A Financial Plan For Your Home

Your home is probably your biggest investment. To manage it, create a financial plan that takes into account repairs, upgrades, mortgages, insurance, and taxes.

Do you pay each home-related expense as it comes? If so, you're missing opportunities for upgrades, or much worse, heading into a financial crisis when a slew of surprise maintenance items hit. So take a holistic look at what it costs to operate your house and set up a home financial plan.

Use our home financial plan budget worksheet, and start by writing a list of expenses, such as:

•Mortgage
•Taxes
•Home insurance, including liability
•Repairs and maintenance, such as new furnace, roof, painting
•Voluntary upgrades, such as a swimming pool, a premium range, a new powder room

What will you learn from this home financial plan weekend exercise?
•How much you have to spend
•How much you need to allot in the short- and long-term for necessary maintenance and voluntary improvements

With this newfound grip on your home's expenses, you can create a home financial plan that'll help you there for years with maximum enjoyment and minimum anxiety.

The Mortgage: Pay it--and then some

Yup, you already shell out a lot for your mortgage, but can you pay more? Even a little extra each month can add up to an earlier payoff. Let's say you have $200,000 in outstanding principal and a 20-year fixed-rate mortgage at 5%. Your monthly payment is $1,319.91. But if you can manage to pay another $100 a month, you'll save $14,887 in interest.

Run the numbers yourself for your home financial plan.

Advantages of an early payoff:

•Less debt means more money to spend later.
•It feels darn good to own your house outright as soon as possible.
•Minimal tax loss. Toward the tail end of the life of a loan most of your payment goes to the principal, not the interest, so you're getting only a small tax break anyway.

Of course, if you're still saving for retirement, put the 100 bucks elsewhere:
•A retirement plan
•An account for the inevitable home repairs
•An account for discretionary improvements, which can raise your home's value

Insurance: Protect your property

Your vegetable garden is pointless without a fence to keep out rabbits; likewise, your home financial plan will come to nothing without an insurance "fence".

Homeowner's insurance.
Basic coverage for your home and everything in it. The average cost is $636 per year but this varies widely by state.

Liability coverage.
Protects you from a lawsuit if someone gets hurt on your property, for example. Your best bet: An umbrella policy. For about $300 a year you can by a typical $1 million policy.
Various disaster insurance policies.

Optional policies cover flood, earthquake, and hurricane damage. As part of your home financial plan, you have to research to see what disaster coverage, if any, you need in your area, and what your standard policy already covers. For $540 a year you can buy flood insurance, for example.

Don't under- or overbuy insurance

For your basic policy, get homeowners insurance with full replacement coverage in case your house burns to the ground.

That sounds simple, but heads up on calculation. Remember that you own a house as well as the land on which it sits. So even though you bought your home for $300,000, it may cost only $100,000 to rebuild it. Your policy limits should reflect this. This difference will vary widely by region.

Another heads up: Don't make the common and potentially disastrous mistake of thinking that because your home has fallen in value you need less insurance. If you bought a $1.2 million townhouse in Florida during the boom, it's true it now may only sell for $600,000. But the replacement cost of the townhouse hasn't changed much, so you can't improve your home financial plan by cutting insurance costs that way.

Other ways to cut your insurance budget:

•If you make structural improvements, such as adding storm shutters, your insurer may give you a break.
•If you belong to certain groups, such as AARP or veterans' organizations, your premiums may be lower.

Repairs and renovations: By choice or necessity

You own a home, so you'll be spending money on everything from a new faucet to-surprise!-a new roof. Freddie Mac and other authorities say as part of your home financial plan, you should be prepared to spend 1% to 3% of the market value of the home annually on maintenance. To be extra-prudent, open a savings account and make regular payments until your account reaches 1% to 3% of your home's current value.

To help you budget:

Start with the inspection report you received when you bought the house. Did the inspector indicate that you would need a new roof in five years? A new furnace in 10?

Keep a log of your major appliances' age so you can estimate when they'll need replacing. Some estimated life spans:

•Roof: 20-25 years
•Heating systems: 15-20 years
•Range/ovens: 11-15 years
•Water heaters: 8- 13 years

Then get estimates on what replacements will cost and start saving.

Consider ongoing non-emergency maintenance, too. Do you live in New England? Price a snow blower and get bids from plow services.

Resist the siren call of the home equity loan to take care of everything. That just defeats your efforts to pay off the mortgage early.

Separate out what you want from what you need. A $50,000 kitchen remodel is nice, but you'll recoup only 76% of the project cost your home's resale, according to Remodeling magazine.

If you can afford to redo, go for it. Just don't confuse your necessary repairs (new oil furnace-about $4,000) with your discretionary upgrades (Viking range-$6,000 and up).

Taxes: (Almost) no way around them

Even if your lender handles your property taxes from an escrow account, you need to budget for them in your home financial plan. They creep up almost every year, it seems. Take responsibility for tracking the changes in your area: Look over past tax bills to get a sense of how quickly they've risen in the past.

Or if your lender handles escrow and you haven't saved your bills, ask for an accounting. The median annual property tax payment is $2,198, but that hides the enormous range in medians from state to state:

•New Jersey: $6,320
•New York: $3,622
•California: $2,829
•Alabama: $383
•Louisiana: $188

You can generally deduct property taxes on your federal return. A tax pro can tell you how much of a tax break you'll get, to help you fine tune your home financial plan.

You may be able to reduce your tax burden by getting a reassessment. Do your homework first: Are comparable houses taxed less than yours? Ask the local assessor what formula is used to set tax rates. You can challenge the assessed value and get yourself a rollback.

If you're in a special group, you might get some help from state or local programs. Check around to see what's available in your area. New York State, for example, has its Star Program for giving senior citizens some relief from school-related property taxes.

Chip Plumley can be reached at (610) 444-9090 or (610) 357-8635.
Prudential Fox & Roach is an independently owned and operated member of
Prudential Real Estate Affiliates, Inc., a Prudential Financial company.
Equal Housing Opportunity.

ChipPlumley.com

2010 Chester County Comparable Real Estate Market Report

2009 - 2010 Market Statistic Reports

Now that it appears most of the numbers have been cleared out, here is a look back at the Chester County real estate market and it's conditions.

As you'll see we had some great and some ok results. NOTHING Doom & Gloom about it!

Unfortunately, the information is not able to be viewed on this website due to the size of the chart graphics. Please click here to view the full article or copy and paste the link below. The link will direct you to my website.

Thanks for your cooperation!

Chip Plumley

http://www.chipplumley.com/prufoxroach/modules/agent/agent.asp?p=text&id=10327

Improve Your Credit Score With These Finance Tips!

How you manage your home ownership finances affects your credit score--and your ability to refinance later.

Your credit score affects how much you'll pay for a mortgage or refinance-or even if you can get one at all. Master the six ways to manage home-related spending to keep your credit score braggingly high.

1. Postpone that refinance until your credit is squeaky clean

Even a small blemish on a credit report can cost you at closing. Money expert Denise Winston found that out firsthand: Her husband hadn't paid a $40 pager charge. The unpaid bill was turned over to a collection agency and ended up damaging his credit score.

Because of that one small unpaid bill, the interest rate on the couple's mortgage was 0.25% higher than if he'd had a clean score. Put another way, that's $13,000 over the life of the loan.

The lesson? Even small items can damage your financial position. Get your credit report beforehand to see if there's anything damaging. If so, consider postponing a refinance or HELOC (home equity line of credit) until small but potentially costly dings fade over time.

2. Pay your mortgage-now

Not all late payments are created equal: Almost nothing hits your credit score harder than a late mortgage payment. Payment history generally accounts for 35% of your credit score, which is bad enough, but credit score agencies consider late home payments graver than late credit card or car loan payments.

In fact, credit score agency VantageScore will knock off more than 100 points beyond what it would do for delinquent auto loans or credit cards.

But if you think you can improve your credit score with early payments, think again. Geoff Williams, co-author of Living Well with Bad Credit, says it may make a slightly positive impression on today's risk-averse lender, but it won't make a big difference in getting future credit.

3. Cool it on second mortgages and HELOCs

Drawing down a second mortgage or HELOC can have a negative impact on your credit score because 30% of your credit score is based on how much you owe to creditors. However, if you pay the loan on time, it should have less of an impact..

Also, you can mitigate the credit score damage of a HELOC by staying within 30% of the limit.

4. Protect your mortgage to protect your insurance rates

Late payments on your mortgage may also affect your home owners and automobile insurance rates, potentially costing you hundreds of dollars a year. Insurers may assume that if you're strapped for cash and pay your bills late, you're more likely to file a claim because you need the money.

5. Pay your utility bills and property taxes on time

If you're late on your utility bills and your account is assigned to a collection agency, that agency may report it, causing a drop in your credit score. The good news is that utility companies often don't bother to report late bills to credit bureaus until your delinquency becomes serious.

Interestingly, late payment of property taxes won't affect your credit score unless you find yourself with a lien on your property. Since liens are public records, they may appear on your credit report and might cause a drop in your credit score.

6. Refinancing? Beware of taking out equity, too

Refinancing your home generally won't have an impact on your credit score as long as you continue to pay your loan on time. However, if you extract equity in the deal, you could marginally affect your credit score because the amount you owe will increase.

Chip Plumley can be reached at (610) 444-9090 or (610) 357-8635.
Prudential Fox & Roach is an independently owned and operated member of
Prudential Real Estate Affiliates, Inc., a Prudential Financial company.
Equal Housing Opportunity.

ChipPlumley.com

Home Sellers: Cut To The Chase In home Repairs And Enhancements!

2011 opens as a strong buyer’s market so home sellers must be on their toes to give their homes maximum appeal. Not only should sellers complete reasonable home repairs they know must be made, they should also hire a certified home inspector to thoroughly and impartially evaluate their properties.

If this inspection results in a fix-it list, review the list with your real estate professional to establish necessities and priorities. Depending on your budget and objectives, you may want to repair only items that could cause significant deterioration to your property, such as a leaky roof. Ideally, the closer you can get your home to “move-in-ready” status, the more likely you are to attract today’s cautious and discerning buyers.

Among the most common repairs and enhancements yielding immediate buyer appeal include:

• Paint inside and outside in neutral colors
• Steam clean or replace carpets
• Polish or replace hardwood floors
• Clean or re-grout kitchen and bathrooms
• Replace light fixtures
• Change light bulbs throughout and replace wall-switch covers
• Repair dripping faucets
• Fix sticking doors
• Repair broken fencing

Home sellers wanting to do more should consider the findings of Remodeling magazine’s 2010-’11 Cost vs. Value Report, released in December 2010. The survey used input from REALTORS in 80 cities to rank home remodeling projects according to those that bring the greatest cost recovered at sale.

Many of the top projects focus on exterior replacements, as replacements are generally less expensive than other types of projects and they add all-important curb appeal – essential for today’s competitive market or any other.

The Top Five projects in the Cost vs. Value Report include:

No. 1 – Entry door replacement (steel)
No. 2 – Garage door replacement (four-section door, reuse existing motorized opener)
No. 3 – Siding replacement (fiber-cement siding)
No. 4 – Kitchen remodel (minor: new cabinet doors, drawers and hardware, plus new energy-efficient appliances, flooring, counters, sink and faucet)
No. 5 – Deck addition (wood)

When the dust clears and projects are complete, be sure that you and your real estate professional document your repairs and enhancements, and share the report with prospective buyers. Walk prospects through the enhancements and include their costs.

A home in good condition demonstrates pride of ownership. Taking the time to make enhancements helps ensure your home is presented in its best-possible light, primed for sale.

Chip Plumley can be reached at (610) 444-9090 or (610) 357-8635.
Prudential Fox & Roach is an independently owned and operated member of
Prudential Real Estate Affiliates, Inc., a Prudential Financial company.
Equal Housing Opportunity.

ChipPlumley.com

Homeowners Insurance: Time for an Annual Check-Up

An annual check-up on your homeowners insurance can result in a healthier policy and a healthier pocketbook.

It's time for your annual check-up. The good news is that for this one, you won't have to don one of those revealing hospital gowns-and you may walk away with a healthier pocketbook. We're talking about a homeowners insurance check-up, a task you should complete once a year, ideally around renewal time. This will ensure your policy still provides the right level of coverage for your family, and your premium isn't costing you more than it should.

Remember, homeowners insurance is essential. The coverage is designed to protect your home and its contents, as well as shield you from liability for accidents and such on your property. Block out an hour of your time, call an insurance agent, and get answers to these three important questions.

What type of coverage do I have?

The most effective type of coverage is known as "replacement cost," which covers, up to your policy limits, what it would take today to rebuild your house and restore your belongings.

"Extended" replacement cost coverage provides protection to your policy limit, say $500,000, and then perhaps another 20% of the cost after that. Percentages vary, but in this example you could recoup up to $600,000 on a $500,000 policy, assuming your losses reach that high. Extended coverage can compensate for any unanticipated expenses like spikes in construction costs between policy renewals. Now harder to find due to the industry shift toward extended replacement coverage, "full" or "guaranteed" replacement coverage covers an entire claim regardless of policy limits.

A less attractive alternative is "actual cash value" coverage that usually takes into account depreciation, the decrease in value due to age and wear. With this type of policy, the $2,000 flat-screen TV you bought two years ago will be worth hundreds of dollars less today in the eyes of your claims adjuster. Replacement cost coverage is better, unless you can save at least 25% on the premium for going with actual cash value coverage instead.

Even if you have replacement cost protection for your dwelling and personal property, don't assume everything is covered. Structures other than your home on your property-such as a detached garage or swimming pool-require separate coverage. So too do luxury items like jewelry, watches, and furs if you want full replacement cost because reimbursement for those items is typically capped.

How much coverage do I really need?

OK, now that you're clear on what type of policy you have, you need to figure out how much policy you truly require in dollar terms. Let's say you purchased your home five years ago and insured it for $200,000. Today, it's worth $225,000. Simply increasing your coverage to $225,000 may nonetheless leave you underinsured. Here's why:


The key to determining how much dwelling coverage you need isn't the value of your home but the money you'd have to pay to rebuild it from scratch. Call your local contractors' or homebuilders' association and inquire about the average per-square-foot construction cost in your area. If it's $150 and your home is 2,000 square feet, then you should be insured for $300,000.

There's no rule of thumb for how much your homeowners insurance should cost. Insurers use numerous factors-age, education level, creditworthiness-to determine pricing, so the same policy could run you more than your neighbor. In recent years the average annual premium was $804. Most everyone advises against scrimping on insurance because big increases in coverage probably cost less than you'd think. He recently purchased a liability policy that cost $250 for the first $1 million in coverage. Adding another $1 million increased his premiums only $12.50 more.

How can I lower my premiums?

The higher your deductible, the amount you pay out of pocket before coverage kicks in, the lower your premium. Landing on the appropriate deductible level requires remembering that insurance should cover major calamities not minor incidents. Most homeowners should be able to absorb modest losses like a broken window pane or a hole in the drywall without filing claims. If you can, then you're wasting money with a $250 deductible.

If you're a first-time homeowner and don't have a lot of savings, moving up to a $500 deductible will probably stretch your budget. However, if you live in a ritzy home and drive an expensive car, then you should be able to afford a $1,000 deductible. In Milltown, N.J., for example, the premium for a $200,000 home with a $500 deductible would be $736, according to an expert; moving up to a $1,000 deductible drops the annual premium to $672. That's $64 in savings.

Every major insurer offers discounts to various groups, such as university employees or firefighters. Figure about 5%. Ask which affiliations would entitle you to a discount and how much. If an AARP membership would result in a $50 savings, pay the $16 dues and pocket the $36 difference. Many insurers also offer discounts ranging from 1% to 10% or more for installing protective devices like alarms and deadbolt locks, for going claim-free for an extended period, or for insuring both your car and your home with the same carrier.

Chip Plumley can be reached at (610) 444-9090 or (610) 357-8635.
Prudential Fox & Roach is an independently owned and operated member of
Prudential Real Estate Affiliates, Inc., a Prudential Financial company.
Equal Housing Opportunity.

ChipPlumley.com