the condo docs, sent in your additional deposit, you've executed the sales contract, the recision period has come and gone, and your developer is now ready for action! Right?..Probably so! But now comes the wait. Depending on the size of the development, construction could easily take between 6 months and 2 years! But don't worry...While you are sitting at home, day after day, patiently pondering and dreaming about your new condo, it's comforting to remember some very interesting things are occurring....

You see, each week that goes by is probably money in your pocket. With appreciation rates at some area condo developments pegging the needle at 50% between reservation agreement and closing, the odds are definitely in your favor!



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For more information or
for an up-to-date list on new condo developments
in the area, give us a call!

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~ Why 1031 Exchanges? ~
Tax deferred exchanges have actually been around for many years. Throughout our nation's history, farmers have traded land for land, tractor for tractor, livestock for livestock, etc. There was no tax consequence on these types of transactions until 1918, when the first federal income tax was imposed.

The process for conducting 1031 exchanges today is actually the result of a 1979 court case involving a man named Starker. Starker won his case (for the most part) against the government, establishing the case law that has provided the foundation for modern-day exchanges. That is why many refer to a 1031 as a "Starker Exchange".

Although the Starker Decision validated the tax payer's right to conduct tax deferred exchanges, 1031's did not really gain widespread popularity until the "Final Treasury Regulations" were issued in 1991. Since that time, 1031's have become increasingly popular. So popular in fact, that 1031s are fast becoming the rule rather than the exception in real estate transactions!

Most buyers and sellers today can benefit from 1031 exchanges. To follow is our personal "1031 Top 10 List", the ten most important things to know about 1031 exchanges:

1. A 1031 exchange does not allow you to sell real property "tax free". There are tax ramifications on most sales, although the 1031 process does allow you to sell "tax deferred".

2. The sale of your "relinquished property" does not have to occur at the same time that you purchase a "replacement property". It can, but this would actually be a "simultaneous exchange" which has become somewhat less popular since the Starker Case.

3. Within 45 days of the sale of your relinquished property, you must positively identify up to 3 potential replacement properties. Or, you may identify an unlimited number of potential replacements, so long as the aggregate fair market value does not exceed 200% of the value of all relinquished properties.

4. You must acquire (close on) the replacement property by the end of the 180th day from the transfer date of your relinquished property. That is why we often recommend against pre-construction product for replacement properties.

5. Actual or constructive receipt of proceeds (if you touch the money) from the sale of your relinquished property, prior to acquisition of your replacement property, will disqualify the exchange.

6. The use of a qualified intermediary is required. The intermediary holds the money, accepts the property on your behalf, then transfers the acquired property to you. Many local attorneys and title companies offer this service. Someone who has represented you (attorney, Realtor, employee, etc.) within the past 2 years prior to the transaction may not act as your intermediary.

7. If your relinquished property is a condo, you don't necessarily have to acquire another condo to qualify the exchange. Just about any properties held for investment are considered "like kind".

8. The ability to sell a property (paying no capital gains tax), investing the proceeds into a new property, all the while deducting the expenses of maintaining the property on your tax return is a FANTASTIC way to build wealth!

9. Exchanges involving family members have special restrictions. You may have to hold a property for at least two years after acquisition.

10. Feel free to contact Ed and Terri for additional information. Consult your CPA, attorney, or tax consultant to see how 1031 exchanges may benefit your particular situation!




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Still have questions? Feel free to contact us.
Our many years of experience can help you in the right direction.

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