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					 LQ Wealth Advisors
Wealth Advisory Team
             Ray Sims
           6960 Drake
 Cincinnati, OH 45243
        513-985-3400
  lifequestinstitute@cinci.rr.com
                                    Buying a House




                                                     May 06, 2008
LQ Wealth Advisors       Page 2 of 111




                     May 06, 2008
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Table of Contents
Buying a Home Checklist ................................................................................................................................................................................................................................................................................... 10

Homeownership ................................................................................................................................................. 15

               What is it? ................................................................................................................................................................................................................................................................................................................. 15

               Isni it always smarter to buy rather than rent? .......................................................................................... 15

               What are the benefits of homeownership? ............................................................................................... 16

               What should you think about when choosing a home? .............................................................................. 16

               How do you find and buy a home? ............................................................................................................. 17

               How are vacation homes different? .......................................................................................................... 17

               What about selling a home? ....................................................................................................................... 18

Buying a Home ................................................................................................................................................... 19

               What is it? ................................................................................................................................................................................................................................................................................................................. 19

               Using an agent or buyer's broker ............................................................................................................... 19

               Buying from the owner ................................................................................................................................ 20

               Buying at an auction or foreclosure sale .................................................................................................... 21

               What to do once you find the right house ................................................................................................... 21

               Be sure you're getting clear title to the house ............................................................................................ 22

               Be sure the house is in good condition ..................................................................................................... 22

               When does the house actually become yours? .......................................................................................... 22

Finding the Right Home ....................................................................................................................................... 23

               Introduction ............................................................................................................................................... 23

               Before the search ....................................................................................................................................... 23

               Consider your needs................................................................................................................................... 23

               Community living arrangements ................................................................................................................. 23

               Building a home .......................................................................................................................................... 24

               Choosing a neighborhood .......................................................................................................................... 25

               Make a list ................................................................................................................................................. 26

How Much Can You Afford? ............................................................................................................................... 28
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                     See disclaimer on final page


                                   May 06, 2008
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        Introduction ............................................................................................................................................... 28

        Getting to the bottom line ........................................................................................................................... 28

        Other housing expenses to factor in ......................................................................................................... 28

        Lenders use qualifying ratios ...................................................................................................................... 28

        Mortgage prequalification and preapproval ................................................................................................ 29

        Make sure you really can afford it ............................................................................................................... 29

The Purchase Process ........................................................................................................................................ 30

        What is the purchase process? ................................................................................................................. 30

        What's the difference between making an offer and completing a purchase and sale agreement (P&S)?
        ............................................................................................................................................................................................................................................................................... 30

        How do you make an offer? ...................................................................................................................... 30

        How much should you offer? ...................................................................................................................... 30

        What terms should the P&S contain? ....................................................................................................... 31

        Why should you schedule a home inspection? .......................................................................................... 32

        What does a home inspection cover? ........................................................................................................ 33

        What if the inspector finds problems? ........................................................................................................ 33

        How do you find a reliable home inspector? ............................................................................................. 34

        How much does an inspection cost? .......................................................................................................... 34

        What's next? ............................................................................................................................................... 34

The Down Payment ............................................................................................................................................. 35

        How much do you need for a down payment? ........................................................................................... 35

        Can you get a low down payment mortgage? .......................................................................................... 35

        What about larger down payments? ........................................................................................................... 36

        What about mortgages that doni require a down payment? ..................................................................... 36

        Investing money for a down payment ......................................................................................................... 36

Alternative Ways to Fund Your Down Payment .................................................................................................. 37

        How much money will you need for a down payment? .............................................................................. 37

        Funding alternatives .................................................................................................................................. 37

How Should You Own Your Home? .................................................................................................................... 39

        Introduction ............................................................................................................................................... 39




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        What are the most common forms of property ownership? ...................................................................... 39

        A note on community property .................................................................................................................... 40

The Closing Process ............................................................................................................................................ 41

        What is the closing? .................................................................................................................................. 41

        Before the closing ..................................................................................................................................... 41

        The closing ................................................................................................................................................ 41

Using Title Insurance to Protect Your Interest in Your Home .............................................................................. 45

        What is a title examination? ........................................................................................................................ 45

        What are some common title problems? .................................................................................................... 45

        What is title insurance? .............................................................................................................................. 45

        What about lender's title insurance? .......................................................................................................... 46

Mortgage Basics .................................................................................................................................................. 47

        What is it? ................................................................................................................................................................................................................................................................................................................. 47

        Prequalification vs. preapproval ................................................................................................................ 47

        Applying for a mortgage ............................................................................................................................. 47

        Mortgage brokers........................................................................................................................................ 48

        Private mortgage insurance ........................................................................................................................ 48

        Escrow account .......................................................................................................................................... 49

        Closing costs .............................................................................................................................................. 49

        Buydowns ................................................................................................................................................... 49

        Mortgage life/disability insurance ............................................................................................................... 50

Private Mortgage Insurance (PMI) ....................................................................................................................... 51

        What is private mortgage insurance (PMI) and why do you need it? ....................................................... 51

        How much does PMI cost? ......................................................................................................................... 51

        Can PMI ever be removed? ........................................................................................................................ 51

        Are there any alternatives to paying PMI? ................................................................................................. 51

Choosing a Mortgage ......................................................................................................................................... 53

        Introduction ............................................................................................................................................... 53

        Fixed rate mortgages .................................................................................................................................. 53




                                                                                                                                                                                                                                                                                  See disclaimer on final page
                                                                                                                                                                                                                                                                                                 May 06, 2008
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        Adjustable rate mortgages (ARMs) ............................................................................................................. 53

        Government mortgage programs ................................................................................................................ 55

        Other types of mortgages ........................................................................................................................... 56

        Mortgages from nontraditional lenders ....................................................................................................... 58

Mortgage Clauses ................................................................................................................................................ 60

        What are mortgage clauses? ...................................................................................................................... 60

        Why are mortgage clauses important? ...................................................................................................... 60

        What is an acceleration clause? ................................................................................................................. 60

        What is an assumption clause? .................................................................................................................. 60

        What is a conversion clause? .................................................................................................................... 61

        What is a due-on-sale clause? .................................................................................................................... 61

        What is an escrow covenant? ..................................................................................................................... 61

        What is an insurance covenant? ................................................................................................................. 61

        What is a prepayment clause? .................................................................................................................. 61

Prepayment and Biweekly Mortgage Payments ................................................................................................. 62

        Introduction ................................................................................................................................................ 62

        How prepayment affects a mortgage .......................................................................................................... 62

        Biweekly payment schedules .................................................................................................................... 63

Income Tax Considerations for Homeowners ...................................................................................................... 65

        Introduction ................................................................................................................................................ 65

        Can you deduct your mortgage payments? ................................................................................................ 65

        How are points and closing costs treated for tax purposes? ...................................................................... 66

        What is the tax treatment of home improvements and repairs? ............................................................... 67

Property Taxes ..................................................................................................................................................... 69

        What are property taxes? ............................................................................................................................ 69

        How property taxes are determined .......................................................................................................... 69

        Property taxes vary, depending on location .............................................................................................. 70

        Paying property taxes ................................................................................................................................. 70

        Deducting property taxes on your income tax return ................................................................................ 70




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Special Considerations for Second/Vacation Homes .......................................................................................... 72

        Introduction ............................................................................................................................................... 72

        Should you buy a vacation home? ............................................................................................................. 72

        How much will it cost to own a vacation home? ......................................................................................... 72

        What to look for in a vacation home ........................................................................................................... 73

        How do you insure a vacation home? ....................................................................................................... 74

        What about renting your home to others? .................................................................................................. 74

        What are the income tax consequences of owning a second or vacation home? .................................... 74

Timeshares .......................................................................................................................................................... 77

        What are timeshares?................................................................................................................................. 77

        Types of timeshare ownership .................................................................................................................. 77

        Other types of timeshare programs ............................................................................................................ 77

        How much does it cost? ............................................................................................................................. 78

        Tax consequences of owning a timeshare ................................................................................................. 78

        Purchasing a timeshare ............................................................................................................................ 78

        Is a timeshare right for you? ....................................................................................................................... 79

Homeowners Insurance (General Discussion) .................................................................................................... 80

        What is homeowners insurance? ............................................................................................................... 80

        Who is covered? ......................................................................................................................................... 80

        What is covered? ........................................................................................................................................ 81

        What is not covered? .................................................................................................................................. 82

        Questions & Answers ................................................................................................................................. 83

Flood Insurance ................................................................................................................................................... 84

        What is flood insurance? ............................................................................................................................ 84

        Do you need flood insurance? .................................................................................................................... 84

        How can you purchase flood insurance?.................................................................................................... 84

        How much flood coverage can you obtain? .............................................................................................. 84

        How much does flood insurance cost? ....................................................................................................... 85

        What else should you know about flood insurance? .................................................................................. 85




                                                                                                                                            See disclaimer on final page
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Vacation Home Tax Considerations..................................................................................................................... 86

        What are vacation home tax considerations? ........................................................................................... 86

        Vacation home tax treatment ...................................................................................................................... 86

        Second home tax treatment ........................................................................................................................ 88

Deductibility of Points and Other Closing Costs .................................................................................................. 89

        What is the deductibility of points and other closing costs?........................................................................ 89

        What are points? ....................................................................................................................................... 89

        Are points deductible and when? ................................................................................................................ 89

        What if the points are withheld by the lender from the loan proceeds? ...................................................... 90

        Can you deduct points paid by the seller? ................................................................................................ 90

        Can you deduct points charged on a mortgage secured by a second home? .......................................... 90
        If you are amortizing the deduction of points on a loan over the term of that loan and the loan ends
        early, how do you treat the points you have not yet deducted? ................................................................. 90

        How are points paid on a refinanced loan treated? .................................................................................... 90

        Can other closing costs be deducted? ........................................................................................................ 90

Popular Types of Mortgages .............................................................................................................................. 91

Less Common Mortgage Options ....................................................................................................................... 92

Personal Liability Umbrella Insurance .................................................................................................................. 93

Buying a Home ..................................................................................................................................................... 94

        How much can you afford? ......................................................................................................................... 94

        Mortgage prequalification vs. preapproval ................................................................................................ 94

        Should you use a real estate agent or broker? ........................................................................................... 94

        Choosing the right home ............................................................................................................................. 95

        Making the offer .......................................................................................................................................... 95

        Other details .............................................................................................................................................. 95

        The closing ................................................................................................................................................ 95

Applying for a Mortgage ....................................................................................................................................... 97

        Before you apply ......................................................................................................................................... 97

        What you'll need when you apply ............................................................................................................... 97

        Prequalification and preapproval ............................................................................................................... 97



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            Finalizing the application ........................................................................................................................... 98

Refinancing Your Mortgage ................................................................................................................................. 99

            When to do it ............................................................................................................................................... 99

            The cost of refinancing .............................................................................................................................. 99

            No cash-out versus cash-out refinancing ............................................................................................................................................. 100

Tax Benefits of Home Ownership ................................................................................................................................................................................................................... 101

            Deducting mortgage interest ................................................................................................................................................................................................................ 101

            Tax treatment of real estate taxes ................................................................................................................................................................................... 101

            Tax treatment of home improvements and repairs .................................................................................................................................................... 101

            Deducting points and closing costs ...................................................................................................................................................102

            Exclusion of capital gain when your house is sold ..................................................................................................................102

Opening the Door to Homeowners Insurance ..........................................................................................................................................104

            Why you need it ................................................................................................................................................................................................................................. 104

            Property coverage .......................................................................................................................................................................................104

            Liability coverage .............................................................................................................................................................................................................................. 105

            Purchasing homeowners insurance ................................................................................................................................................105

Insuring a New Home During Construction .............................................................................................................................................106

            You can insure your new home during construction with a homeowners policy .....................................................106

            Liability and theft coverage are provided .................................................................................................................................................................. 106

            A dwelling and fire policy is another option .................................................................................................................................106

            Workers' compensation coverage ....................................................................................................................................................106

            What if you're the boss? ................................................................................................................................................................................... 107

            Re-evaluate your coverage when construction is complete ..................................................................................................... 107

Insuring a Condo or Co-Op ................................................................................................................................................................................108

            The master policy ......................................................................................................................................................................................108

            Additional coverage for improvements .............................................................................................................................................108

            What your personal policy will and will not cover .......................................................................................................................108

            The dwelling policy alternative ............................................................................................................................................................................................. 108

            Loss assessment................................................................................................................................................................................................................................. 109




                                                                                                                                                                                                                      See disclaimer on final page
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                     See disclaimer on final page


                                   May 06, 2008
           Loss settlement ........................................................................................................................................................................................................ 109

           Read your policy before making a claim ................................................................................................................................................................................. 109

           Coordination of benefits under the master policy and personal policy .............................................................................. 109

Insuring Your Vacation Home .................................................................................................................................................................................................. 110

           What is covered under your primary residence's homeowners insurance? ...................................................................... 110

           What is a dwelling fire policy? ............................................................................................................................................................................................................. 110

           What about liability insurance? ........................................................................................................................................................................................................... 110

           How much does it cost? ............................................................................................................................................................................................... 110




                                                                                                                                                                                                                 See disclaimer on final page
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LQ Wealth Advisors                                 Page 10 of 111
Buying a Home Checklist

                                  Yes   No   N/A
           General
           information
           1. Has relevant
           personal information
           been gathered?
           2. Has financial
           situation been
           assessed?
            Income
            Expenses
            Assets
            Liabilities


           Notes:




           Choosing the           Yes   No   N/A
           right home

           1. Has a real estate
           professional been
           contacted?

           2. Has an attorney
           for the closing been
           contacted?
           3. Have the
           advantages and
           disadvantages of
           buying a home
           versus renting a
           home been
           discussed?




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          4. Have the desired
          home features been
          determined?
           Type of home (e.g.,
             condo,     multifamily,
             single residence)
           Floor plan/number
             of bedrooms,
             bathrooms
           Garage
           Yard
           Good schools
           Safe neighborhood
           Proximity to work



          5. Has a housing
          price range been
          determined?
          Notes:




          Financing                      Yes   No   N/A

          1. Has credit report
          been ordered and
          checked for errors
          a n d / o r n e g a t i ve
          credit?


          2. A r e s u f f i c i e n t
          funds available for a
          down payment?


          3. H a s n e e d f o r
          private mortgage
          insurance been
          discussed if down
          payment is less than
          20 percent?
          4. Has the source of
          t h e d o wn p a ym e n t
          been evaluated?
            Savings
            Gift
            Retirement funds


          5. Has the necessary
          paperwork (e.g., tax
          returns, pay stubs,
          bank statements)
          been gathered?



                                                          See disclaimer on final page


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          6. First-time
          homebuyer?
           FHA loan
           VA loan


          7. If so, has a
          first-time homebuyer
          class offered by
          bank/lender been
          attended?
          8 .       H a
          s
          prequalification or
          preapproval for a
          mortgage taken
          place?
          9 .       Has     a
          type of mortgage
          been considered?
           Adjustable rate
             versus fixed rate
           15-year versus
             30-year


           10. Have various
          mortgage terms and
          rates been
          compared?
          Notes:




          Insurance                  Yes   No   N/A
          planning
          1. Has the premium
          been estimated for
          h o m e o wn e r s a n d
          flood insurance?
          2. If a business will
          be run out of the
          home, has insurance
          coverage for home
          office been
          considered?




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         3. Has the need for
         other forms of
         insurance been
         evaluated?
           Disability insurance
           Life insurance
          Personal liability
            umbrella insurance



          Notes:




          Tax planning                Yes   No   N/A
          1. If this is a principal
         residence, have the
         tax benefits of home
         ownership been
         reviewed?
          Home mortgage
            interest deductions
          Deductibility of
            points and closing
            costs


         2. If a business will
         be run out of the
         home, has eligibility
         for home office
         deduction been
         discussed?
         3. Will this be a
         rental property?
          Notes:




          Estate planning             Yes   No   N/A
          1. Has estate plan
         been
          reviewed/updated?
          W il l s , d u r a b l e
           power of attorneys,
           advanced medical
           directives
           Trusts




                                                       See disclaimer on final page
                                                       See disclaimer on final page
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LQ Wealth Advisors                                  Page 14 of 111
           2. Are there specific
           property ownership
           issues that need to
           be addressed?
            Sole ownership
            Life estate
            Tenancy in
             common
            Joint tenancy
            Tenancy by the
             entirety
            Community
             property

           Notes:




           Other                   Yes   No   N/A
           1. Is refinancing or
           obtaining a home
           equity line of
           credit/second
           mortgage a
           consideration?
           2. Has the
           Homestead
           Exemption been
           discussed?
           Notes:




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                     See disclaimer on final page


                                   May 06, 2008
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Homeownership

What is it?
If you're like most consumers, homeownership involves the largest financial transaction you'll participate in during
your lifetime. As such, it's no wonder that the process of buying or selling a home can be so stressful, frustrating, and,
at times, totally confusing. If you want to ensure that you make sound financial decisions and survive the process with
your sanity intact, you should first educate yourself about real estate transactions and then engage in careful
planning. Your first step should be to ask yourself: "Do I really want to own a home?"

Isn't it always smarter to buy rather than rent?
Many people feel that renting is like throwing your money away, and that you should buy a house as soon as you can.
However, this isn't necessarily true. Although there can be many benefits to homeownership, many people find
renting more advantageous than buying. Which is better for you? To find out, you'll need to evaluate many
nonfinancial and financial factors.

Nonfinancial advantages of renting

The nonfinancial advantages of renting include:

          Moving is easier: Simply find a new home to rent, give the required notice, pack up, and move
           (although there may be some complications if you break a lease). This is particularly attractive to
           individuals who are often relocated by their employers.
          You don't need to hire someone to do repairs: Is your faucet leaking, air conditioner blowing hot air, heater
           blowing cold air? No worries--just call the landlord.

          You don't need to maintain the property: Need the driveway shoveled, the grass mown, or the leaves
           raked? Don't get up--most landlords include these services in the lease.


Financial considerations

Is renting really a better financial option than buying? Certainly you'll save some costs associated only with
buying, such as a down payment (though if you rent you generally must pay two months up front plus a security
deposit), closing costs, and property taxes. You may even save on other expenses of owning, like purchasing new
furniture/appliances, landscaping, or remodeling. And, you can generally rent an apartment, house, or condo for less
than the monthly cost of buying the same space.
The answer seems easy, doesn't it? But this is deceiving. Rent payments are not deductible on your federal income
tax return (although some of it may be deductible on your state return), but mortgage interest and property taxes are
if you itemize. As a result, the effective cost of owning a home may be lower than it appears compared to renting. To
get an accurate comparison, you need to calculate after-tax costs. Further, there are other financial benefits of
buying (e.g., equity) that you must consider. For more information on the financial benefits of homeownership, see
below.
       Tip:The rent vs. buy calculation is complicated and many factors come into play, such as the price of
      the home, the amount of your down payment, current interest rates, the current property tax rate, your
      income tax bracket, how long you intend to live in the home, and the amount of rent you're currently
      paying. You may want to seek the help of a financial advisor to determine whether renting or buying
      makes better sense for you.




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                     See disclaimer on final page
                     See disclaimer on final page
                                    May 06, 2008
 LQ Wealth Advisors                                                                                   Page 21 of 111


What are the benefits of homeownership?
For many, owning a home represents the American dream--a back yard, privacy, a place to call your own. If you're
committed to fulfilling that dream, you'll never be happy renting regardless of any advantages doing so may hold.
Other advantages of homeownership include:

Stability and flexibility

Owning your own home can provide a certain sense of security. You won't be faced with the prospect of finding yourself
without a place to live if your landlord dies suddenly or decides to sell the building, and you won't have to deal with
increases in rent.

       Caution: The price of this stability is a certain amount of risk. If you become delinquent in your house
      payments, your mortgagor may foreclose and pursue a forced sale of your home--and you may lose
      money on the sale. Renters are not faced with this possibility because they do not own the property in which
      they live.

As a homeowner, you'll also have almost unlimited flexibility to personalize your home. From painting and
wallpapering to landscaping to putting in a skylight or even adding a room, the possibilities are endless. Renters
typically don't have this freedom.

Financial benefits

Income tax deductions: As you're probably aware, federal tax laws strongly favor homeowners. Mortgage interest and
property taxes are tax deductible, provided you itemize your deductions. If your total itemized deductions exceed the
standard deduction ($10,900 for married taxpayers filing jointly in 2008), this can provide the potential for an
enormous tax benefit, especially in the early years of homeownership. For more information, see Income Tax
Considerations for Homeowners.

       Tip:For 2007 through 2010 only, premiums paid or accrued for qualified mortgage insurance is treated
      as deductible mortgage interest. Qualified mortgage insurance means mortgage insurance provided by
      the VA, FHA, and Rural Housing Authority as well as private mortgage insurance (PMI). The amount of the
      deduction is phased out if your AGI exceeds $100,000 ($50,000 if married filing separately). This provision
      does not apply with respect to any mortgage contract issued before January 1, 2007 or after December
      31, 2010.
Gain on sale exclusion: If you sell your home and qualify, you may exclude up to $250,000 of your capital gain from
tax. For married couples, the exclusion is $500,000. For more information, see Sale of Principal Residence: Tax
Considerations.

Equity: As a homeowner, you can borrow against the equity in your home, using either a second mortgage or a home
equity line of credit. The interest on a home equity loan of up to $100,000 is also tax deductible, regardless of how
you use the money. Many homeowners use home equity loans to consolidate other high-interest loans, make repairs
and improvements, and even fund a child's education. Lenders will generally allow you to borrow up to 80 to 90
percent of the value of your home. For more information, see Refinancing.
Asset appreciation: You may buy a home with a little of your own money (your down payment) and a lot of someone
else's (your mortgage). However, if the value of your home increases, the profit is all yours when you sell it. You
benefit from the increased value of the entire property, even though originally you used only a small portion of your
own money to finance it.

What should you think about when choosing a home?
When choosing a home, focus on determining what you need and how much you can afford. See Finding the Right
Home and How Much Can You Afford? for more details. Your lifestyle and the size of your family will certainly
influence your choice. So will the size of your income.




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What you need

What you need in a home is, to a large extent, a personal matter. You may decide that you need that 16-room colonial,
or you may find you can get what you need from a condominium, a co-op, or some other residential arrangement. Or,
you might decide to build the home of your dreams. See Special Considerations for Building a Home. Whatever you
decide, you must be able to afford it.

What you can afford

How much do you have for a down payment, and what size mortgage will fit your budget? Determining what you can
afford is always a matter of running the numbers. When doing so, be sure to consider tax issues, such as the home
mortgage interest deduction and real estate taxes. You should also include other considerations, such as the price of
homeowners insurance. For more information, see Alternative Ways to Fund Your Down Payment, Mortgage Basics,
Choosing a Mortgage, and Property Taxes. Once you've determined that the home you need is attainable at a price
you can afford, you're ready to take the next step.

How do you find and buy a home?
Finding a home

Brokers and real estate agents can help you find a home. Since the seller of the property typically pays the
broker, you may want to hire a buyer's broker to work for you.

Sometimes you'll find a home that is listed as "for sale by owner." While such arrangements can eliminate brokers and
broker's fees from the transaction, be wary. If you don't have a broker to help you navigate through the
home-buying process, hiring an attorney to protect your interests is especially important. An attorney should make
sure that your deal is properly documented and that you are obtaining a good and clear title to the property.

Occasionally, a home is auctioned or foreclosed by a mortgage holder. You can get a good deal at such a public sale,
but you can also buy yourself a big headache. Be cautious: The condition of the house, outstanding real estate taxes,
and undisclosed liens can all turn your good deal into a bad one.
For more information, see Buying a Home.

Buying a home

Once a buyer and seller come together, the buyer typically submits a written offer to purchase the property. If the
seller accepts the offer, additional terms of the sale are hammered out in a purchase and sale agreement and a
closing is scheduled. Prior to the closing, a home inspection is advisable to determine whether there are any problems
with the home that may not have been detected by a normal examination. At the closing, money and title
instruments are transferred, and mortgage documents, title insurance documents, and other instruments required by
the various parties are signed. For more information, see The Purchase Process and The Closing Process.
Forms of ownership

There are many ways to own a home. The way that you own real estate is specified in the deed of title and
determines what rights and protections you may or may not have with respect to the property. See How Should You
Own Your Home? for more information.

How are vacation homes different?
In addition to the above issues, you'll have a few special considerations when thinking about buying a second/vacation
home. For starters, vacation homes are typically considered a luxury. Accordingly, they receive different tax treatment,
especially if you rent yours out to others during the time that you own it. See Special Considerations for
Second/Vacation Homes.




                                                                                                   See disclaimer on final page
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LQ Wealth Advisors                                                                                 Page 18 of 111
Many buyers choose timeshare arrangements as an alternative to purchasing a traditional vacation home. A
timeshare is a special type of real estate ownership for vacation homes. See Timeshares.

What about selling a home?
First, consider all of your alternatives, such as making home improvements and/or converting your residence to rental
property. If you decide to sell, the most important considerations will involve preparation, timing, and pricing. You
need to decide whether to use a real estate broker and whether you are willing to extend a private mortgage to a
potential buyer. If you need the proceeds from the sale of your old home to fund the purchase of a new home and the
sale is delayed, you might need to think about a bridge loan to cover your shortfall until your old home is sold.
Finally, you also must consider the tax consequences of selling your principal residence. The most important of
these involves your ability to exclude certain capital gains from your income in the year that you sell the home. There
are also special capital gains rules to consider when selling second/vacation homes. See Selling a Home and How
Home Sales Are Taxed for more information.




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                     See disclaimer on final page


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Buying a Home

What is it?
Finding the right home to buy can be a challenging prospect, but knowing what to expect can make the process easier.
You can (1) buy through agents representing the seller and/or use a buyer's broker, (2) buy directly from an owner, or
(3) shop the auctions and foreclosure sales. Once you find the house you want, you must make an offer, check for clear
title to the property, and arrange for a home inspection. And after the closing, you can finally move into your new
home.

Using an agent or buyer's broker
What a real estate agent can do

Real estate agents, real estate brokers, and Realtors®can guide you through the home-buying process and may be
able to help with some or all of the following:

          Determining your housing needs

          Showing you properties and neighborhoods

          Suggesting sources and techniques for financing

          Acting as intermediary in negotiations

          Recommending professionals whose services you may need (e.g., an attorney, inspectors, appraisers)


         
          Providing insight regarding market activity in the area you're considering

          Disclosing positive and negative aspects of various properties that might otherwise have escaped your
           attention


Who the agent works for

The real estate agent generally works for (and is paid by) the seller. The agent must generally give his or her client
(the seller) any information that could affect the seller's position. However, there are many types of
buyer-seller-agent arrangements, such as:

          The traditional seller's agency arrangement, whereby a seller employs an agent to list a property and solicit
           buyers. The seller pays the agent's commission when the house is sold.

          Single-agency brokers, who list properties and solicit buyers for a seller; they also find homes and
           negotiate prices and terms on a buyer's behalf. To avoid a conflict of interest, the same firm does not
           represent both parties in a single transaction.
          Dual-agency brokerage arrangements, whereby a single agent may represent both the buyer and the
           seller in the same transaction. The agent agrees not to disclose confidential information that could benefit
           one party at the expense of the other.




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                     See disclaimer on final page
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Finding a good real estate agent

If you want to work with a real estate agent, be sure to select an agent with a good reputation and expertise in the
neighborhood(s) you are considering. Here are some steps you can take to find a good real estate agent:

          Find out the names of the brokers and agents who work in the area where you want to buy (check the yellow
           pages).

          Contact the local real estate board and the state real estate commission to determine if any complaints
           have been registered against agents or brokers with whom you may want to work.

          Call some of the most promising brokers. Tell each one what kind of buyer you are (e.g., a first-time
           homebuyer, a veteran house hunter) and what you are looking for in a home. Ask the broker to put you in
           touch with an experienced agent who can meet your needs.

          Interview each prospective agent. Find out what he or she knows about the community, and evaluate how
           well you might work together.


You may decide to work with more than one agent. Unlike a seller, a buyer generally does not enter into an
agreement with one agent. So, if you're dissatisfied with the one you're working with, you're free to choose
another.

Using a buyer's broker

Unlike a seller's broker, a buyer's broker works on your behalf. Buyer's brokers don't list properties; instead, they help
you find the kind of home you want within your price range. Buyer's brokers may offer several compensation
arrangements, including commission splitting with a seller's broker or an hourly fee. In an hourly fee arrangement, the
buyer's broker's fee is not necessarily tied to the selling price, so the broker has no reason to focus his or her search
on more expensive homes. Buyer's brokers can also help you purchase homes that aren't listed with real estate agents,
such as "for sale by owner" homes (see below).
However, using a buyer's broker can have disadvantages. They can be expensive, especially if you choose to
compensate them on an hourly basis. And some seller's brokers are reluctant to split their commission with buyer's
brokers, which may result in your buyer's broker limiting the properties you are shown if you choose a
commission-splitting compensation arrangement.

Buying from the owner
In a "for sale by owner" (FSBO, pronounced "fizzbo") situation, the owner offers the home for sale without the
involvement of an agent, and thus avoids paying brokerage fees and commissions. You deal with the seller directly,
rather than through the seller's agent. You should be even more thorough when inspecting the property in the case
of a FSBO. That is because a seller generally has no requirement to volunteer information about the condition of the
property, whereas a broker must generally disclose all material information that he or she possesses.

Without the involvement of real estate brokers, the parties typically require assistance to complete the necessary
paperwork to finalize the transaction. Before you make an offer to purchase FSBO property, seek the advice of your
attorney. A written offer to purchase real estate becomes binding when it is accepted by the seller, so you should make
sure you have adequately protected yourself against problems that may subsequently arise.
At a minimum, your offer to purchase should be contingent upon satisfactory inspections (e.g., structure, termites)
and the ability to obtain financing. If a purchase and sale agreement (also known as a P&S) is to be executed, your
attorney should review that as well.




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                     See disclaimer on final page
                     See disclaimer on final page
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Buying at an auction or foreclosure sale
Property secured by a loan on which the debtor has defaulted is known as distressed property, and is often subject
to foreclosure proceedings. You may be able to purchase a home at below-market prices during any of the following
three phases of these proceedings:
          If the owner of the home is in default but foreclosure proceedings haven't yet been initiated, you can still
           buy the property directly from the owner. However, you may have difficulty getting clear title to the property
           (see below). In addition to buying the property from the owner, you may have to pay off various other
           lienholders.

          Properties that have been foreclosed upon are offered at auction or foreclosure sale. If you are the
           highest bidder, you may purchase a home at a price covering the remaining defaulted mortgage balance
           and attendant costs. Some junior liens are eliminated before the foreclosure sale, thus clearing the title,
           but you will still be responsible for paying any outstanding property taxes.
          Properties that were offered at auction but did not sell revert to the lender, and you may then purchase
           such property directly from the lender. You may get a bargain on a home this way, and you should get clear
           title, but you will still be responsible for paying any back property taxes.


Buying property at an auction may require a substantial cash outlay. Find out before the auction how much of a cash
deposit you will need, whether the deposit is refundable, and whether financing will be available, or even accepted. In
contrast, when you buy directly from a lender, you generally get good financing terms as well as a reasonable
purchase price.

Because of the possibility of physical damage to distressed property or creditor liens against its title, there is a great
amount of risk involved with purchasing it, so you'll want to do some thorough research before you do so. Start out by:
          Enlisting the aid of a professional home inspector to inspect the property thoroughly. Add the cost of any
           necessary repairs to the price of the house to get a better idea of what it will actually cost to buy the
           house. If you can't inspect the property in advance of the sale, make your offer to purchase contingent on
           a satisfactory home inspection.

          Investigating the property's title for any junior liens or other title defects. Factor into the total cost of
           purchasing the house the money you'll spend to find and correct title problems. Your attorney should include
           a guarantee-of-clear-title clause in your offer to purchase.

          Having the property appraised. It's important to know how much a home is actually worth before you can
           determine if the selling price is reasonable.


What to do once you find the right house
Once you find the house you want, it's time to make an offer. Have your attorney review your offer to purchase before
you submit it to the seller. If accepted, it becomes a binding agreement between you and the seller. It's important to
make sure that everything you want included in the deal is contained in the initial contract, because once it is signed
by all parties, it may be too late to add or change anything.

       Tip:In some states, the contract simply contains an accepted offer to purchase a particular property at a
       specified price. Once the purchase price has been accepted, other contract terms are negotiated in
       the purchase and sale agreement.
Your offer may not be accepted. If the seller wants to negotiate, a counteroffer is made. If the counteroffer is not
acceptable, you can allow it to expire or make another offer. Negotiation can go on for weeks, although an




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LQ Wealth Advisors                                                                                     Page 22 of 111
agreement is typically reached by the second or third try.

For more information, see The Purchase Process.

Be sure you're getting clear title to the house
Before closing, an attorney or a title specialist should conduct a title examination. The purpose of the title
examination is to discover any problems (such as outstanding liens or judgments against the property, unpaid taxes,
ownership disputes, etc.) that might prevent you from getting clear title to the home. Generally, title problems can
be cleared up before the closing or immediately after by applying some of the sale proceeds to clear
encumbrances. But in some cases, severe title problems can delay the closing or may even cause you to consider
voiding your contract with the seller. In order to preserve your option to void the contract, make sure a
guarantee-of-clear-title clause is included in the purchase and sale agreement.
You should also consider purchasing an owner's title insurance policy. Before a title insurance policy is issued, a title
report is prepared based on a search of public records. This report gives a description of the property, along with any
title defects, liens, or encumbrances discovered in the course of the title search. After reviewing the report, the title
insurance company issues an owner's title insurance policy, which protects you against additional title defects that
were not discovered in the title search (e.g., forged signatures). The cost of this insurance can vary significantly
from state to state and among insurance companies, and you will generally pay a one-time premium.
        Tip:Owner's title insurance coverage should not be confused with lender's title insurance, which is
       required by most mortgage lenders. Lender's title insurance simply protects the lender's lien against the
       property, making the mortgage more attractive on the secondary market. Lend er's title insurance
       does not protect your investment in the property. Thus, you should purchase owner's title insurance in
       addition to the required lender's title insurance.

For more information, see The Closing Process and Using Title Insurance to Protect Your Interest in Your Home.

Be sure the house is in good condition
Since a house is such a major investment, you should learn as much as possible about the condition of a house
before you buy it. A professional home inspection will uncover both positive and negative aspects of the home.
After conducting the inspection, the inspector will create a report explaining his or her findings. If the inspector's
report indicates that the house needs minor or moderate repairs, such as a new roof or water heater, the seller may
lower the price of the home to cover the cost of making the repairs. The seller may also agree to make the repairs
before you buy the house. If major flaws are uncovered in the course of the inspection, you may choose not to buy
the home. As long as your purchase offer is contingent upon a satisfactory inspection and you act
within the time period specified, you should have no trouble walking away from the house and receiving a full
refund of your deposit if the inspection uncovers any major problems.

For more information, see The Purchase Process.

When does the house actually become yours?
The house becomes yours after the closing (also called settlement, title closing, or closing of escrow). For more
information, see The Closing Process. The purpose of the closing is to transfer ownership of the property from the
previous owner to you. At the closing, you will fill out the required paperwork, which is necessary to make the transfer of
ownership official. Closing can be an arduous process, but once it's over, you'll be the proud new owner of a home!




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                     See disclaimer on final page


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Finding the Right Home

Introduction
If you don't really know what you're looking for in a home, how do you find the right one? Careful planning and
consideration of your options can help ensure that you will be happy with the one you select. You may decide that
buying a traditional, single-family home is not your best bet. A condominium or a cooperative may better serve your
needs. Or, you may decide that building a new home may be the only way to get what you want. Whatever type of
home you end up looking for, your selection should be based on an educated decision.

Before the search
Before you begin the search for a home, you should make sure your financial house is in order. Get a copy of your
credit report and verify that the information it contains about you is correct. See Requesting a Copy of Your Credit
Report and Correcting Errors on Your Credit Report. Generally, if you have any outstanding bad debts, you should
clear them up before you apply for a mortgage or else risk paying a higher interest rate or being denied altogether.

Once you know your credit history is in good shape, search for a mortgage lender and get preapproved for your
mortgage. See How Much Can You Afford?. Having a mortgage preapproval letter will give you credibility and
possibly extra leverage as a buyer when it comes time to make an offer to purchase a home.

If you don't know anything about home construction, you may want to learn some basics. Become familiar with both
positive and negative things to look for in a home. Doing so will help you spot both features of value (the dovetailed
joints in the kitchen cabinets) and signs of poor workmanship or damage (the water stain on the sunroom ceiling).
This can be particularly important if you're looking at older homes.

When you start looking, always be prepared to make an offer on a home. You never know when you'll come across
the one you want. Once you do, you may find you need to act quickly to keep it from falling into the hands of another
interested buyer. At the same time, learn to be patient. Don't jump at the first house you see because you're afraid you
won't find anything better. Wait until you find what you're looking for, because you may have to live with it for some
time to come. You want to be happy with the home you select.

Consider your needs
When deciding what you need in a house, move from general to specific considerations. Begin by picking a price
range and a general location. Next, think about what sort of living arrangement (e.g., a single-family home,
condominium, or cooperative) best suits your needs. Once that's done, you can focus on more of the details, such
as a particular neighborhood, the age of the home, and the type of home you want.

When you get down to even more specific details (e.g., the number of rooms, a fireplace), you may want to make a list
of wants and needs, keeping in mind what you can afford. This may help you keep matters in perspective once you
begin shopping.

Community living arrangements
Many people prefer some sort of community living arrangement, and condominiums and cooperatives are two widely
recognized variations of such arrangements. The terms "condominium" and "cooperative" (or "condo" and "co-op")
do not refer to specific types of buildings or communities; rather, they reflect legal forms of ownership. While the two
are somewhat similar, there are important differences between them.




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Condos

As a condo owner, you typically don't own the building or the land. Generally speaking, you own everything within your
unit, but not the physical structure itself. You also own an undivided proportional interest in the rest of the development.
Part of your monthly condominium fee is used to operate and maintain these common areas.

A board of directors governs a condominium community. Elected by the condominium association, which is made up
of all the owners in the community, the board is responsible for managing the property and protecting the interests of
the owners.

In most areas, getting a mortgage to buy a condo is no more difficult than financing a single-family home purchase.
Mortgage interest and property taxes are generally tax deductible if you itemize, just as they are on a single-family
home. For more information, see Income Tax Considerations for Homeowners.

Co-ops

When you buy a unit in a co-op community, you're actually buying shares in the corporation that owns the entire
complex. This corporation generally holds the mortgage on the cooperative property. By purchasing shares in a
co-op, you obtain the right to use your unit and an interest in the common areas. Monthly co-op fees cover not only
shared maintenance and insurance costs, but also utilities, property taxes, and principal and interest payments on
the property's mortgage.

Like condos, co-ops are governed by a board of directors. In addition to all the responsibilities of a condo board,
co-op boards are responsible for making monthly mortgage payments on the property, as well as approving or
rejecting prospective buyers.

Because you aren't actually buying real property, you would take out a share loan instead of a mortgage to purchase
a co-op unit. The interest on a share loan isn't deductible, because the stock securing the loan is considered personal
property. However, if the co-op unit is your primary or secondary residence, the portion of your monthly co-op fee
used to pay mortgage interest and property taxes would be tax deductible.

Some important distinctions

Condo boards tend to be somewhat less restrictive than co-op boards. Both set and enforce rules regarding
occupancy, pets, and alterations or improvements to individual units. However, unlike condo boards, co-op
boards tend to scrutinize prospective members personally, professionally, and financially. The co-op board might
reject someone for any number of reasons. Because of this, it can also be difficult to sell your co-op unit, since the
board of directors must approve the buyer. In contrast, condo boards cannot prevent you from selling your unit to
whomever you choose. Moreover, if you decide to rent out your unit, the condo board can't dictate your lease terms
unless the condo rules and regulations restrict or prohibit leasing.
Advantages and drawbacks of community living

Community living arrangements can be an attractive alternative to traditional single-family dwellings. Since condos
and co-ops are often less expensive than single-family homes, first-time homebuyers may find them an easier way
to take advantage of the benefits of homeownership. Many condo and co-op communities include health clubs,
tennis courts, pools, playgrounds, and other amenities. Shared ownership can also help build a sense of pride and
community spirit.

There are drawbacks, however. You may have significantly less privacy in a condo or co-op community than you
would in a single-family home. Your condo or co-op board may not approve renovations you want to make. And as
the common facilities age, costly repairs may result in increased monthly condo or co-op fees.

Building a home




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                     See disclaimer on final page


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Sometimes, building a home may be the only way to get what you really want. Building has its tradeoffs, however.
Often, you must choose from a group of standard floor plans rather than design your own. Delays and shoddy
workmanship are always a risk. However, if you have thought it through and still want to build your dream house, you
have a few planning steps to take.

You must choose a lot. You must choose a builder. You may need to shop for a construction loan. You should hire
an attorney to handle the purchase and sale process. Careful planning is required to help minimize the risk of buying
something that hasn't yet been built. See Special Considerations for Building a Home.

Choosing a neighborhood
Your home's value will be influenced by the value of the properties surrounding it. Common wisdom suggests that you
should not purchase the most expensive home in the neighborhood. There are numerous factors to consider when
choosing a neighborhood; some may be more important to you than others. Among them are:

          Schools: The quality of the schools in the area is of extreme importance, especially if you have children.
           Even if you don't, the reputation of the school system may be an important factor if you later decide to sell
           your home.


          Crime levels: Is the crime rate increasing or decreasing? Find out the frequency of break-ins and other crimes
           against homeowners in the area. Public records at the town hall and newspaper archives at the local
           library may be good sources of information.


          Utilities: What's the average cost of utilities in the area? How does the tap water taste, and is it fluoridated?
           How promptly does the phone company respond to maintenance calls? Is cable television available?


          Hospitals: Find out how close the nearest hospitals are. Inquire about the reputations of emergency and
           other services, and determine if they accept your medical insurance.


          Property taxes: What is the residential property tax rate, and how often does it increase? How is the
           property appraised?


          Municipal services: Determine what services (e.g., garbage removal, recycling, or water and sewage)
           might be provided by the community, and what services (if any) you'll have to pay a private contractor to
           provide.


          Accessibility: If you choose a suburban location, will you have a lengthy commute to work? Test your
           commute to work in off-peak hours and during prime drive time.


          Business considerations: If you operate a business from your home, you'll need to know whether this is
           permitted in the neighborhood you are considering. Will on-street and/or off-street parking be
           available?


          Recreation: Will you be near golf courses, public gyms, tennis courts, swimming pools, or parks? Will
           you need to pay to use these facilities?


          Transportation: Convenient access to commuter rail lines, buses, subways, and highways is generally




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            advantageous, although noise, traffic, and pollution can be concerns if these facilities are too close to your
            home.


          Traffic: While an increase in traffic generally signals growth in the area, excessive traffic can cause unhealthy
           levels of noise and air pollution. Get a clear impression of the traffic situation both during the week and on
           the weekends.


          Shopping: Are you close to grocery and convenience stores, pharmacies, gas stations, dry cleaners, and
           banks? Are you so close that traffic will be a problem?


          Neighbors: Can you determine if your neighbors might share your interests? Look for ski racks or bike racks
           on their cars, or barbecue grills in back yards. If you have children, are there signs of other children of
           similar ages in the neighborhood?


          Terrain: Find out if flooding has been a problem in the recent past, or if the area is part of an
           identifiable floodplain.


          Future improvements: Check with the zoning department at the local town hall to see if any zoning
           changes, airport expansions, road improvements, etc. may impact the area you're considering.


Make a list
To help you refine what you're looking for in a home, consider making a list of your wants and needs (bearing in mind
the difference between the two). You might also compile a list of objectionable features, or "don't wants," to get a
complete picture of your ideal home. While evaluating your wants and needs, don't forget about your resources (or
lack thereof). Always keep in mind what you can afford.

The following is a sample wants/needs list containing some of the aspects you may want to consider:


 Item                                                                                    Need                  Want


 Commuting Time:


 Less than one hour


 Less than one-half hour


 Setting:


 Urban


   Suburban




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 Country


 Particular neighborhood:



Particular school district: __


Particular architectural style:


 Lot size


 Home:



 Number of bedrooms


 Number of bathrooms



 Bath in master bedroom


 Eat-in kitchen



 Separate dining room


 Basement


 Home business permitted in neighborhood


 Separate entrance for business


 Expansion potential


 Fireplace


 Garage (1 car, 2 car, etc.)


 Other



                                           See disclaimer on final page


                                                          May 06, 2008
See disclaimer on final page


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How Much Can You Afford?

Introduction
An old rule of thumb said that you could afford to buy a house that cost between one and a half and two and a half
times your annual salary. In reality, there's a lot more to take into consideration. You'll want to know not only how much
of a mortgage you qualify for, but also how much you can afford to spend on a home. In order to know how much you
can truly afford, you need to take an honest look at your lifestyle and your standard of living, as well as your income
and what you choose to spend it on.

Getting to the bottom line
If you have unlimited resources, you can afford to buy whatever home your heart desires. For most of us, though, that's
not the case.

Unless you can afford to buy a house outright, you'll probably need to get a mortgage to help you pay for it. So,
determining how much house you can afford is often a case of determining how much of a mortgage you can afford.

Start with some simple math: Take your monthly income and subtract all of your non-housing-related expenses. What
you're left with is the amount per month that you have available to allocate toward housing.

Other housing expenses to factor in
In determining what you can afford to spend on a home, you should also take into account other housing-related
expenses. The total amount of expenses may depend in part on what type of home you buy and where it's
located. Such expenses include:
          Maintenance costs--everything from weekly rubbish removal to a new roof

          Utility costs--electricity, heating and/or air-conditioning, gas, water and/or sewer

          Homeowner association fees or condominium assessment fees


Deduct the monthly portion of these expenses from what you estimated your monthly housing allowance to be, and
you're getting close to determining how much of a monthly mortgage payment you can afford. Of course, mortgage
lenders have a slightly more sophisticated way of determining how much they think you can afford.

Lenders use qualifying ratios
Lenders use formulas called qualifying ratios to calculate how much of a mortgage you qualify for. These ratios are
based on your gross monthly income, your housing expenses, and your long-term debt.

The first qualifying ratio a lender scrutinizes is your housing expenses to income ratio. According to the Government
National Mortgage Association (Ginnie Mae), in order to qualify for a conventional mortgage (one not insured or
guaranteed by the federal government), your housing expenses generally should not exceed 28 percent of your gross
monthly income. Your monthly housing expenses include mortgage principal, interest, taxes, and insurance;
consequently, this ratio is often abbreviated as PITI. The ratio is also known as the front ratio.
The second ratio that a lender looks at (known as the back ratio) is one that takes into account your expenses that
extend 11 months or more into the future (e.g., a car or student loan). These expenses are considered




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long-term debt. Your monthly housing expenses, plus your other long-term debt, determine what's known as your debt
ratio, or PITIO. To qualify for a conventional mortgage, Ginnie Mae indicates that these expenses generally should not
exceed 36 percent of your gross monthly income.

       Example(s): If your gross annual income is $30,000, your gross monthly income is $2,500. Your
       front ratio (PITI) should not exceed more than 28 percent of this, or $700. Your back ratio (PITIO) should
       not exceed $900 (36 percent of $2,500).

Mortgages that are insured or guaranteed by the federal government may allow more liberal qualifying ratios. Federal
Housing Administration (FHA) loans may allow front ratios as high as 29 percent and back ratios of 41 percent, while
Department of Veterans Affairs (VA) loans may allow up to 41 percent for both ratios. Remember that the figures
provided are estimates. Qualifying ratios may vary from lender to lender, and each mortgage application is
considered individually. Lenders generally use both ratios, since the two provide information about different aspects
of your total financial picture.

Mortgage prequalification and preapproval
Consider shopping for your mortgage before you start shopping for your house. Compare the mortgage rates and
terms offered by various lenders, and then get preapproved or prequalified with the lender of your choice. That way,
you'll know how much you can spend on a house before you fall in love with one that's just out of your reach. Make
sure you understand the difference between prequalification and preapproval.

Prequalification is simply the process of estimating how much money you'll be able to borrow based on the
qualifying ratios appropriate for the type of mortgage you're considering. Preapproval, on the other hand, means the
lender has verified your income and checked your credit references. Once you're preapproved, you'll get a letter
stating that the lender will give you a mortgage up to a certain amount, provided that certain conditions are met (e.g.,
the property is appraised for an amount sufficient to cover the mortgage). Preapproval lets you know exactly how
large a mortgage you can get. It also gives you more credibility as a buyer, since the preapproval letter lets the
seller know that you'll qualify, financially, for a mortgage if your purchase offer is accepted.

Make sure you really can afford it
Remember that mortgage lenders can only tell you how much of a mortgage you qualify for, not how much you can
afford. If homeowners insurance and property taxes are escrowed with your lender, these expenses will increase
your monthly mortgage payment. The payment amount will be even more if you're required to carry specialty
policies such as flood or earthquake insurance in addition to homeowners insurance. And if property taxes are
especially high, you may find that you're unable to afford the home. See Property Taxes for more information.
       Tip:Keep in mind that your actual mortgage payment will also depend on your interest rate and the term
       of the loan. Generally speaking, lower rates of interest and longer terms equal lower monthly mortgage
       payments.

Now might be the time to think about revising your budget. Perhaps you can think of ways to reduce your
non-housing-related expenses; doing so will free up money that you can apply toward your housing costs. For more
information, see The Spending Plan (Budget).
Also keep in mind any future plans that may affect your budget. Perhaps you'll need to buy a new car in a few years.
If you haven't already done so, perhaps you'll be starting a family soon. If you have children, as soon as they're in
kindergarten you'll need to think about saving for their college expenses. No matter how much of a mortgage a
lender tells you that you qualify for, you must always be sure your mortgage payment is not beyond your means.
After all, it's the roof over your head.




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                     See disclaimer on final page
                     See disclaimer on final page
                                    May 06, 2008
The Purchase Process

What is the purchase process?
Buying a home involves several steps, some of which may vary according to state law or local custom. In general,
though, the preliminary steps include making an offer on the home, completing a purchase and sale agreement
(also known as a P&S), and scheduling a home inspection.

What's the difference between making an offer and completing a purchase
and sale agreement (P&S)?
In some states, the offer to purchase and the P&S are separate documents. In these states, a typical offer to purchase
is a short form in which the buyer offers to purchase a specified piece of property from the seller for a specified price
on a specified date. This document is a quick, formal way to establish a commitment between the buyer and seller.
Usually, the signing of the offer is accompanied by a down payment (also known as earnest money).

The offer recites that if the offer is accepted by the seller, the parties will execute a P&S by a particular date. It's
important to note that an accepted offer is a binding contract. For this reason, making or accepting an offer should
be done with care. If you intend to seek legal advice, an attorney should be retained to review the offer as well as the
P&S.

The P&S will supercede the accepted offer. It contains the finalized terms and conditions (and any remaining details)
of the transaction. Once it is signed by both parties, the P&S becomes the final agreement between the parties.

In other states, only one document is used. There's no preliminary offer to purchase form; the actual offer is made
directly on a standard P&S form (which might be called a purchase offer contract). This detailed contract contains all of
the terms of the sale.

How do you make an offer?
In most home sales, offers and counteroffers are made through a real estate agent or other intermediary, such as an
attorney. If agents and attorneys aren't involved, the buyer and seller can deal with each other directly.

The offer must be made in writing, either on a preliminary offer to purchase form, or on the actual P&S. (Oral
contracts for the sale of land are not enforceable.) Normally, the buyer submits an earnest money deposit with the
offer. This deposit is applied toward the down payment on the house if the offer is accepted and the deal closes, or
returned to the buyer if the offer is rejected.

Once the offer has been accepted, it's possible for a buyer to lose his or her deposit if certain conditions are not met.
For that reason, it's essential that the offer and/or P&S be drafted properly. It may be wise to hire an attorney for this
purpose.

       Caution: Before making an offer, make sure you can afford the real estate taxes and monthly
       insurance premiums. For more information, see Property Taxes.

How much should you offer?
That depends on several factors, including your financial situation, how much you want the house, general market
conditions, a comparative market analysis and/or appraisal of the home, and the length of time the house has been
on the market.




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LQ Wealth Advisors                                                                                   Page 31 of 111
The seller's asking price should be considered a guideline. Offers may be made at, below, or above this price. The
seller's flexibility depends on current market conditions and on how anxious he or she is to sell the house. Although an
old rule of thumb states that any bid within 5 or 10 percent of the asking price is reasonable, market conditions may
dictate otherwise. In a seller's market, when the demand for homes is high and the supply of homes is low, a seller
may have several offers on the table (some of which may even be above the asking price). In a buyer's market,
however, it may be wise to bid at least 5 percent below the asking price.
Before negotiations begin, you should decide the maximum amount you're willing to pay for the house. You'll want
to keep that amount "close to the vest," particularly from an agent or broker who represents the seller. Your first
offer may be somewhat below this final price, leaving you room to increase your bid if necessary.

If you've found your dream house, how can you ensure that your offer will be accepted?

Unfortunately, there's no guarantee that you won't be edged out by another buyer with a better offer. However,
you can do the following to make your offer more attractive:

          Make an offer at (or very close to) the asking price.

          Make your offer free of contingencies, such as selling a previous home or passing inspections. But keep
           in mind that eliminating these safeguards can be risky.

          Offer a large earnest money deposit to demonstrate that you're a serious buyer.

          Offer to pay the seller's closing costs.

          Get preapproved for a mortgage. You may be a more attractive buyer if the seller knows you can
           obtain financing.


Even if you're very interested in the home, you should keep the following points in mind:

          Maintain your perspective (there are lots of other houses out there).

          Stay objective and weigh your decisions carefully.

          Be prepared to hit a few snags when negotiating.

          Walk away from the deal if you have to.


What terms should the P&S contain?
The P&S is a legal contract containing all of the terms and conditions of the sale, including the duties of each party
and the remedies if a default occurs. Once the parties sign this contract, the provisions can't be changed (unless both
parties agree to an amendment). That's why it's a good idea for both sides to retain attorneys before signing a P&S.

Normally, a standard form is used (although this form may vary from state to state, or even from one real estate office
to another). If you retain an attorney, he or she will probably strike out certain words or sentences in the P&S and
add others to protect your interests. If you've decided to forgo an attorney and are presented with a standard form,
use the form as a guideline; it's not sacrosanct. It may be wise, though, to consult with an attorney before making
changes to it.

The contract will contain many provisions, including the following:
          Names of the parties: All parties to the transaction should be named in the contract. If more than one
           person owns the property (e.g., a husband and wife own the home jointly), it is especially important that
           each signs the contract.


                                                                                                  See disclaimer on final page
                                                                                                                 May 06, 2008
          Property description: The property should be identified by both street address and legal description
           (such as the book and page where the seller's deed is recorded).


          Quality of title: The type of deed to be conveyed and the condition of the title should be stated in the
           contract. Because legal terminology is often used, an attorney might prove valuable in this area.


          Personal property: Any personal property included in the transaction should be listed. Personal property
           refers to items that are not permanently attached to the land or building. Examples include refrigerators,
           stoves, washers and dryers, and mini-blinds.


          Purchase price: The purchase price of the property and the terms of payment should be clearly spelled out
           in the contract. All dollar amounts, payment methods, and payment dates should be included.


          Deposit: The earnest money deposit is the money you submit to the seller when you make the offer on the
           house. If your offer is accepted and you fail to follow through on your commitment, the seller may be
           entitled to keep this money. The amount of the deposit should be stated in the contract, along with the
           circumstances under which the seller may keep this deposit.


          Property condition: Generally, the seller is required to deliver the property to the buyer in the same
           condition it was in when the contract was signed. The P&S should specify that any damage occurring
           between the contract signing and the closing date must be repaired at the seller's expense.


          Inspection contingency: The buyer should add a contingency or rider to the contract (if there isn't one
           already), allowing a home inspection by a certain date. An unfavorable inspection of the home by a
           professional may allow you to avoid the sale if you want. Or, the seller may agree to repair the property (up
           to a certain dollar amount) or lower the purchase price so that you can make the necessary repairs later.


          Mortgage contingency: The mortgage contingency clause seeks to make the sale dependent on the
           buyer's ability to obtain a mortgage commitment. Typically, this provision recites the amount of the
           mortgage and the date by which the buyer must submit a complete mortgage application form. The
           maximum interest rate acceptable to the buyer might also be recited.


          Closing and possession dates: The contract should set forth the closing date and the date the buyer will
           take possession of the home. (These dates are usually the same.) This provision should also state that the
           property will be delivered free of all tenants and occupants.


While it's important to protect your interests by using contingencies in the contract, it's equally important to make sure
that you meet all of the obligations required to exercise a contingency. Buyers must be aware of the dates by which
an inspection must occur, mortgage financing must be secured, and so on. If you don't exercise your rights under the
contract by the required dates, you may severely compromise the protections in the contract.

Why should you schedule a home inspection?
Buying a home is a major investment. Naturally, you should know as much as possible about the condition of the home
before you agree to buy it. For that reason, you should insist on an inspection contingency clause in your offer to
purchase and/or P&S. You'll want to hire a professional home inspector to look for structural and mechanical defects
in the property. You might also want to conduct a termite (or other pest) inspection and test




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for environmental hazards, such as radon, lead paint (if the house was built before 1978), and mold. The home
inspection should reveal both positive and negative aspects of the home and help you decide whether to make the
purchase.

       Caution: Even brand-new homes should be inspected. Although the home might look fine to the
       untrained eye, an inspector may be able to uncover shoddy workmanship, potential drainage
       problems, and the presence of unsafe radon levels.

What does a home inspection cover?
A standard home inspection will generally cover the following areas:

          The structure of the house, including the foundation, walls, ceilings, stairs, and attic

          The exterior, including the roof, chimney, caulking and weather stripping, grading, drainage, driveways, and
           patio

          The interior, including visible insulation and ventilation, leaking, steps, counters, railings, cabinetry, and
           sinks

          The interior plumbing, such as fixtures, faucets, drains, toilets, and water heater

          The electrical system, including wiring, fixtures, and overload protection

          The heating and air-conditioning systems, including type, capacity, condition, distribution of sources of
           heating and cooling, controls, humidifiers, and fire safety

          The basement or crawl space, including construction, structural ability, settlement, and water
           penetration


There are limits to the inspection. Normally, the inspector will not move furniture or boxes that block access to parts
of the house. He or she should also do nothing to damage the property (for example, by dismantling walls or
systems).

       Tip: You may want special features inspected, such as the septic system, swimming pool, or tennis
       court. If you want to test for the presence of pests or environmental hazards, you may need to hire a
       specialist.

What if the inspector finds problems?
Look to your P&S to determine the rights and duties of the parties. Generally speaking, though, the procedure is as
follows. After inspecting the property, the inspector issues a report, noting any problem areas. If the report indicates
that the house requires repairs (e.g., a new water heater or a new roof), the buyer typically has a few options:
          Request that the seller have the problem repaired by a certain date.

          Request that the seller lower the purchase price of the property to cover the cost of making the repairs.

          Request that the seller split the cost of the repairs with the buyer in some fashion.

          Last recourse? Inform the seller that the deal is off and ask for an immediate refund of any deposits.




                                                                                                    See disclaimer on final page
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How do you find a reliable home inspector?
In many states, home inspectors don't have to be licensed to do business. Therefore, finding a reputable home
inspector will require some homework. It might be best to obtain a referral from a relative, friend, coworker, or
attorney.

       Caution: Be somewhat wary of referrals from a real estate agent. Although a home inspector should
       be independent and unbiased, a referral from an agent may encourage a more favorable inspection
       report. That's because the agent wants the sale to go through, and the inspector might appreciate the
       business.

You might want to look for an inspector who's a member of a trade association, such as the American Society of
Home Inspectors (ASHI). This organization requires applicants to pass standardized tests and conduct numerous
supervised inspections before being admitted as members. ASHI members also agree to abide by a written code of
ethics and prescribed standards of practice designed to protect the homebuyer.

Once you've found a likely candidate, ask the inspector how many inspections he or she has conducted. Get some
information on the inspector's background, too. Former home builders or structural engineers may make especially
good inspectors. A real estate agent who performs inspections on the side, however, probably isn't your best bet.
Finally, make sure the inspector is bonded or carries liability insurance. If you buy the home and the inspector failed
to detect a serious flaw, you may be able to obtain some compensation.

How much does an inspection cost?
The price range for a home inspection varies according to geographical area. It can also depend on the age, size, and
construction of the home. In addition, specialized inspections (e.g., septic inspection, pest inspection, and radon
inspection) may involve extra charges. In general, you should expect to pay a minimum of $140 for a basic inspection.
The price could amount to $500 or more, though.

What's next?
After your P&S has been signed, your mortgage application submitted, and the inspections completed, things should
be fairly quiet for a while. You'll continue to submit any required paperwork to your mortgage professional, and an
appraisal of the home will be scheduled for mortgage purposes. Eventually, you'll have to obtain an insurance binder.
(For more information about insurance, see Evaluating and Comparing Homeowners Insurance Policies.) If all goes
well, you can look forward to the closing process.




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                     See disclaimer on final page


                                   May 06, 2008
The Down Payment

How much do you need for a down payment?
In the past, lenders usually required a down payment of at least 20 percent of the purchase price of a home.
Nowadays that's no longer the case. Instead, the amount of your down payment will depend on a variety of factors,
such as the amount of money you have saved for your home purchase, your current financial situation, and your
feelings toward other investment options.

Can you get a low down payment mortgage?
Today, many lenders are approving loans with lower down payments. In addition, certain private and government
entities have low down payment programs.

FHA mortgages

You may be able to get a Federal Housing Administration (FHA) mortgage with a down payment of as little as 3 percent.
Qualification standards are relatively lenient for FHA mortgages, and the terms of these mortgages are generally very
attractive, making them ideal for first-time homebuyers. Keep in mind, however, that FHA loans require borrowers to
pay mortgage insurance premiums.

VA mortgages

Department of Veterans Affairs (VA) mortgages are another low down payment option. VA mortgages are available
to qualified veterans and their surviving spouses. VA mortgage terms are also generally very attractive, and in many
cases, little or no down payment is required.

Conventional mortgages

You may be able to obtain a conventional mortgage with a down payment of less than 20 percent with the help of
private mortgage insurance (PM I). Low down payment mortgages are somewhat risky for lenders, because they
believe you are more likely to default on a loan in which you have very little invested. For this reason, lenders generally
require PMI if you are borrowing more than 80 percent of the value of the home you are purchasing (i.e., your down
payment is less than 20 percent).

If you are concerned about taking on PMI payments, keep in mind that you may not have to pay PMI forever. For loans
originated after July 29, 1999, your lender is obligated to cancel your PMI once you have reached 22 percent equity
in your home, provided you have a good payment history. Or, you can petition your lender to remove the PMI if you
have a good payment history and reach 20 percent equity in your home.

        Tip:In addition to requiring PMI, lenders sometimes have stricter qualification standards and offer lower
       loan limits and higher interest rates if your down payment is less than 20 percent.

If you don't have at least 20 percent for a down payment, consider asking if your lender would be willing to increase
your mortgage interest rate a quarter of a point rather than require PMI coverage. Your monthly payment will
increase by roughly the same amount as the monthly insurance premium. However, mortgage interest is
generally tax deductible; PMI payments are not.
        Tip:There is a limited exception to the general rule that PMI payments are not deductible. For
       amounts paid or accrued in 2007 through 2010, qualified mortgage insurance payments can be
       deducted in the same manner as qualified mortgage interest, but only for mortgage insurance contracts
       issued on or after January 1, 2007 and before January 1, 2011. In addition, the deduction is phased out
       for taxpayers with adjusted gross income exceeding $100,000 ($50,000 for married individuals filing a
       separate return).




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LQ Wealth Advisors                                                                                      Page 36 of 111
       Tip:If you opt to pay a higher interest rate instead of taking on PMI, remember that you may be able
       to cancel your PMI sometime in the future, whereas you'll have to pay the higher interest rate until the
       mortgage is paid off or you refinance.

Another alternative to PMI is to obtain 80-10-10 financing, where a lender provides a traditional 80 percent first
mortgage, and you then obtain a 10 percent second mortgage and make a 10 percent down payment.

See Choosing a Mortgage and Private Mortgage Insurance (PMI) for more information.

What about larger down payments?
If you have more than 20 percent to put down, you may still want to take the time to weigh your down payment options.
With a larger down payment, you will reduce the amount of your mortgage and thus the amount of interest you
will pay. And since a larger down payment usually means less risk, lenders often offer lower interest rates and are
more lenient toward borrowers who provide larger down payments. Also, a larger down payment gives you instant
equity in your home, which can be accessed through a home equity loan or home equity line of credit.
Keep in mind, however, that there may be situations where you might not want to make a large down payment.
For example, you may want to keep the money in your emergency cash reserve. Or, you may want to put the money
toward other investment opportunities.

What about mortgages that don't require a down payment?
Some lenders offer "no down payment" or "100 percent financing" mortgage programs. However, these programs
typically have high interest rates and closing costs, along with additional qualification requirements.

Investing money for a down payment
If you're saving for a down payment, you may be wondering where you should invest your money. The answer
depends on how soon you'll need the money, since the more time you have, the more risk you may be willing to accept
in considering investments. If you're going to need the down payment within the next few years, you'll probably want
to minimize risk. For many, this means a bank savings account. However, you'll also want to consider money
market accounts as well. Money market accounts are low-risk, and generally pay slightly higher interest rates than
bank savings accounts.




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See disclaimer on final page
See disclaimer on final page
               May 06, 2008
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Alternative Ways to Fund Your Down Payment

How much money will you need for a down payment?
It used to be that most lenders would require a down payment equal to at least 20 percent of a home's purchase price.
Today, however, there's good news for homebuyers who have little money saved for a down payment. Many
lenders have relaxed their requirements and are approving loans with lower down payments. In addition, there are
numerous private and government-sponsored low down payment mortgage programs, such as those offered by
Fannie Mae, Freddie Mac, the Federal Housing Administration, and the Department of Veterans Affairs.

However, if you've done all you can to save for a down payment and it's still not enough, don't worry--you have other
options. The following are some alternative methods you can use to help fund your down payment.

        Caution: Keep in mind that if your down payment is less than 20 percent, you may have to pay private
        mortgage insurance (PMI), which can equal .5 to 1.25 percent of your total loan amount at closing.

Funding alternatives
Rent with option to buy

A rent with option to buy (also known as a lease with option to purchase, lease purchase, or lease option) allows you to
rent a home for a certain period of time (e.g., three years) while a portion of your rental payments accumulate and
are credited toward your down payment. At the end of the lease term, you have the option to purchase the home for a
specified price. If you choose not to exercise the purchase option, it usually expires. These arrangements often
require you to pay a nonrefundable fee (referred to as an option fee), which can be as much as 2 to 3 percent of the
purchase price.

Shared equity financing

A shared equity arrangement can be structured in many ways. However, it typically involves an investor who supplies
all or a portion of the down payment on the home. The investor may also take a partial ownership interest in the
house and make part of each monthly mortgage payment. Meanwhile, you live in the home, make the payments on
the mortgage, and pay fair market rent to the investor for the portion of the home that he or she owns. At a point in
time that is specified in the equity-sharing agreement (e.g., after the home is sold or after a certain time period), the
investor is entitled to receive the money for the down payment back, plus a share of any appreciation that has occurred.
Borrow from the cash value of a life insurance policy

If you have accumulated a substantial cash value in your life insurance policy, you may be able to borrow from it in
order to raise funds for a down payment. You may be able to borrow up to 90 percent of your policy's cash value,
and the interest rate is usually substantially lower than rates for bank loans and credit cards. However, any outstanding
loan balance will be subtracted from your death benefit when you die, reducing the amount your beneficiaries will
receive upon your death.

Borrow against your assets/convert assets to cash
Another option is to borrow against your assets (e.g., personal property, fixed-income investments) to raise money
for a down payment. When you borrow against an asset, the asset becomes collateral for a loan. You still own the
asset, but the lender takes a security interest in it. If you fail to repay the loan as promised, the lender has the right to
take legal action to acquire the asset and sell it to repay your outstanding debt.




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You may also want to sell, redeem, or otherwise liquidate an asset in order to come up with a source of funds for a
down payment. While you can easily determine the value of certain assets, such as fixed-income investments, placing
a value on other types of assets (e.g., personal property) requires some additional research. So, you may want to
enlist the services of a qualified appraiser to help you estimate the asset's value.

        Caution: Liquidating assets can have tax ramifications. See Income from Sale or Exchange of
        Property.

Gifts

Most mortgage lenders allow gifts to be used for part of the down payment on a home. However, lenders often require
borrowers to contribute some of their own money toward a down payment in addition to any gifts. You'll also need to
submit a letter to your lender that proves that the money is a gift rather than a loan, and that you are not expected to
repay the funds. You may also have to submit documentation, such as bank statements, showing the funds withdrawn
from your benefactor's account and deposited into your account.

Borrow from an employer-sponsored retirement plan

If you participate in an employer-sponsored retirement plan, one way to come up with money for a down payment is
to borrow the money from your plan. Many employer-sponsored retirement plans (e.g., 401(k) plan) allow you to
borrow against the funds in your account. Depending on the rules established by your employer, you may be able to
borrow against your own contributions and the earnings on this money. You may also be able to borrow against
contributions made by your employer if you are vested in those dollars. Interest rates on these types of loans are
generally only one or two points above the prime rate. Although loans from retirement plans generally must be paid
back within five years, the repayment period can be longer if funds are used to purchase a primary residence. Many
plans carry restrictions, so consult your plan administrator for more details.
         Caution: If you leave your employer before you repay a loan from an employer-sponsored
        retirement plan, the balance of your plan loan will typically be due immediately. If it's not repaid on time,
        the loan balance will be deemed a distribution for tax purposes, and you may be subject to the 10
        percent penalty tax.

Withdraw from a traditional IRA

You can withdraw funds from your traditional IRA and use them for a down payment. However, all or part of a
distribution from a traditional IRA must be included in taxable income in the year received. While funds distributed prior
to age 591/2 are generally subject to a premature distribution penalty, an exception applies when the distribution is
used within 120 days to pay the costs of acquiring, constructing, or reconstructing the principal residence of a first-time
homebuyer. There is a $10,000 lifetime limit on distributions covered by the first-time homebuyer exception, however.

Withdraw from an employer-sponsored retirement plan

If your plan allows, you may be able to take a distribution from your employer-sponsored retirement plan and use the
funds for a down payment. You'll want to consult your plan administrator to find out what options, if any, are available to
you. Before you withdraw from an employer-sponsored plan, however, keep in mind that distributions from an
employer-sponsored plan generally must be included in taxable income in the year received. In addition, a 10
percent federal penalty tax may be assessed on distributions made before age 591/2. See Premature Distribution
Penalty for more information.
         Caution: Taking money out of your retirement plan to apply to the purchase of a home should be
        done only after careful consideration--it is generally not recommended.




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                     See disclaimer on final page


                                   May 06, 2008
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How Should You Own Your Home?

Introduction
You can legally own real estate in one of many different ways. The way you own property is important because it
affects what you can do with it while you own it, how you can dispose of it during life, who receives it at your death,
and how taxes are apportioned.

What are the most common forms of property ownership?
Sole ownership

Sole ownership (or outright ownership) occurs whenever you fully own the home by yourself. You alone enjoy full
use of the property. You alone are responsible for any of the costs associated with the property. In general, you are
the only one who can decide how to dispose of the home.

Joint tenancy

A joint tenancy (also called joint tenancy with rights of survivorship, or JTWROS) is one of the ways two or more people
can own something together. If you are the co-owner of a home owned as a joint tenancy (a joint tenant), that home
passes automatically at your death to the remaining joint tenants without the expense and delay of probate. A joint
tenant may sell his or her interest in the home. If this happens, the remaining cotenants' rights of survivorship in that
interest end. The joint tenancy continues among the remaining cotenants, but the purchaser becomes a tenant in
common.

       Caution: Joint tenancy can exist without rights of survivorship in some states. If this is the case in your
      state, be sure to be very clear about what type of joint ownership (with or without rights of survivorship)
      is being created.

Tenancy in common

A tenancy in common is an ownership interest shared by two or more persons in real property. Each owner
(called a tenant in common) has a right to use and possess the entire property even thoug h he or she may
actually own an unequal share. Shares are proportionate to contributions or determined by agreement. At death, an
owner's share passes to his or her beneficiaries and generally must pass through probate. Tenants in common
do not have survivorship rights. This lack of survivorship rights distinguishes a tenancy in common from other joint
ownership arrangements. None of the tenants have exclusive rights to any part of the property. Tenants in common
are free to transfer their portion of the property without first obtaining the consent of the other tenants.
Tenancy by the entirety

A tenancy by the entirety can only exist between spouses. If you are the co-owner of a home owned as a tenancy by
the entirety (a tenant by the entirety), that property passes automatically at your death to your spouse without the
expense and delay of probate. Neither spouse can encumber or dispose of the property without the consent of the
other. This form of ownership can be used as an asset protection tool. Creditors of one spouse generally cannot reach
property that is owned as a tenancy by the entirety until the nondebtor spouse dies or the tenancy by the entirety is
terminated by divorce or transfer to another form of ownership.
       Caution: A tenancy by the entirety is not recognized in all states.




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Timeshares

A timeshare is a special type of ownership for vacation homes. For the most part, there are two types of
timeshare ownership: a deeded plan and a nondeeded plan. In a deeded timeshare plan, you purchase a fractional
ownership interest in a specific unit. You can rent, sell, donate, or bequeath your ownership interest just as you would
any other real estate that you own. In a nondeeded timeshare plan (also known as right-to-use ownership), ownership
remains with the original property owner/developer. You purchase a lease, license, or club membership that gives you
the right to use the property for a specific time each year for a limited number of years. Once the lease expires, the
right to use reverts to the property owner/developer. For more information, see Timeshares.
Qualified personal residence trust (QPRT)

A qualified personal residence trust (QPRT; pronounced "Q-Pert") is an irrevocable trust that is often used as an
estate-tax-saving device. The home is owned by the trust, but you retain the right to use the property for a term of years.
The beneficiaries of the trust are often your children or grandchildren. At the end of the term of years you select, your
beneficiaries will inherit the home. Putting the title of the home in the trust's name is considered a taxable gift.
However, you may discount the value of the gift depending on the length of the term of years you select and the
applicable government interest rates. If you outlive the term of years, the value of the residence will not be included
in your gross estate. However, if you die before the term ends, the full value of the residence at the time of your death
is included in your estate. For more information, see Qualified Personal Residence Trust.

A note on community property
To date, community property laws have been enacted in Puerto Rico and 10 states: Alaska (which has an
optional system), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and
Wisconsin. Community property laws establish a set pattern of property ownership for married couples.
Although the laws vary among these states, some general characteristics are shared by all. In general,
community property states deem that each spouse owns a one-half interest in the home if it was purchased during
marriage. At the death of one spouse, the surviving spouse is entitled to one-half.




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                     See disclaimer on final page


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The Closing Process

What is the closing?
The purpose of the closing (also called the settlement, title closing, or closing of escrow) is to transfer ownership of
property from the seller to the buyer and transfer funds from the buyer to the seller. The closing process varies, depending
on location. In general, though, by the time of the closing, an offer has been made and accepted, financing has been
arranged, inspections have been completed, and all contingencies have been satisfied. Usually, what remains is
a stack of paperwork that needs to be signed.

Before the closing
Review the good faith estimate of closing costs

Your lender will provide you with a good faith estimate of the closing costs shortly after you submit your loan
application. This is an itemized estimate of what your closing costs will be. Be sure to review it carefully to help you
prepare for the closing. Keep in mind, however, that this document is just an estimate and may not include all costs
due at closing. So, ask the closing agent (a representative of the title company or mortgage lender, a real estate broker,
or an attorney who conducts the closing meeting) to send you a final list of the actual costs a few days before the
closing.
Purchase title insurance

Sometime before the actual closing date, an attorney or title company (normally hired by your mortgage lender) will
usually conduct a title examination. The purpose of this title examination is to discover any problems that might
prevent you from getting clear title to the home. Title problems are generally cleared up before the closing, but in
some cases, they can delay the closing. In extreme cases, a title problem may be so serious that you decide not
to purchase the home. A title problem could also cause a lender to refuse to finance a purchase.

To protect yourself from title defects that were not discovered in the course of the title examination and that may not
appear until after you've taken ownership of the property, you may want to purchase title insurance. You generally pay
a one-time fee for title insurance, the price of which varies depending on the location of the home, its purchase price,
and the type of title insurance coverage you select. Most mortgage lenders will require you to take out lender's title
insurance, which protects the lender's interest in the property. However, a lender's title insurance policy does not
protect your full interest in the property. So, you may want to purchase a separate owner's policy to protect your
interest in case of title defects. See Using Title Insurance to Protect Your Interest in Your Home for more information.
Obtain homeowners insurance

Most lenders require you to obtain homeowners insurance coverage before the closing for the property you are buying.
Typically, you'll need to provide the lender with proof of insurance coverage at the closing.

Do a final walk-through

A final walk-through allows the buyer to do one last inspection of the property before closing to make sure that the
seller has made all repairs and satisfied any obligations specified in the purchase and sale contract. The final
walk-through usually occurs within 24 hours of the closing.

The closing




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Who needs to be present?

Although the players vary depending on local custom, some or all of the following individuals will be present at the
closing:

          The closing agent

          The buyer and/or buyer's attorney

          The real estate agent(s) involved in the sale

          The seller and/or the seller's attorney
          A notary to witness signatures of the parties


What type of paperwork will there be?


The following is a list of some of the paperwork you may find at closing. This list is not exhaustive and will vary from
state to state. Make sure you read and understand all of the documents you are asked to sign.

          Grant Deed: This document states that the title of the property is being transferred from one party to
           another.


          Change of Ownership Report: Required by the taxing authority in your jurisdiction, this form gives notice
           of the transfer of ownership. Depending on the selling price of the home, your property tax assessment
           may be adjusted upon receipt of this document.


          Fixed (or Adjustable) Rate Note: This note simply states your interest rate if you have a fixed rate
           mortgage. If your mortgage is an adjustable rate mortgage, the Adjustable Rate Note explains how your
           interest rate is calculated, your lifetime interest rate cap, etc.


          Promissory Note: This note spells out the amount and repayment terms of your mortgage loan. Your
           signature on the promissory note is your pledge to repay the loan.


          Mortgage: This contract gives the lender a lien against the property. If you fail to repay your mortgage as
           promised, the lender has the right to foreclose.


          Deed of Trust: In some states, this document is used instead of a mortgage. Title is conveyed to a trustee
           rather than the borrower.


          Truth in Lending Disclosure: Among other things, the Truth in Lending Disclosure tells you exactly how
           much you will pay over the life of your mortgage, including the total amount of interest you will pay.


          HUD-1 Settlement Statement: This statement details the cash flows among the buyer, seller, lender, and
           other parties to the transaction. It also lists the amounts of all closing costs and who is responsible for
           paying these.


          Occupancy Affidavit and Financial Status: In this document, you state that the property is
           owner-occupied or will be within a certain period after closing. You promise to make the home your




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           principal residence for at least a year and further promise that there has been no significant change in
           your financial status since you applied for the mortgage.


          Signature Affidavit: This is a notarized copy of your signature.


          Flood Insurance Authorization: Whether or not your property is located in a flood zone, this document
           states that you will get appropriate flood insurance coverage if this ever becomes necessary.


          Name Affidavit (AKA): This document must be filled out by people who have had name changes, such as
           those recently married, divorced, or widowed, and borrowers with AKAs on their credit reports.


          Compliance Agreement: On this form, you promise to cooperate with your lender in adjusting clerical
           errors and other mistakes that may put your loan documents out of compliance.


          Borrower's Certification and Authorization Letter: This document authorizes your lender to take steps to
           verify statements you have made and certifies that you have not misrepresented your financial status.


          Notice to Applicant of Right to Receive Copy of Appraisal Reports: As the name implies, this form
           notifies you of your right to receive a copy of any appraisal reports.


          Quality Control Announcement and Authorization: This is notification that your loan documentation may be
           included in a random quality control audit.


          IRS Form 4506: This form gives your lender the right to request a copy of your tax returns from the IRS.
           Make sure you indicate, on the form, the tax period(s) you authorize your lender to review. This should
           generally be no more than the past two years' tax returns.


          Servicing Disclosure Statement: This statement explains that servicing of your loan may be transferred to
           another entity. It informs you of your consumer rights regarding the servicing of your loan.


          Smoke Detector Certificate: This document certifies that smoke detectors are in place and working
           properly.


          Termite Inspection Certificate: This document certifies that the building has been inspected for the
           presence of termites and termite damage.


       Tip: You may be required to bring a photo ID, along with certain documentation (e.g., proof of
       insurance coverage) to the closing.

You should receive a copy of all of the paperwork at closing or within a few days to keep for your records. What

funds will be due?


       Tip:The lender may establish an escrow account for the buyer at this time to pay for items such as
       property taxes, homeowners insurance, and private mortgage insurance. Payment of these items
       into an escrow account, plus the prepayment of interest owed on the mortgage through the end of




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       the current payment period, can add significantly to the buyer's closing costs.

What if the seller hasn't met his or her obligations?

If the seller hasni met certain agreed upon obligations (e.g., repairs), be prepared to demonstrate exactly where the
contract requires the seller to take action and how he or she has failed to fulfill this requirement. Also, have a reasonable
remedy in mind. For example, if the cracks in the front porch wereni repaired as promised, you might suggest that the
seller place additional money in escrow to cover the cost of this repair. Ideally, all such disagreements should be
resolved prior to the closing.

How does it all end?
At the end of the closing, you'll be given the keys to your new home. The closing agent will then officially record the
mortgage and deed at the local property record office and disburse any funds to the appropriate parties (e.g., seller,
lender, real estate agents).




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See disclaimer on final page
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Using Title Insurance to Protect Your Interest in Your
Home

What is a title examination?
Title is the right to own, possess, use, control, and dispose of property. When you buy a home, you are actually buying
the seller's title to the home. Before the closing, an attorney or title company (normally hired by your mortgage lender)
will usually conduct a title examination by searching public records. The purpose of a title examination is to discover
any problems that might prevent you from getting clear title to the home. The title examiner will then issue a report that
describes the property, along with any title defects, liens, or encumbrances discovered in the course of the title
examination.

What are some common title problems?
Most run-of-the-mill title problems can be cleared up before the closing. But in some cases, certain title problems can
delay the closing. If a title problem is severe enough, you may decide not to purchase the home. A title problem can
even result in your mortgage lender refusing to finance the purchase. Many different situations can affect a property's
title. For example:
          A home's seller claims to be single, but a title search reveals that the seller is married and owns the house
           with his or her spouse.

          A title search reveals that the property is titled in a deceased individual's name, but there is no will on file
           to indicate how he or she disposed of it.

          A home's sellers took out a home improvement loan, which they have since repaid. However, the lien
           was never removed from the title.

          A home's sellers had a dispute with a contractor over the workmanship on some home renovations, and
           the sellers withheld final payment on the contract. The contractor filed a mechanic's lien on the property,
           which was never removed.

          You are buying a home and a property survey discovers that the family room that the sellers added on a
           few years ago is partially situated on a neighbor's property.


What is title insurance?
Title insurance protects you against title defects that were not discovered in the course of the initial title examination
and that may not appear until after you've taken ownership of the property. A title insurance policy protects you and
your heirs against title defects for as long as you own the property. The policy represents the title insurance
company's responsibility to compensate you for any covered loss caused by a defect in the title or any lien or
encumbrance that was not discovered in the title examination.
Title insurance companies usually offer two types of title insurance policies: standard and extended. Standard policies
provide limited coverage, offering protection for certain off-record title problems (e.g., fraud), as well as those that
could be uncovered during a search of public records (e.g., recorded mechanic's liens). Extended policies provide
the same coverage as standard policies, as well as additional coverage for title problems that aren't found so easily,
such as unrecorded liens and title defects that could only be uncovered during an inspection of the property.
You usually pay a one-time fee for title insurance, the price of which varies depending on the location of the
home, its purchase price, and the type of title insurance coverage you select.




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       Tip:Most title insurance policies contain coverage exceptions, so it is important to understand
       exactly what is covered by the policy.

What about lender's title insurance?
When you get a mortgage, most mortgage lenders require you to take out lender's title insurance, which protects the
lender's interest in the property. Coverage on a lender's policy is limited to the amount of the loan and gradually
decreases as the loan is paid off. Keep in mind that a lender's title insurance policy does not protect your full interest
in the property. As a result, you should consider purchasing a separate owner's policy to protect your interest in case
of title defects.




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                     See disclaimer on final page


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Mortgage Basics

What is it?
So you're ready to buy a house. You're probably going to need help financing such a large purchase, which
usually means getting a mortgage. A mortgage is an interest in property, created by a written document, that
secures the repayment of a loan. When you take out a mortgage loan to buy a home, the home becomes the
collateral for the loan. If you don't repay the loan as agreed, the lender may take your property and sell it to satisfy
the debt.

Prequalification vs. preapproval
When you prequalify for a mortgage, you get a mortgage lender's estimate of how much you can borrow.
Prequalification does not guarantee that the lender will grant you a loan, but it does give you a rough idea of where
you stand. Many lenders will prequalify you for a mortgage over the phone, usually at no cost.

However, if you're really serious about buying a home, you may want to consider getting preapproved for a mortgage.
Preapproval is when a lender, after verifying your income and checking your credit, gives you a letter of commitment
stating that you'll be given a mortgage up to a certain amount (as long as certain conditions are met). Lenders usually
charge a fee for mortgage preapproval.

       Tip:Keep in mind that the mortgage you qualify for or are approved for isn't necessarily what you
       can afford. You'll first need to examine your budget and lifestyle to make sure that your mortgage
       payment will be within your means. See How Much Can You Afford? for more information.

Applying for a mortgage
Do your homework ahead of time

Before you apply for a mortgage, do some homework. Know how large a mortgage payment your budget will allow,
and research the various types of mortgages that are available. You'll also want to obtain a copy of your credit
report to make sure that there are no errors on it. See Choosing a Mortgage for more information.

Shop around

Shop around among various mortgage lenders. Start out by looking in the real estate section of the newspaper and
surfing the Internet for information on different lenders. Also, be sure to ask friends, family, and real estate
professionals (e.g., attorneys, real estate agents) for references.

In addition to low costs and rates, you'll want to consider the types of loans each lender offers, whether the lender has
a good reputation for loan servicing, and the type of loan approval process the lender uses.

       Tip: Typically, the better your overall financial picture, the better the loan terms you'll be offered.

The application process

Once you have decided on a particular lender, you'll meet with that lender and be asked to fill out an application.
The application will give the lender information on areas such as your employment history, your
income/expenses, and your assets/liabilities. You'll also be asked to provide the following documents:

          Bank account numbers, the address of your bank, and account statements from the past three months
          All investment statements from the last three months




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          Pay stubs, W-2 forms, or other proof of employment and income verification

          Proof of payment history on revolving debt (e.g., credit card statements, canceled rent checks)

          Information on other consumer debt (e.g., car loans, student loans)

          Divorce settlement papers, if applicable


       Tip:Having all of your documentation in order ahead of time will speed up the application process.

       Tip:You may also have to pay an initial application fee.

Once you have completed the application and supplied the necessary paperwork, your lender will submit the
application for underwriting, which means that the information you supplied on the application will be verified and
submitted to an underwriter for approval. It is usually at this time that the lender will order an appraisal and perform
a credit check.

If your loan application is approved, you will receive a letter from your lender that outlines the terms and amount of
the loan. You'll then work with your lender and other individuals (e.g., closing agent) to schedule a date for the
closing. See The Closing Process for more information.

If your application is rejected, your lender will usually try to work with you to fix any problems and resubmit the
application for approval. If you are turned down for a loan, keep in mind that there are many lenders that deal in
loans for people who have poor credit, people who make low down payments, etc. Chances are you'll be able to find
another lender that will be able to meet your needs.

Mortgage brokers
When you get a mortgage from a bank, credit union, or mortgage company, you deal directly with the lending
institution. However, if you don't have the time to evaluate the various mortgage programs available, or if you think
you may have trouble qualifying for a mortgage, you may want to consider working with a mortgage broker. A
mortgage broker acts as a middleman and works with a number of banks, mortgage companies, and other lenders to
find the best mortgage for you. Although using a mortgage broker will save you time, it will cost you money. Typically,
broker's fees are as much as 2 percent of the mortgage loan (or more if you have poor credit).

Before you go ahead and choose a mortgage broker, take some steps to make sure the company is reputable. Ask
for referrals from friends and associates. You can even call your state's banking regulatory agency to check your
broker's record.

Private mortgage insurance
What is it?

Most lenders feel that borrowers who make low down payments (and therefore have little equity in the property) are
more likely to default on a mortgage loan. As a result, they generally require you to purchase private mortgage
insurance (PMI) if you are borrowing more than 80 percent of the value of the home you are purchasing (i.e., your
down payment is less than 20 percent). PMI guarantees that your lender will be paid if you default on your mortgage.
       Tip:Some mortgages (e.g., VA loans) do not require PMI. How

much does it cost?

PMI premiums vary depending on the insurance company, but they are usually based on factors such as the type of
mortgage loan and the loan amount. Although PMI can be expensive, you may be unable to qualify for a mortgage
without it.




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Can you cancel it?

If you are concerned about taking on PMI payments, keep in mind that you may not have to pay PMI forever. If you
have a good payment history and reach 20 percent equity in your home, you can petition your lender to remove the
PMI. For loans that originated after July 29, 1999, your lender is obligated to remove PMI once you have reached 22
percent equity in your home, provided you have a good payment history.

Are there any alternatives?

If you're confident that you won't default on your loan, consider asking if your lender is willing to increase your mortgage
interest rate rather than require PMI coverage. Your monthly payment will increase by roughly the same amount as
the monthly PMI premium. However, mortgage interest is generally tax deductible, whereas PMI payments are not.

       Caution: With this arrangement, you'll pay interest for the life of the loan. In contrast, you can
       generally remove PMI once you obtain a certain amount of equity in your home.

Another alternative to PMI is to obtain 80-10-10 financing, where a lender provides a traditional 80 percent first
mortgage, and you then obtain a 10 percent second mortgage and make a 10 percent down payment.

See Private Mortgage Insurance (PMI) for more information.

Escrow account
An escrow account (also known as an impound account), is an account set up by a mortgage lender to hold money
for escrow items that are due from a borrower, such as property taxes and homeowners insurance. If your lender has set
up an escrow account for you, you will pay your lender for your escrow items in addition to your mortgage principal and
interest. Your lender will then pay the appropriate parties for any escrow items on your behalf.

       Tip:Since the amount due for certain escrow items (e.g., taxes, insurance) can change, the amounts
       due in your escrow account can also change. This can cause your monthly payment to your lender to
       either increase or decrease.

Closing costs
What are they?

Closing costs, also called settlement costs, are the fees and other charges you pay to your lender at the closing or
settlement. Closing costs generally include the appraisal fee, points, credit report fee, loan
application/processing fee, recording fee, title search fee, and other expenses. Your lender is required by law to give
you an itemized estimate of what your closing costs will be (known as the good faith estimate of closing costs) shortly
after you submit a mortgage application.

How much are closing costs?

On average, closing costs amount to approximately 3 to 7 percent of a home's selling price. Keep in mind that while
some lenders advertise "no closing costs" loans, these loans often roll the costs into your overall loan balance or
charge a higher interest rate.

       Tip:Your lender may allow you to either pay your closing costs up front or finance them.

Buydowns




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A buydown is when a lender is paid points (interest that is paid up front) in exchange for a lower interest rate on a
mortgage. Buydowns can either permanently or temporarily reduce the interest rate. Some even work on a graduated
basis. If you are considering a permanent buydown option, it is important to first determine whether or not it would be
worthwhile. You can calculate your break-even point by determining how many months it would take for the money
you'd save with a buydown to exceed the cost of the points you paid.

Mortgage life/disability insurance
Mortgage life insurance pays off your mortgage if you die, while mortgage disability insurance covers your mortgage
payments if you become disabled. Mortgage life/disability insurance may be appropriate if you want to make sure
that your family would be able to continue to make mortgage payments if you were to die or become disabled. It is
important to note, however, that there may be other, more affordable ways to provide this type of protection (e.g.,
individual life and/or disability insurance policies). Consult an insurance professional for more information.




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                     See disclaimer on final page
                     See disclaimer on final page
                                    May 06, 2008
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Private Mortgage Insurance (PMI)

What is private mortgage insurance (PMI) and why do you need it?
Most lenders feel that borrowers who make low down payments (and therefore have little equity in the property) are
more likely to default on mortgage loans. When a default does occur, a lender must foreclose on the home and sell
it to satisfy the debt. The lender pays the foreclosure costs out of the sale proceeds before applying any money to the
outstanding loan balance, often losing money on the transaction.

As a result, lenders generally require you to purchase private mortgage insurance (PMI) if you are borrowing more
than 80 percent of the value of the home you are purchasing (i.e., your down payment is less than 20 percent). PMI
guarantees that your lender will be paid if you default on your mortgage.

       Caution: PMI protects the lender's financial interest in your home. PMI does not protect you against
       losing your house in the event of a default on your mortgage. In fact, the private mortgage
       insurance company may seek recourse against you for any amount it pays to your mortgage lender if
       you default on your mortgage.

Government loan programs that offer low down payment mortgages may not require PMI. For example, VA loans
don't require PMI because the federal government guarantees a portion of the total mortgage. FHA loans don't require
PMI because they are insured by the federal government. However, the insurance cost is passed on to the
borrower through an initial mortgage insurance premium (MIP) that often is financed as part of the loan amount,
and through annual MIP charges that become part of the monthly mortgage payments.

       Tip:For 2007 through 2010 only, premiums paid or accrued for qualified mortgage insurance is treated
       as deductible mortgage interest. Qualified mortgage insurance means mortgage insurance provided by
       the VA, FHA, and Rural Housing Authority as well as private mortgage insurance (PMI). The amount of the
       deduction is phased out if your AGI exceeds $100,000 ($50,000 if married filing separately). This provision
       does not apply with respect to any mortgage contract issued before January 1, 2007 or after December
       31, 2010.

How much does PMI cost?
PMI premiums vary depending on the insurance company, but they are usually based on factors such as the type of
mortgage loan and the loan amount. PMI premiums are often paid to your loan servicer along with your monthly
housing payment (principal, interest, taxes, and insurance). Although PMI can be expensive, you may be unable to
qualify for a mortgage without it.

Can PMI ever be removed?
The good news is that you won't have to pay PMI forever. If you have a good payment history and reach 20 percent
equity in your home, you can petition your lender to remove the PMI. For loans that originated after July 29, 1999,
your lender is obligated to remove PMI once you have reached 22 percent equity in your home, provided you have
a good payment history. However, you may be required to obtain a home appraisal from an appraiser approved by
the lender; the appraisal fee will be an expense you'll have to pay.

Are there any alternatives to paying PMI?
If you don't have at least 20 percent for a down payment, there are a couple of alternatives to paying PMI. Consider
asking if your lender is willing to increase your mortgage interest rate rather than require PMI coverage. Your
monthly payment will increase by roughly the same amount as the monthly insurance premium. However, mortgage
interest is generally tax deductible, whereas PMI payments are not. Moreover, if you're able to make prepayments
against your mortgage principal, you'll save on the total interest charge you'll pay over the term of




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your mortgage. For more information, see Prepayment and Biweekly Mortgage Payments.

       Caution: With this arrangement, you'll pay the interest for the life of the loan. In contrast, you can
       generally remove PMI once you obtain a certain amount of equity in your home.

Another alternative to paying PMI is 80-10-10 financing (also known as piggyback financing). With this type of
financing, a lender provides a traditional 80 percent first mortgage. You then obtain a 10 percent second mortgage
and make a 10 percent down payment. Keep in mind that 80-10-10 financing can be altered to accommodate the size
of your down payment (e.g., you could put 8 percent down and obtain 80-12-8 financing). However, the lower your
down payment, the higher the loan fees and interest rate may be.
       Caution: Although the mortgage interest you pay is generally tax deductible, the initial and ongoing costs
       of these arrangements may be higher than your PMI payments would be, particularly if you put less
       than 10 percent down.




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                     See disclaimer on final page


                                   May 06, 2008
Choosing a Mortgage

Introduction
Like homes, home mortgages come in all shapes and sizes: short-term, long-term, fixed, adjustable, jumbo,
balloon--these are all terms that will soon be familiar to you, if they're not already. There's a mortgage out there that's
right for you. To figure out which one, though, you'll want to take into consideration such factors as your risk tolerance,
the length of time you plan on staying in your home, whether you're looking for a mortgage with low up-front costs,
and the size of the mortgage you need.

Fixed rate mortgages
As the name implies, the interest rate on a fixed rate mortgage remains the same throughout the life of the loan. Your
monthly payment (consisting of principal and interest) generally remains the same as well. The entire mortgage is
repaid in equal monthly installments over the term (length) of the loan.

Length does make a difference

In the mortgage market, long-term loans are generally considered to be 30 or more years in length; short-term loans
are those under 30 years in duration. While they may vary between 10 and 40 years (depending in part on the size of
the loan), the usual terms for fixed rate mortgages are 15 and 30 years. Although the monthly payment for a 15-year
mortgage will be higher than the monthly payment for a 30-year mortgage, it won't be twice as high, and the shorter
term of the loan will save you a substantial amount in total interest charges.

       Example(s): If you borrow $100,000 at 8 percent for 30 years, your monthly principal and interest
      payment will be $733. Over the 30-year term, you'll pay a total of $164,155 in interest. If you borrowed
      the same amount at the same interest rate for 15 years, your monthly payment would be $955 (about
      30 percent higher than the payment for the 30-year mortgage), and the total interest you'd pay over the
      15-year term would be $72,01 7--a savings of $92,138.

Because the lender would lose money on a long-term fixed rate loan if interest rates were to rise, the lender may
adjust the rate accordingly, in effect charging you a premium to offset this possibility. As a result, a 30-year mortgage
may have a higher fixed interest rate than a 15-year loan, and both will carry higher interest rates than those initially
charged on an adjustable rate mortgage (ARM).

The good news is, you're locked in; the bad news is, you're locked in

Locking in a fixed interest rate on your mortgage has its good and bad points. If interest rates rise, yours won't; as a
result, your monthly mortgage payment will always remain the same. This can be reassuring to homeowners on tight
budgets or with fixed incomes. For this reason, fixed rate mortgages often appeal to individuals with a low tolerance for
the risk associated with fluctuating monthly payments.

But if interest rates go down, yours won't, and your (now high) mortgage payment will remain the same. While you
might be able to refinance your home, paying off the higher-rate mortgage with one that carries a lower interest rate,
this isn't always possible. In addition, the interest rate might need to drop significantly to offset the expenses
associated with refinancing, and you'd need to remain in your home long enough to allow the monthly savings
associated with the lower rate to recoup those expenses. For more information, see Refinancing.

Adjustable rate mortgages (ARMs)
In general

With an ARM, also called a variable rate mortgage, your interest rate is adjusted periodically, rising or falling to
keep pace with changes in market interest rate fluctuations. Since the term of your mortgage remains constant,




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the amount necessary to pay off your loan by the end of the term changes as your loan's interest rate changes. Thus,
your monthly payment amount is recalculated with each rate adjustment.

        Example(s): You have a $100,000 ARM with an initial interest rate of 6.5 percent and a 30-year
        term. Your monthly mortgage payment (in whole dollars) is $632. The interest rate is adjusted
        annually. At the end of the first year, the interest rate increases to 8.5 percent. To reflect this
        increase and to repay the outstanding principal balance over the remaining 29 years in the term, your
        payment will increase to $766 per month. If at the end of the second year the interest rate increases to
        10.5 percent, your payment will increase to $906 per month.
Depending on what's specified in the mortgage contract, an ARM can be adjusted semi-annually, quarterly, or even
monthly, but most are adjusted annually. The adjustments are made on the basis of a formula specified in the
mortgage contract. To adjust the rate, the lender uses an index that reflects general interest rate trends, such as the
one-year Treasury securities index, and adds to it a margin reflecting the lender's profit (or markup) on the money
loaned to you. Thus, if the index is 5.75 percent and the markup is 2.25 percent, the ARM interest rate would be 8
percent.
What's to keep the interest rate from going through the roof--or, for that matter, from plunging through the floor?
Most ARMs specify interest rate caps. The periodic adjustment cap may limit the amount of rate change, up or down,
allowed at any single adjustment period. A lifetime cap may indicate that the interest rate may not go any higher--or
lower--than a specified percentage over--or under--the initial interest rate.

        Example(s): Your ARM has an initial rate of 9 percent and is adjusted annually. The periodic
        adjustment cap is 1.75 percent per year, and the lifetime cap is 5 percent. This means that at your first
        adjustment, your interest rate can't exceed 10.75 percent or go below 7.25 percent. Over the life of
        your loan, your interest rate can't exceed 14 percent or fall below 4 percent.
        Caution: Some ARMs cap the payment amount that you are required to make, but not the interest
        adjustment. With these loans, it's important to note that payment caps can result in negative
        amortization during periods of rising interest rates. If your monthly payment would be less than the
        interest accrued that month, the unpaid interest would be added to your principal, and your
        outstanding balance would actually increase, even though you continued to make your required
        monthly payments.

The initial interest rates (referred to as teaser rates) on ARMs are generally lower than the rates on fixed rate
mortgages. If you can tolerate uncertainty in your mortgage interest rate and fluctuations in your monthly mortgage
payment amount, believe that interest rates will stay low or go lower in the future, or plan to live in your home for only a
short period of time, then you may want to consider an ARM.

Hybrid ARMs

Hybrid ARMs are mortgage loans that offer a fixed interest rate for a certain time period (3, 5, 7, or 10 years), and
then convert to a 1-year ARM.

        Example(s): Your mortgage offers a fixed rate of 7 percent for 5 years. At that point, the mortgage
        converts to a 1-year ARM with a periodic adjustment cap of 1 percent and a lifetime cap of 4 percent.
        For the first 5 years, you pay 7 percent interest. In the sixth year, when the mortgage converts to a
        1-year ARM and your first annual rate adjustment is made, your interest rate can't go above 8 percent or
        below 6 percent. Over the life of the loan, the interest rate can't go over 11 percent or below 3 percent.
The initial fixed interest rate on a hybrid ARM is often considerably lower than the rate on either a 15-year or
30-year fixed rate mortgage. The longer the initial fixed-rate term, however, the higher the interest rate for that term
will be. Generally speaking, even the lowest of these fixed rates is higher than the initial (teaser) rate of a
conventional 1-year ARM.
Hybrid ARMs are ideal for individuals who plan to stay in their homes for a short period of time (3 to 10 years), since
they can take advantage of the low initial fixed interest rate without worrying about how the loan will change when it
converts to an ARM. If you think your plans may change or you are planning on staying put for a while,


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look for a hybrid ARM with a conversion option. This option will allow you to convert your loan to a fixed rate loan before
it turns into an ARM.

Government mortgage programs
Generally, government mortgage programs offer mortgages insured and/or guaranteed by agencies of the federal
government. These programs are often attractive to buyers (particularly first-time homebuyers) because they:

          Offer fixed interest rates that are lower than those offered by conventional loans

          Require little or no down payment

          Use more liberal qualifying guidelines than conventional loans

          Allow the buyer to work with a third party to pay part or all of the mortgage closing costs, or allow the buyer
           to finance the closing costs as part of the mortgage balance
          Carry no prepayment penalties


FHA loans


Federal Housing Administration (FHA) mortgages are similar to conventional fixed rate mortgages, except that they
are insured by the federal government. The borrower pays mortgage insurance premiums (MIPs). The initial
premium is based in part on the term of the loan and the size of the down payment, and can equal as much as 2.25
percent of the amount borrowed. This initial premium can be financed into the loan. Depending on the same factors, the
annual MIP varies from .25 to .5 percent of the amount financed; it is collected as a part of the monthly mortgage
payments.
In part because of the security this insurance offers, lenders sometimes set their FHA mortgage rates below the
current interest rates on conventional mortgages. And depending on the amount you borrow, an FHA loan may allow
a down payment of as little as 3 percent of the purchase price of your home.

        Tip:FHA mortgage amounts are limited, and the maximum loan amount varies among geographic
       regions.

        Caution: If you're buying a newly constructed home (less than 12 months old) and are applying for an
       FHA mortgage, you may need to convince the builder to sign a warranty as part of your loan package. If
       the home isni new, FHA loans require that the home be in good repair.

VA loans

If you are a veteran, you may qualify for a Department of Veterans Affairs (VA) mortgage, which is similar to a
conventional fixed rate mortgage. The VA guarantees to the lender that a certain portion of the mortgage will be repaid
by the federal government if the borrower defaults on the loan. Based on the size of the loan, the VA guarantees:

          50 percent of a loan up to $45,000

          Up to $22,500 for loans over $45,000 and not more than $56,250

          40 percent of loans over $56,250 and not more than $144,000

          25 percent of loans over $144,000, up to a maximum of 25 percent of the FHA conforming loan limit for a
           single unit dwelling (currently, $104,250)


Generally, a lender will offer a VA loan equal to four times the VA guaranty amount to a qualified borrower--with




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no down payment required. As a result, a qualified veteran with an available guaranty of $104,250 could receive a
mortgage of up to $417,000 (up to $729,750 in expensive parts of the country). Some lenders may allow
servicemembers and veterans to borrow more than this amount if they're able to make an additional cash down
payment.

In part because of the security this guaranty offers, lenders usually set their rates on VA mortgages lower than those
for conventional mortgages.

Bond-backed mortgages

A bond-backed mortgage is a mortgage loan issued by a city, state, or county government. The government entity
sells bonds to investors, and uses the proceeds from the bond sales to fund the mortgage loans. The interest rates
on these mortgages are often lower than rates available from conventional lenders. Mortgage terms and standards of
eligibility are set by the individual government entity, and will vary among different communities.

Other types of mortgages
Balloon mortgages

A balloon mortgage is a short-term mortgage with a large principal payment due at the end of the loan's term. With
this type of mortgage, you make fixed monthly payments for a certain period of time (3, 5, 7, or 10 years, with 5-
and 7-year terms being the most prevalent). However, these monthly payments are based on the same repayment
schedule (called an amortization schedule) as those for a 30-year fixed mortgage. For this reason, the fixed
payments during this period are relatively low. At the end of this period the loan matures, and the remaining principal
balance is due as one large final payment (called the balloon payment).

       Example(s): Your $150,000 balloon mortgage has an interest rate of 6.5 percent for 5 years, after
      which time the remaining principal comes due. Based on a 30-year amortization schedule, your
      monthly mortgage payment against principal and interest will be $948. At the end of the 5 -year
      term, you'll owe a remaining principal balance of $140,422. This is your balloon payment.
The short term and relatively low monthly payments make balloon mortgages attractive, particularly for buyers who
do not intend to remain in the property beyond the term. However, this type of mortgage is best suited for individuals
who are certain they'll be able to make the large payment due at the loan's maturity. If you want the option of
converting the balloon payment to a different type of mortgage (perhaps you'll decide to stay in the
house), look for a balloon mortgage with a reset feature. The reset feature allows you to convert the balloon
payment to, for example, a fixed rate mortgage at the currently prevailing rate for the remainder of the original
amortization schedule.

       Example(s): Your balloon mortgage described above has a reset feature that allows you to convert the
      remaining principal balance to a fixed rate mortgage with a 25-year term (the remaining term of the
      original amortization schedule). When the balloon payment of $140,422 comes due, the prevailing
      rate is 7.5 percent. Exercising the reset option, your new fixed payment becomes $1,048 per month.

Graduated payment mortgages

A graduated payment mortgage (GPM) begins with low monthly payments that gradually rise (usually over a 5- to
10-year period) and then level off for the remainder of the loan term. The interest rate on a GPM remains fixed
throughout the life of the loan (usually 30 years).

       Example(s): You borrow money at 8 percent for 30 years. Each year for 5 years, your payments will
      increase by 7.5 percent. Thus, if your payment is $500 per month in the initial (0) year, it would be (in
      whole dollars) $538 per month after year 1, $579 per month after year 2, $621 per month after year 3,
      $668 per month after year 4, and $718 per month after year 5 and thereafter.

The greater the annual increase rate and the longer the period of increases, the lower the initial monthly
payments on a GPM will be.




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      Caution: Because monthly payments on a GPM can start out quite low, negative amortization can
      occur in the early years of these loans. If the monthly interest charge according to the amortization
      schedule is greater than the monthly payment amount, the overage is added to the principal, and your
      loan balance will consequently increase until such time as your monthly payment amounts grow large
      enough to reverse this process.

A GPM is best suited for a homeowner who enjoys predictable annual income increases (and so can afford the
increasing payments), and who (in order to reverse the effects of negative amortization) will own the home for longer
than the short term of the periodic increases in the monthly payments.

Growing equity mortgages

A growing equity mortgage (GEM), also referred to as a rapid-payoff mortgage, is actually a formalized method of
prepaying your mortgage. The interest rate for a GEM is generally lower than that for a conventional fixed rate
mortgage, and remains fixed throughout the life of the loan. However, the monthly payments generally begin at
approximately the same level as those of a 30-year fixed rate mortgage. The payments gradually rise, usually over
a period of 5 to 10 years, and then level off for the remainder of the loan term. The increases may be based on a
predetermined schedule or on changes in an economic index specified in the mortgage contract.

      Example(s): For 10 years, the changes in your monthly GEM payment will be made annually, and
      your monthly payment will increase by 75 percent of the rate of increase in a U.S. Department of
      Commerce index that measures per-capita income growth. Thus, if the index increases by 6.8 percent,
      your payment would increase by 75 percent of that, or by 5.1 percent. If your monthly mortgage
      payment is $500 at the time of the adjustment, it will increase to $525.50 ($500 x 1.051).

When your payment increases, the additional funds are applied each month directly to your loan's principal
balance. This will accelerate the timetable for your mortgage payoff and reduce the total amount of interest you'll pay
over the (shorter) life of the loan. As a result, while a GEM doesn't offer any long-term tax deduction advantages, it
allows you to build equity in your home more rapidly.

Shared appreciation mortgages

A shared appreciation mortgage offers you a low fixed interest rate in exchange for your agreement to share with a
lender a sizable share (usually 30 to 50 percent) of the appreciation in your home's value, either upon its sale or at
a specified date. As part of the contract, the lender may also agree to make a portion of your monthly payments.

      Example(s): You want to buy a home with a sale price of $200,000. Normally, your lender charges 9
      percent on conventional mortgages. If you put $40,000 down, your monthly mortgage payments on
      $160,000 for 30 years at 9 percent would be (in whole dollars) $1,287--more than you can afford at the
      time.

      Example(s): The property values in the neighborhood are appreciating, and both you and the
      lender feel that the home will be worth at least $250,000 in 5 years. The lender then offers to give
      you a 7 percent fixed rate mortgage for a 30-year term. Further, the lender agrees to make half the
      monthly mortgage payments for 5 years, if you'll agree to repay the lender those costs and 50 percent
      of the appreciated value of the property at that time (or upon the sale of the property, should that
      occur first).

      Example(s): At 7 percent for 30 years, the monthly mortgage payments would be $1,064. The lender
      will pay half this, or $532 per month, for 5 years (60 payments). At that point, your property is worth
      $250,000, and you pay the lender $31,920 in costs ($532 per month x 60 months) plus half the
      appreciated value ($25,000) for a total of $56,920. You then elect to stay in your home, and repay the
      remaining mortgage balance at 7 percent over the 25 years left of the original 30-year term. Over the
      previous 5 years, you've gotten regular salary increases, and you can now afford the monthly mortgage
      payments of $1,064.
      Example(s): On a $160,000 loan at 7 percent for 30 years, the total interest you pay is $223,214. Had
      you taken the same loan at 9 percent, your total interest payments over the full 30-year term




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       would have been $303,462. Your savings equal ($303,462 - $223,214) - $25,000, or $55,218.

       Caution: Given that you are not paying all of the mortgage interest on a shared appreciation
       mortgage in a regularly scheduled manner, you should check with a tax advisor to determine its
       deductibility.

A shared appreciation mortgage may limit or preclude your ability to borrow against the equity in your home. In
addition, at the time you must meet your obligation to the lender, you may need to sell your home if you don't have
an alternative means to meet that obligation. Moreover, if the value of your home has not increased as expected,
the lender may require you to pay additional interest.

Jumbo loans

A jumbo loan (also known as a nonconforming loan) is any mortgage over $417,000 (over $729,750 in expensive
parts of the country) for a single-family home or condominium. This figure is set by the Federal National Mortgage
Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), and is adjusted
annually. Jumbo loans are called nonconforming loans because these organizations will not underwrite them, making
them more risky to lenders. As a result, lenders often set their jumbo loan interest rates higher than conventional
mortgage rates.
This can make a significant difference over time. If you're just over the underwriting limit for conforming loans and are
having to consider a jumbo loan, you might want to either look for a cheaper house or consider increasing your
down payment in order to qualify for a conforming loan with a lower interest rate. Over the life of your mortgage, this
could create significant savings.

For ideas that may help you increase your down payment, see Alternative Ways to Fund Your Down Payment.

Mortgages from nontraditional lenders
Seller-financed mortgages

With a seller-financed mortgage, also called a take-back or purchase-money mortgage, the seller of the home actually
acts as the lender. You buy the home under an installment sale arrangement, which means that you take possession of
the house and pay for it in periodic installments under the terms of a mortgage contract. You and the seller negotiate
the terms of the contract, and you make your mortgage payments directly to the seller, rather than to a bank or
mortgage company.
       Tip:Under such an arrangement, your property taxes and homeowners insurance are not included in
       your mortgage payment, as they often are with many traditional mortgages.

Wraparound mortgages

A wraparound mortgage is a type of mortgage in which the seller of the home you're purchasing also acts as your
lender. You'll generally make your monthly payment on a wraparound mortgage directly to the seller. Each
month, the seller uses a portion of your payment to make the payment on his or her original mortgage. The seller also
finances an additional amount that covers the remaining purchase price of the home minus any down payment
you tendered. These two parts--the seller's original mortgage and the additional balance the seller financed for
you--combine to create the wraparound mortgage.
The interest rate on a wraparound mortgage is somewhat higher than the rate on the seller's original mortgage, but
it is often lower than interest rates available from conventional lenders. This can create a situation favorable to
both you and the seller.
       Example(s): You're buying a home for $250,000, and have $25,000 for a down payment. The current
       rate for a 30-year fixed rate mortgage is 7.5 percent. For a $225,000 loan, this would mean a monthly
       mortgage payment of $1,835. The seller offers to finance the $225,000 for 30 years at 7 percent. This
       would make your payment $1,496 per month. At a savings of $339 per month ($1,835 - $1,496), you'll
       save $122,040 in total interest ($339 x 360 months) over the life of the loan.




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    Example(s): When the seller receives your monthly mortgage payment of $1,496, a portion of it goes
    to the seller's own mortgage payment. The seller's mortgage is for $150,000 at 6.5 percent for 30 years;
    the monthly payment is $948. As a result, each month the seller pockets $548 ($1,496 - $948). Over the
    life of your mortgage with the seller, the seller takes in $197,280 ($548 per month x 360 months),
    clearing a profit of $122,280 on the $75,000 ($225,000 - $150,000) he or she directly financed for you.




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                     See disclaimer on final page


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Mortgage Clauses

What are mortgage clauses?
Mortgage clauses are provisions contained in a mortgage contract that outline special rights, powers, or remedies.
Mortgage contracts also contain various covenants, which are promises or agreements between the lender and
borrower. Because there are many different types of mortgage contracts (which may be subject to both state and
federal law), mortgage contract provisions can vary widely.

Why are mortgage clauses important?
As a homebuyer, you'll sign a mountain of paperwork at the closing or settlement meeting. If you required mortgage
financing to purchase your property, one of the most important documents you'll sign is the mortgage contract. Few
closing attorneys or settlement agents review each and every provision of the mortgage contract with a homebuyer.
It's important, therefore, to understand the clauses or provisions contained in your mortgage. Although there are
many different types of clauses and covenants, some of the more important ones are summarized here.
For general information about mortgages, see Mortgage Basics.

What is an acceleration clause?
An acceleration clause in a mortgage contract allows the lender, in certain circumstances, to demand that the entire
balance of the loan be repaid in a lump sum immediately. This clause may be triggered, for instance, if the borrower
defaults on a regularly scheduled payment. Generally, the lender is required to give notice to the borrower before
acceleration is invoked. Specifically, the buyer is notified of the default, the action required to cure the default, and
the date by which the default must be cured. If the default is cured, the mortgage is reinstated. If it's not cured, the
lender may invoke a statutory power of sale and begin foreclosure proceedings. (See due-on-sale clause below.)

What is an assumption clause?
With an assumable mortgage, the assumption clause allows a buyer to take over the home seller's mortgage loan
and monthly payment obligations, instead of obtaining a new mortgage. In many cases, the buyer may also be able
to assume the seller's interest rate. By assuming a mortgage, a buyer can avoid settlement costs and loan application
procedures. However, most conventional mortgages at present are not assumable (i.e., there is a "nonassumption"
clause in the mortgage contract).

Fully assumable mortgages

With a fully assumable mortgage, the lender places no restrictions on who may assume the loan. Fully
assumable mortgages were available in the 1980s, but many of these have either been paid off or ended through
new refinancing terms. Those that still exist are generally not very attractive to homebuyers because they often have
relatively high interest rates and the balance is usually quite low. The new borrower would then have to obtain
other financing sources to cover the difference between the home's selling price and the mortgage balance being
assumed.

Qualified assumptions
Modern assumable mortgages are usually qualified, which means that the loan can be assumed only if the lender
approves the new borrower. Approval standards are often stringent, and the new borrower may have to pay
various fees and charges before taking over the loan. The approval standards for assuming fixed rate mortgages are
generally stricter than for assuming adjustable rate mortgages (ARMs).




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What is a conversion clause?
Conversion clauses are often found in ARM contracts. This feature allows you to convert the ARM to a fixed rate
mortgage at a designated time. The terms and conditions vary from lender to lender. Generally, though, you must
give your lender 30 days' notice before converting. You must also pay a fee, usually $250 to $500. Some lenders
specify when a conversion can be made, while others allow it any time during the first three to five years of the loan.

The interest rate for a convertible ARM may be somewhat higher than for a nonconvertible ARM, and your
up-front costs may be greater. When you convert, your new fixed interest rate is generally set at the current market
rate for fixed rate mortgages. (Again, though, this can vary from lender to lender.)

For more information about ARMs, see Choosing a Mortgage.

What is a due-on-sale clause?
A due-on-sale clause allows a lender to accelerate the loan if the borrower transfers a substantial beneficial interest
in the property to another party. This may happen, for example, if the home is sold, the title to the property is
changed, or the loan is refinanced.

What is an escrow covenant?
In many cases, you're required to pay hazard insurance and property tax installments to the lender in advance. With
an escrow covenant, the lender holds the funds in an escrow account until the payments are due to the insurer and
property tax authority. Normally, either you'd submit the tax and insurance bills to your lender, or the lender would
receive the property tax bill from a tax service and the insurance bill from your homeowners insurance carrier. The
lender would then make payments to the proper party.

What is an insurance covenant?
The insurance covenant requires the borrower to keep the property insured against loss by fire and certain other
hazards (at least up to the amount of the mortgage). If the borrower fails to maintain adequate hazard insurance
coverage, the lender may obtain this coverage at the borrower's expense. In the event of any loss, the borrower
promises to give prompt notice to the insurance carrier and the lender.

What is a prepayment clause?
Some mortgages charge a prepayment penalty if the borrower pays off the loan prior to maturity. A prepayment
clause generally gives the borrower the right to pay off the loan prior to maturity without paying such a penalty.




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                     See disclaimer on final page
                     See disclaimer on final page
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Prepayment and Biweekly Mortgage Payments

Introduction
Most homeowners make their regular mortgage payments every month for the duration of the loan term, and
never think of doing otherwise. But prepaying your mortgage or making biweekly payments can reduce the
amount of interest you'll pay over time.

How prepayment affects a mortgage
By prepaying your mortgage, you reduce the amount of interest you'll pay over the life of the loan, regardless of the
type of mortgage. However, prepayment affects fixed rate mortgages and adjustable rate mortgages in different
ways.

If you prepay a fixed rate mortgage, you'll pay your loan off early. By reducing the term of your mortgage, you'll pay
less interest over the life of the loan, and you'll own your home free and clear in less time.

If you prepay an adjustable rate mortgage, the term of your mortgage generally won't change. Your total loan balance
will be reduced faster than scheduled, so you'll pay less interest over the life of the loan. Every time your interest rate
is recalculated, your monthly payments may go down as well, since they'll be calculated against a smaller principal
balance. If your interest rate goes up substantially, however, your monthly payments could increase, even though
your principal balance has decreased.
Should you prepay your mortgage?

If you have extra cash, should you invest it or use it to prepay your mortgage? You'll need to consider many factors
when making your decision. For instance, do you have an investment alternative that will give you a greater yield
after taxes than prepaying your mortgage would offer in savings? Perhaps you'd be better off putting your money in a
tax-deferred investment vehicle (particularly one where your contributions are matched, as in some
employer-sponsored 401(k) plans). Remember, though, that the interest savings you'll obtain by prepaying your
mortgage is a certainty; by comparison, the return on an alternative investment may not be a sure thing.
Other factors may also influence your decision. The best time to consider making prepayments on your mortgage
would be when:

          You can afford to contribute money on a regular basis

          You have no better investment alternatives of comparable certainty

          You cannot refinance your mortgage to obtain a lower interest rate

          You have no outstanding consumer debts that are charging you high interest that isn't deductible for
           income tax purposes (e.g., credit card balances)

          You are in the early years of your mortgage, when, given the amortization schedule, the interest
           charges are highest

          You have sufficient liquid savings (three to six months' worth of living expenses) to cover your needs in the
           event of an emergency

          You won't need the funds you'll use for mortgage prepayment in the near future for some other
           purpose, such as paying for college or caring for an aging parent
          You intend to remain in your home for at least the next few years




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Can you prepay your mortgage without penalty?

You should find out whether your lender charges a penalty for mortgage prepayment. Any penalty charges would of
course undercut your prepayment savings, and the penalties can sometimes be substantial.

Some lenders don't charge any prepayment penalties on their mortgages, while others may penalize you only if
your prepayment exceeds a certain amount or occurs within a certain time period. In these instances, you may still
be able to make prepayments without incurring a penalty if you're careful.

       Example(s): Your mortgage contract charges a penalty of 3 percent of the prepaid amount if you prepay
       20 percent of the principal balance within the first two years. You can, however, prepay 15 percent of the
       balance in two years, save considerably on the interest charges, and incur no penalty for doing so.

Generally, Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loans can be prepaid
without penalty. Check your loan documents or contact your lender to find out if a prepayment penalty applies to your
loan.

Particularly against a fixed rate mortgage, regular contributions toward prepayment can dramatically shorten the life
of the loan and result in substantial savings on the total interest you're charged.

       Example(s): If you pay off a $300,000 mortgage at 8 percent over 30 years, your normal payments against
       principal and interest will be $2,201 per month (rounded to whole dollars). You'll pay a total of about
       $492,466 in interest charges over the term of the loan. However, if you can pay an extra $200 every
       month, your mortgage will be paid off in just under 221/2 years, and you'll save almost $146,000 in total
       interest charges.
       Tip:Prepaying part of your mortgage doesn't change your monthly obligation to your lender. Regardless
       of how much you prepay, you'll be in default if you fail to make your minimum monthly payments. So,
       before you consider prepayment, it's important to establish an adequate emergency fund to carry you
       through unforeseen financial difficulties.

Biweekly payment schedules
A biweekly payment schedule is actually a formal method of mortgage prepayment. With a biweekly schedule, you
make a payment on your mortgage every two weeks. Each payment is roughly equal to one-half of your normal
monthly payment. If you maintain the schedule, you'll make an extra month's payment over the course of each year (26
half payments equal 13 full payments). You'll also pay less interest because your payments are applied to your
principal balance more frequently.

       Example(s): Assume you have an 8 percent, 30-year mortgage of $300,000. Your normal monthly
       payment is $2,201 (rounded to whole dollars). Over the 30-year term, you'll pay about $492,466 in total
       interest. But if you arrange a biweekly payment schedule for this mortgage, with a biweekly payment
       amount of $1,100, you'd pay off the mortgage in approximately 23 years and save about $138,186 in
       total interest charges.
If you want to make biweekly mortgage payments, talk to your lender. The best time to do this is when you take out
the mortgage. Find out if you will be charged a fee for this service, and ask if there's a penalty for dropping out of the
program prematurely. You may at some point discover that you can't afford the extra payment or can't stick to the
biweekly schedule.

Keep in mind that lender processing errors are more likely to occur with a biweekly payment schedule, since the lender
receives twice as many payments on your mortgage. Moreover, given that the biweekly payment schedule may not
always synchronize with your monthly mortgage due dates, your chances of making a late payment (and thus
incurring a late fee and possibly blemishing your credit history) also increase with this alternative.

       Caution: Be cautious of biweekly payment plans set up by someone other than your lender (e.g.,




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      third-party arrangements).

It all adds up if you can do it on your own

By making your regular monthly mortgage payments and adding extra funds to each payment, you may achieve the
same result on your own as you can with a biweekly payment schedule.

Here, the choice to prepay is yours each month. If you can contribute the extra amount on a regular basis, you'll reap
the rewards. However, if you cani always pay the extra, you woni jeopardize your mortgage (and your credit
report) as long as you can send in your regular monthly payment. This flexibility may be valuable if you encounter a
period of financial difficulty.




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                     See disclaimer on final page
                     See disclaimer on final page
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Income Tax Considerations for Homeowners

Introduction
Home ownership confers many benefits, including federal income tax advantages. In particular, you may be able to
deduct your mortgage interest payments. In addition, special rules apply to the tax treatment of points, closing costs,
home improvements, and repairs.

For information about deducting your property taxes, see Property Taxes. For information about home sales, see
How Home Sales Are Taxed.

       Tip: This discussion applies to your principal residence only. For tax rules surrounding second or
       vacation homes, see Special Considerations for Second/Vacation Homes.

Can you deduct your mortgage payments?
With most mortgages, part of each monthly payment is applied to the outstanding principal on your mortgage loan,
and part is applied to the mortgage interest. If you itemize deductions on Schedule A of your federal income tax return,
the part that is applied to mortgage interest may be deductible.

Mortgage taken to buy, build, or improve your home

You may be able to deduct qualified interest you paid on a mortgage to buy, build, or improve your principal home or
second home, provided that the loan is secured by your home. More specifically, you may be able to deduct interest on
up to $1 million of such mortgage debt ($500,000 if you're married and file separately). If your mortgage loan
exceeds $1 million, some of the interest that you pay on the loan may not be deductible. For more information, see Home
Mortgage Interest Deductions.
       Tip: Different rules apply if you incurred the debt before October 14, 1987. All loans taken on and
       secured by your primary residence and one second residence prior to October 14, 1987--no matter how
       the proceeds are used--are considered "grandfathered" debt. All interest paid on such grandfathered
       debt is deductible, even if the total debt exceeds $1 million.

       Tip:Special rules apply to the deduction of interest paid on a home construction loan. For more
       information, see Deductibility of Interest Paid on Home Construction Loans.

       Tip:For 2007 through 2010 only, premiums paid or accrued for qualified mortgage insurance is treated
       as deductible mortgage interest. Qualified mortgage insurance means mortgage insurance provided by
       the VA, FHA, and Rural Housing Authority as well as private mortgage insurance (PMI). The amount of the
       deduction is phased out if your AGI exceeds $100,000 ($50,000 if married filing separately). This provision
       does not apply with respect to any mortgage contract issued before January 1, 2007 or after December
       31, 2010.
Home equity debt

You may also be able to deduct the interest you pay on certain home equity loans. However, the rules are different.
(Home equity debt involves a loan secured by your main or second home that exceeds the outstanding mortgages on
the property.) The interest that you pay on a qualifying home equity loan is generally deductible regardless of how you
use the loan proceeds (unless you use the proceeds to purchase tax-exempt vehicles). In other words, the loan doesn't
have to be made to buy, build, or improve your residence.
Deductible home equity debt is limited to the lesser of:

         • The fair market value of the home minus the total acquisition debt on that home, or




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          $100,000 (or $50,000 if your filing status is married filing separately) for main and second homes
           combined


       Example(s): You bought a home some years ago for $180,000, taking out a mortgage of $130,000 to
       do so. The $130,000 is considered home acquisition debt. The fair market value of the home has now
       increased to $195,000, and the principal balance on the loan has been paid down to $110,000. You
       decide to take out a home equity loan of $90,000. You may deduct interest paid on $85,000 of the
       $90,000 home equity loan. Why? Interest cannot be deducted on the home equity debt that exceeds
       the difference between the fair market value of the residence ($195,000) and the principal owed on
       the acquisition debt ($110,000) at the time the home equity loan is taken.
If you refinanced your mortgage instead of taking out a home equity loan, see Refinancing.

How are points and closing costs treated for tax purposes?
When you buy a home or refinance an existing loan on your home, you'll incur settlement charges. These usually
include both points and closing costs, such as attorney's fees, recording fees, title search fees, appraisal fees, and
loan preparation fees. The income tax treatment of these settlement charges depends on the type of charge and (in
some cases) the type of loan.

Deducting points when you buy a home

Points are costs that your lender may charge when you take out a loan secured by your home. One point equals 1
percent of the loan amount borrowed (e.g., 1.5 points on a $100,000 loan equals $1,500). If you itemize your
deductions on Schedule A of your federal income tax return, and if your lender charges the points as up-front interest
and in return gives you a lower interest rate on the loan, the points may be deductible.

       Tip:It doesn't matter whether your lender calls the charge points or a loan (or mortgage) origination
       fee. If this charge represents prepaid interest, it may be deductible.

If you take out a mortgage to buy or improve your home and pay points, you can deduct the points in the year
they're paid if you meet all of the following conditions:

          Your loan is secured by your main home

          Paying points is an established business practice in the area where the loan was made

          The points paid were not more than the points generally charged in that area

          You use the cash method of accounting (most individuals use this method)

          The points were not paid in place of amounts that ordinarily are stated separately on the settlement
           statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes

          The funds you provided at or before closing, plus any points the seller paid, were at least as much as the
           points charged

          You use your loan to buy or build your main home

          The points were computed as a percentage of the principal amount of the mortgage

          The amount is clearly shown on the settlement statement as points charged for the mortgage. The points
           may be shown as paid from either your funds or the sellers


If you don't meet the above conditions, you must amortize your deduction of the points over the term of the loan. If
the loan ends early (because, for example, you sell the home or refinance the mortgage), you may fully deduct




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the remaining points for the tax year the loan ends. For more information on deducting points, see IRS
Publication 936.

       Tip:If the seller pays your points, they may also be deducted as an up-front interest charge.
       However, because they are also considered a reduction in the cost of the home, you must lower your
       cost basis in the home by an amount equal to the points paid by the seller.

       Tip:For information about deducting points charged on a mortgage secured by a second home,
       see Special Considerations for Second/Vacation Homes.

Deducting points when you refinance your mortgage

Refinanced loans are treated differently. The points you pay on a refinanced loan generally must be amortized over
the life of the loan. In other words, you can deduct a certain portion of the points each year. But there's one
exception: If part of the loan is used to make improvements to your principal residence, you can generally deduct
that portion of the points in the year the points are paid.

       Example(s): Suppose you take a cash-out refinance mortgage for $100,000 and pay two points
       ($2,000). You use $90,000 to pay off the principal debt owed on the old mortgage, $4,000 to pay off bills,
       and $6,000 to install new kitchen cabinets. Because 6 percent ($100,000 divided by $6,000) is used for
       home improvements, $120 worth of points (6 percent of $2,000) may be deducted in the year the loan
       is taken. The remaining $1,880 in points must be deducted ratably over the life of the loan.
Tax treatment of closing costs

Generally, you can't deduct closing costs on your tax return. Instead, you must adjust your tax basis (i.e., the
cost, plus or minus certain factors) in your home. If you're buying a home, you'd increase your basis by the
amount of certain closing costs that you've paid.

       Example(s): Your closing costs on a loan you take to purchase a $200,000 home total $3,000.
       Your closing costs would increase your cost basis in that home to $203,000.

       Caution: Escrow fees that you pay at closing to cover costs that you must pay later (e.g., hazard
       insurance premiums) are not added to the basis of your home.

What is the tax treatment of home improvements and repairs?
Home improvements and repairs are generally nondeductible. However, a distinction is made between
improvements and repairs, and they're treated differently for tax purposes.

Home improvements

Improvements can increase the tax basis of your home (which in turn can lower your tax bite when you sell your home).
Improvements add value to your home, prolong its life, or adapt it to a new use. For example, the installation of a
deck, a built-in swimming pool, or a second bathroom would be considered an improvement.


       Tip:You may be entitled to one or more tax credits for making certain energy-saving home
       improvements. For more information, see Tax Credits for Energy-Saving Home Improvements.

Home repairs

In contrast, a repair simply keeps your home in good operating condition. Regular repairs and maintenance (e.g.,
repainting your house and fixing your gutters) are not considered improvements and are not included in the tax basis
of your home.

       Tip:However, if repairs are performed as part of an extensive remodeling of your home, the entire




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    job may be considered an improvement.




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                     See disclaimer on final page


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Property Taxes

What are property taxes?
The city, town, or county in which you live operates the school system, provides police and fire protection, repairs the
streets--in short, it maintains the community infrastructure and provides services the residents enjoy. Doing this
takes money, which the local governing authority raises (in part) through collecting real estate taxes, or property
taxes.

How property taxes are determined
Your property tax bill is based on two factors: the property tax rate and the assessed value of your home. The

tax rate

Put simply, a local governing authority's property tax rate will be the annual operating budget of the authority, divided
by the assessed value of all the taxable real estate within its geographical boundaries. (Some property, such as
that owned by churches, colleges, or the governing body itself, is not taxable.) This rate is expressed as a dollar
amount per $1,000 of taxable assessed value.

       Example(s): A town with an annual budget of $3 million and a total taxable real estate assessment of
      $60 million would have a tax rate of $50 for each $1,000 of taxable assessed value
      ([$3,000,000/$60,000,000] x $1,000 = $50).

In an effort to curb tax increases and to make local governing bodies more fiscally responsible, popular referendum
ballots in many states have limited budget increases based on the collection of property taxes. For example, a
budget may be limited to 1 percent of the market value of the property within the municipality.

The assessed value of your home

The other factor that determines your property tax bill is the governing body's assessment of your home value. This
assessed value is usually a percentage of either your home's fair market value (FMV) or its replacement value (the
cost of labor and materials to replace the home, less accrued depreciation). This percentage valuation may not be
100 percent of your home's FMV, however. As a result, your home's assessed value may differ from the price at
which you bought it or could sell it. Whatever the percentage value used, it's generally applied uniformly within a
particular class of property (commercial, industrial, or residential) to avoid inequitable assessments.
       Example(s): Your home's FMV is $180,000, and your town assesses real estate at 23 percent of FMV.
      Your home's assessed value, then, is $41,400. If the town's tax rate is $50 per $1,000, your annual
      property tax bill will be $2,070 ($50 x 41.4), or $172.50 per month.

       Caution: Many home assessments are based on outdated appraisals. In most cases, this means the
      property is assessed for far less than it is worth on the market. A home sale may trigger a
      reassessment for property tax purposes, and your tax bill may then increase.

Appealing your assessment

If you think your property tax assessment is incorrect, you may appeal it. There can be many reasons to do so:

            A newly constructed high-rise across the street has deprived you of your view

            The new commuter station has increased traffic in your neighborhood




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          Recent commercial development has increased noise, odors, and pollution

          The house has developed structural flaws that may not be repairable

          Pest control has become a problem


Most property assessments are not based on individual inspections of the properties themselves. In many cases, these
assessments may be based on large-scale appraisals done by third parties contracted to conduct them, and may
have rolled over data from previous assessments. This process can perpetuate old valuations. As a result, getting
your assessment changed may largely be a matter of doing a better job of appraising the property than the local
assessment office did.
       Tip:If you do want to appeal your assessment, you must act promptly, since the filing period is
       often limited.

Property taxes vary, depending on location
Property taxes can vary dramatically from one locale to another. Therefore, the local property tax rate should be one
of the factors you consider when deciding to buy a home.

       Example(s): Assume Town A levies taxes at the rate of $14 per $1,000 of assessed value. Town B
       levies taxes at the rate of $30 per $1,000 of assessed value. If you buy a home in Town A that is
       assessed at $200,000, you'll pay $2,800 per year in taxes (or $233.33 per month). If you buy a home
       in Town B that is assessed at $200,000, you'll pay $6,000 per year in taxes (or $500 per month).

Along with the tax rate, you'll want to consider the types of community services that are supported by the property
taxes. In some cases, higher property taxes may mean more extensive services. The local property tax
assessor's office can provide you with information about current property taxes in the area, as well as the allocation
of property tax funds, the rate of property tax escalation, and the frequency of property tax increases.

Paying property taxes
Property tax statements will be mailed to you from your local tax assessor's office. These statements generally contain
a breakdown of your tax obligations, along with a description of how the tax was calculated, the assessed value of the
property, a legal description of the property itself, the amount due, and the due date of the taxes you owe.

Taxes are usually payable quarterly or twice a year. If your mortgage lender requires you to escrow taxes, though,
you'll pay several months' worth of taxes to your lender up front when you buy your home. Thereafter, your mortgage
payment will include one-twelfth of the annual taxes. Many lenders use a tax service that notifies them of property tax
bills that are issued (you will generally pay a fee for this service when you finalize your mortgage loan). If your lender
does not receive notice of your tax bills, mail any tax bills you receive to your lender, and your tax bill will be paid
from your escrow account.
       Tip:A homebuyer is responsible for real estate taxes from the date of sale forward. At the closing,
       the buyer and the seller divide the real estate taxes, with the seller paying taxes up to (but not
       including) the date of closing. If the seller has already paid a tax bill for a period extending beyond the
       closing date, the buyer will reimburse the seller at closing for that extra portion.

Deducting property taxes on your income tax return
If you itemize your deductions on Schedule A of your federal income tax return, you may be able to deduct the property
taxes you paid during the year. To be deductible, the taxes must be based on the assessed value of the real property
and be charged uniformly against all property under the jurisdiction of the taxing authority.




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       Tip: Deductible real estate taxes generally don't include fees charged for local benefits and
       improvements ("betterments") that increase the value of the property, such as the installation of a town
       sewer line to the property.

       Tip:Payments you make to an escrow account generally aren't deductible until your lender actually
       pays the taxing authority.

       Caution: A real estate tax can only be deducted by the owner of the property upon which the tax is
       imposed. For example, if your mother holds title to a house and you pay the taxes for her, you won't be
       entitled to claim a deduction for the taxes paid.

For more information on real estate taxes, see Deductions: Deducting Taxes Paid.




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Special Considerations for Second/Vacation Homes

Introduction
A rustic cabin . . . a seaside cottage . . . buying a second/vacation home can be an alluring prospect. Before you decide
to purchase one, though, you should consider a number of issues. These include the costs associated with owning
a second/vacation home, the attributes of the home, its rental potential, and the income tax treatment.

Should you buy a vacation home?
Before you buy a vacation home, first determine whether or not you can afford it. Even if you can rent it out or deduct
part of the costs of ownership from your taxes, a vacation home is primarily a luxury, not an investment. You should
buy one to add value to your life instead of to your net worth.

Buying a vacation home may be right for you if:

          Owning one has been your lifelong dream, and you can now afford it

          You're almost ready to retire, and you plan to use the home as your primary residence in retirement
           (be sure to think about your future needs before you buy)

          You'll save enough money on family vacations to offset the cost of the vacation home

          You can recover most or all of the costs of owning the home by renting it out when you're not using it

          You enjoy entertaining frequent guests (like it or not, there's a good chance that friends and family
           members will want to come visit)


Buying a vacation home may not be right for you if:

          You have to scrape the money together to afford it

          You won't enjoy taking care of the property



How much will it cost to own a vacation home?
Owning a vacation home may cost more than you think. Here are some of the things you can expect to pay for:

Mortgage payment, taxes, and insurance

Unless you pay cash for your vacation home, you'll have to pay a monthly mortgage payment. And, whether you
pay cash or not, you'll have to pay property taxes and a premium for hazard and liability insurance on the home.

Repairs, upkeep, and fees
Whether you maintain the home yourself or hire someone else to do it, you'll have to spend money on repairing and
keeping up the home. Maintenance costs can include cleaning, yard work, pool or spa maintenance, plowing, and both
major and minor repairs. If you're buying a condominium, you won't have to maintain the exterior of your unit or do yard
work, but you'll have to pay a monthly condominium fee instead. Or, if you decide to rent your home, you may want
to hire a professional management company that will charge you a fee to rent out and maintain the home.




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                     See disclaimer on final page


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Utilities

The amount of money you pay for electricity, heat, sewage, water, phone, and other utilities will depend on how
frequently you use the vacation home. These costs can really add up, especially if you have a large number of people
staying in the home.

Furnishings and supplies

Unless your vacation home comes fully furnished, expect to spend quite a bit of money on furniture, bedding, and
dishes to equip your new home.

Cost of travel and entertainment

Don't overlook the cost of traveling to and from your vacation home. You may also spend more money dining out than
you would at home. Even groceries can cost more in a resort area. If you have guests, you may spend a lot on
recreational activities and entrance fees to attractions, as well.

What to look for in a vacation home
Personal tastes and the reason you're buying a vacation home will dictate the type of home you'll buy and its location.
For instance, if you want to get away from it all, you might want a rustic cabin. On the other hand, if you plan on inviting
family members to visit or are thinking about renting out the home, you might want to buy a spacious chalet in a
resort area where there's lots to do. Here are some things to think about when you're choosing a vacation home.

Location

             Is the property within a three-hour drive of your home? This is important if you plan on traveling there
              frequently.

             Are there recreational activities nearby that appeal to both you and potential renters?

             Is the property in a scenic, desirable location such as near a lake, beach, or the mountains?

             Is the area being heavily developed? This may be a plus if you're renting to others, a minus if you're looking
              for peace and quiet.

             Will you enjoy coming back to the area year after year?


Size

             Is the home large enough to accommodate friends and family members who will want to visit?

             Is the kitchen large enough to prepare meals comfortably?

             Are the bedrooms and bathrooms adequate for the number of people who will be staying there?

             Is there adequate parking? This is especially important if you have an RV or a large boat.

             Is there room to store items that you want to leave at the home (e.g., extra clothing, equipment, or
              food)?




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                     See disclaimer on final page


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Amenities (the added extras you may want)

          Does the home have modern appliances, including a dishwasher and a washer/dryer?

          Does the home have a fireplace for chilly evenings? This is especially important in ski country.
          Does the home have a swimming pool? A hot tub? A sauna?
          Does the home have a porch (screened or unscreened) where you and your guests can relax?


Maintenance issues


          Does the home have reliable plumbing, heating, and cooling systems? Making repairs while you're on
           vacation is no fun.

          Will the grounds require a lot of maintenance? Unless you enjoy it, do you really want to spend your
           vacation working out in the yard?

          Is the home currently in good repair, or will you have to renovate it in order to make it livable?



How do you insure a vacation home?
You'll want to insure your vacation home against damage and loss. Your homeowners policy will provide liability
coverage for you at your vacation home. However, most homeowners insurance policies provide only limited
coverage for personal property at an additional residence. To insure the vacation home itself and to obtain additional
personal property coverage, consider purchasing a dwelling and fire policy. There may also be insurance issues
depending on how much of the year the property will be vacant. For more information, contact an insurance
professional.

What about renting your home to others?
If you want to rent your vacation home to others, keep the costs in mind. For instance, if you hire an experienced
real estate rental broker who is familiar with rental homes and the rental market in which your vacation home is located,
you'll have to pay a fee. If you go it alone, you'll have to pay for advertising, for travel to the property to show it to
prospective tenants, and for an attorney to draw up leases.

If you plan to rent your vacation home for several short periods during the peak rental season (e.g., weekly for a ski
chalet), you'll want to budget for greater vacancy periods. And since short-term rentals tend to place greater wear and
tear on a property, you'll need to budget for greater repair costs.

On the plus side, renting your vacation home to other people when you're not using it can help defray the costs
associated with owning the home and generate income for you.

What are the income tax consequences of owning a second or vacation
home?
The income tax treatment of your vacation home depends on how many days you rent it to others, and other factors.

Property is for your personal use only, or is rented to others for less than 15 days per year

If your second home is for your personal use only, or is rented to others for less than 15 days per year, the
income tax treatment is straightforward. If you meet the requirements, you may deduct the following items:




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          Property taxes

          Qualified residence interest

          Casualty loss deductions


       Tip:Rental income received from such a home is not subject to tax.

       Caution: Because you don't report the rental income generated from this home, you can't deduct
       the expenses related to the rental.

For information about deducting property taxes, see Property Taxes. For information about deducting home loan interest,
see Income Tax Considerations for Homeowners. For information about casualty loss deductions, see Casualty and
Theft Deduction.

Unlike the sale of your principal residence, you aren't allowed a capital gain exclusion when you sell a vacation home
or second home. However, a home that is currently a vacation home may qualify as your principal residence in
as little as two years. For more information about the tax treatment, see Sale of Vacation Home: Tax Considerations.

Property is rented out for 15 days or more during the year

When you rent out your home for more than 15 days during the year, things can get more complicated. The tax
treatment of your vacation home now depends on how much time is allotted to personal use (as opposed to rental
use).

If you rent the home out for 15 days or more during the year, and your personal use of the home exceeds the greater
of 14 days during the year or 10 percent of the days rented, then the property is considered a vacation home for
tax purposes. The tax treatment is as follows:
          Rental income: All rental income is reportable.

          Rental expenses: Rental expenses must be divided between personal use and rental use of the
           property. Deductible expenses, such as insurance, repairs, utilities, and depreciation, are generally
           limited to the amount of income generated by the property.
          Other deductions: You may deduct qualified residence interest, property taxes, and casualty losses.


       Caution: Mortgage interest is considered qualified residence interest if it is incurred with respect to
       your principal residence and one other residence. So, you won't be able deduct the mortgage interest
       on more than one secondary residence or vacation home. There are also limits on the amount of
       indebtedness that may be taken into account in determining the amount of qualified residence interest
       that is deductible each year. For more information, see Home Mortgage Interest Deductions.

If you use your home less often for personal purposes (i.e., you don't meet the 14 day/10 percent rule), your
vacation home is considered strictly rental or business property. The tax treatment is as follows:

          Rental income: Gross rental income is taxable to the extent it exceeds the rental-related expenses.

          Rental expenses: All expenses, including mortgage interest, property taxes, insurance, advertising,
           and so on, can be deducted against the rental income received on the property. You should report
           these expenses on Schedule E of your federal income tax return.
          Losses: If the total rental expense exceeds the gross rental income, then the resulting loss may be
           deducted from your personal income (subject to relevant limitations, including the limitation on the
           deduction of passive losses).




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   Caution: Unlike the sale of your principal residence, you areni allowed a capital gain exclusion
   when you sell rental property or second/vacation homes. However, a home that is currently a
   vacation home may qualify as your principal residence in as little as two years. For more information about
   the tax treatment of rental property, see Sale of a Principal Residence Converted to Rental Property. For
   more information about the tax treatment of vacation property, see Sale of Vacation Home: Tax
   Considerations.




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                     See disclaimer on final page


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Timeshares

What are timeshares?
Timeshares are a special form of real estate ownership for vacation homes. If you've been on vacation lately,
chances are you've been approached by someone trying to get you to participate in a sales presentation on
timeshares. You may have even been offered a gift as an extra incentive. Although timeshares are certainly a
popular vacation option, they can pose problems. So, it's important to understand how timeshares work before
you purchase one.

Types of timeshare ownership
For the most part, there are two types of timeshare ownership: a deeded plan and a nondeeded plan.

Deeded plan

In a deeded timeshare plan, you purchase a fractional ownership interest in a specific unit. You can rent, sell, donate,
or bequeath your ownership interest just as you would any other real estate that you own. Ownership of a deeded
timeshare can be structured in one of two ways: a fixed week or a floating week arrangement. In a fixed week
arrangement, each owner receives a deed to the timeshare for a specific week(s). In a floating week arrangement,
each owner receives a deed to use the timeshare for a week during a particular time period. However, the owner must
then call the resort each year to make a reservation for the specific week that he or she wants to use the timeshare.
Nondeeded plan

In a nondeeded timeshare plan (also known as right-to-use ownership), ownership remains with the original property
owner/developer. You purchase a lease, license, or club membership that gives you the right to use the property for a
specific time each year for a limited number of years. Once the lease expires, the right to use reverts to the property
owner/developer.

       Caution: As with any real estate purchase, you should seek legal advice before signing a timeshare
      contract.

Other types of timeshare programs
Vacation exchange programs

Many timeshare developments belong to timeshare exchange programs. These programs give you the ability to trade
your timeshare week(s) with another timeshare owner. Most timeshare companies offer in-house exchange programs,
as well as the ability to exchange your timeshare for another anywhere in the world at the same, one-time fixed
price.

       Caution: Many exchange programs charge some type of fee to list your timeshare for exchange. The
      first year of membership is generally included in the purchase price. After that, there is an annual fee,
      as well as fees for each exchange.

Point programs
Some timeshare companies place a point value on each timeshare unit. Under the point system, you receive vacation
credits that are redeemable for a varying number of accommodations, depending on the season, day of the week,
size of the unit, and resort location. You may also be able to use your points toward the purchase of another
timeshare.




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                     See disclaimer on final page


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Vacation clubs

Vacation clubs own multiple timeshare properties in different locations. After paying a fee and annual club dues,
members can reserve timeshares at the various properties owned by the club.

How much does it cost?
The cost of purchasing a traditional second or vacation home is out of reach for many consumers. Timeshares can
give you the ability to have such a home, since you are only purchasing a fractional interest. Prices depend on many
factors, such as the season and the timeshare's location.

In addition to the cost of purchasing the timeshare, you must pay an annual maintenance/management fee. This fee
must be paid every year, regardless of whether you use your timeshare, exchange it for another, or don't use it at all
in a given year.

        Tip: Timeshare prices in the resale market tend to be lower than the price charged by developers for
       new units. You may benefit greatly by shopping in the resale market before you buy.

Tax consequences of owning a timeshare
Generally, the interest that you pay on a deeded timeshare loan is tax deductible on your income tax return as
interest on a second home. Your share of property taxes is also deductible. However, if you rent out your timeshare,
you'll need to follow special tax rules for second/vacation homes. See Special Considerations for Second/Vacation
Homes for more information.

       Tip: The interest that you pay on a nondeeded (or right-to-use) timeshare loan is not deductible.
       However, if you used a home equity loan to finance the purchase, the interest may be deductible.

Purchasing a timeshare
You can usually find timeshare sales representatives in most vacation destinations with a high tourist population. Or,
you may be contacted by a timeshare development through direct mail. After listening to a sales presentation and
taking a tour of the facility, you'll be asked if you're interested in purchasing a timeshare. Most timeshare developers will
finance the purchase of their timeshare units. However, these loans often have higher interest rates and shorter terms
than conventional mortgages. Some lenders will also finance the purchase of a timeshare unit.
Before you sign on the dotted line, consider the following:

          Make sure that you have read all of the sale documents carefully and understand exactly what you're
           getting--deeded or nondeeded plan, fixed or floating week arrangement, etc. It's a good idea to take
           them to an attorney for review.


          Is there a "cooling off" period during which you can cancel the contract and get your money back?


          Is the timeshare development a member of any trade organization, such as the American Resort
           Development Association?


          Is the resort managed properly? Are the facilities well maintained and kept up-to-date?


          If you are primarily interested in the exchange benefit of a timeshare, make sure that you are




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          purchasing a timeshare in a popular season (after all, not many people want to go to a ski resort in the middle
          of July). In addition, you'll want to make sure that the resort is affiliated with an exchange company.


          Don't be forced into purchasing a timeshare as a result of high-pressure sales tactics. Just because you
           listened to a sales presentation and received a free gift doesn't mean that you are obligated to purchase
           something.


          Remember that a timeshare should not be viewed as an investment. So, you shouldn't expect a return.


       Tip:If you need more information on purchasing a timeshare, contact the real estate commission or office
       of consumer protection in the state where the timeshare is located.

       Caution: Keep in mind that if you purchase a timeshare in a foreign country, U.S. federal or state
       property laws generally won't protect you.

Is a timeshare right for you?
While timeshares may not be right for everyone, many people enjoy the convenience and affordability that owning a
timeshare offers. Before you purchase a timeshare, ask yourself whether you'll want to vacation the same week in
the same location each year, and whether you'll be physically and financially able to vacation at your timeshare every
year. If not, you may be better off spending your money elsewhere.




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                     See disclaimer on final page
                                    May 06, 2008
Homeowners Insurance (General Discussion)

What is homeowners insurance?
Although some may not agree, you can't predict the future. You can, however, obtain homeowners insurance to protect
yourself against unexpected financial loss related to your family, home, and possessions. As its name suggests,
homeowners insurance can save you from severe financial loss if your home is damaged or destroyed. In addition, it
covers your family's possessions and can provide you with compensation for liability claims, medical expenses, and other
amounts that result from property damage and personal injury suffered by others. By paying insurance premiums and
satisfying the other requirements of your insurance company, you can take control of the future. You still won't be able
to predict when lightning will strike your house, but you will sleep better knowing homeowners insurance can save you
from financial ruin if the worst happens. You spend years building up a solid financial foundation for yourself and
your family. All that hard work can go down the drain in a matter of minutes unless you have a homeowners
insurance policy or other risk transfer vehicle to protect you against the following scenarios:
          A tornado shattering your home

          A burglar breaking into your home

          Your dog biting the neighborhood kid

          Physical therapy costs for a guest injured by a fall in your home

          A successful personal injury lawsuit brought by a neighbor


       Tip:Homeowners insurance is also a way for condominium and cooperative unit owners, mobile home
       owners, and renters to protect their possessions from damage or theft, and to obtain liability coverage
       for property damage and personal injury suffered by others.

Who is covered?
Homeowners insurance protects more than just the owner of the house, condominium, or other property.
Depending on your living situation, the following individuals are also covered under your homeowners policy.

Named Insured

The written contract between you and your insurance company is also referred to as your insurance policy. The policy's
Declarations Page contains factual information concerning the insured persons, property, coverage amounts, and
other terms of the coverage. One section of the Declarations Page identifies the Named Insured (meaning the
individual who is primarily insured under the policy), usually the same person named on a deed or lease as the owner
or tenant, respectively. You, as a Named Insured, receive the most extensive coverage under your homeowners
policy, for you are covered by property insurance on your dwelling and other structures, in addition to personal
property and liability insurance. Named Insured condominium owners and renters do not receive such extensive
coverage because they do not, on an individual basis, own their dwelling or other structures.
Spouses
If your spouse resides in your dwelling, then he or she is covered by personal property and liability insurance, even if
he/she isn't identified on the Declarations Page as a Named Insured.




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                     See disclaimer on final page


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Residents

Individuals who reside in your dwelling are covered by personal property and liability insurance if they are your
relatives (e.g., your children) or if they are under 21 years of age and in the care of any member of your family.

Employees

Your household employees--such as housekeepers, au pairs, or gardeners--are covered by personal property
insurance.

Guests and other visitors

Your guests and other invited visitors are covered by personal property insurance so long as you contact your
insurance company to request coverage.

What is covered?
The property insurance section of your homeowners policy protects more than just your actual home or dwelling. In
most cases, your policy also covers your personal possessions, and protects you against liability claims. The
following coverages are typically included in a standard homeowners insurance policy:

Dwelling coverage

Your policy covers your dwelling, any structures attached to the dwelling, and building materials and supplies that are
stored near the dwelling and are used to construct, alter, or repair the dwelling or other structures on your property.

Coverage for other structures

The Declarations Page of your homeowners policy will usually identify your premises by its street address. Your policy
also covers structures on your premises that are not attached to the dwelling, such as a toolshed or pool house.

Personal property coverage

Your homeowners policy also covers personal property, meaning articles you own other than land and buildings.
Your personal property consists of the contents of your house, like furniture, clothing, and stereo equipment, as well
as outdoor items like sporting equipment and gardening tools.

       Tip:Generally, the coverage limit for other structures and personal property coverage is a set percentage
      of the dwelling coverage amount. Other structures coverage is usually set at 10 percent of the dwelling
      coverage amount, while personal property coverage is often set at 50 percent of that amount. If you wish,
      you can increase a preset coverage amount by endorsement.

If you own a condominium or cooperative unit, your homeowners insurance does not cover you for your entire dwelling
space because you do not individually own the structure you live in. Instead, you are covered for your personal
property and any portion of the unit you own under the terms of the condominium or cooperative documents.

Loss of use
If your dwelling is not fit to live in because of damage covered by the policy, you may receive reimbursement for living
expenses while you wait to permanently relocate or wait for the dwelling to be repaired. A set coverage limit is applied
to loss-of-use coverage, but it can be increased by endorsement.




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                     See disclaimer on final page
                     See disclaimer on final page
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Liability coverage

If you or another insured are found responsible for personal injury or property damage suffered by another person,
your insurance company will cover the claim, up to the limit stated in the policy. This is true only if carelessness or
negligence, rather than intentional misconduct, caused the injury or damage. Your policy will also cover the cost of your
legal defense if a lawsuit is filed.

       Example(s): You may be found negligent if a meter reader was injured by falling off your tricky cellar
       stairs because the railing was broken (and you knew about the situation but failed to repair it). You may
       be found liable for intentional misconduct if you cut down a tree on your neighbor's property to improve
       your view.

Medical payments to others

If a nonresident requires medical assistance as a result of an injury suffered on or near your premises, your insurance
will cover a portion of his or her medical expenses, up to the stated limit. Injuries that take place away from your
premises are also covered, as long as you, another insured, a household employee, or your pet caused the injury.

What is not covered?
A wide variety of damages, conditions, and costs are not covered by homeowners insurance. Your insurance policy
describes a number of situations that are specifically excepted or excluded from coverage (called exclusions).
Some policies contain more exclusions than others. Your policy also describes certain conditions you must meet and
duties you must perform to be covered. Terms and limitations that were originally included in your policy can be changed
by a document called an endorsement. For these reasons, you should carefully read your homeowners policy to learn
the limitations and exclusions that apply to your specific situation. Here are just a few examples of situations when you
are not covered by a homeowners insurance policy:
          Land--Although the structures and possessions that lie upon a parcel of land are usually covered by a
           homeowners policy, the land itself is not. This means you're not covered by your policy if your neighbor's
           pool overflows and contaminates your untilled garden.

          Coverage limitations--The Declarations Page of your policy recites maximum coverage amounts that limit
           what the insurance company must pay. Separate limits are set for the dwelling, other structures, personal
           property, loss of use, personal liability, and medical payments to others.

          Flooding--Your homeowners policy will not cover you for damage that results from floods, waves,
           sewer overflows, or water seeping into your basement.

          Business--If you're involved in a business activity, your homeowners policy will not cover you for
           liability or medical payments due other persons, even if the damage or injury occurred in your home. Other
           structures located on your premises that are used for business purposes are also not covered by the policy.
           This means your policy will not reimburse you for medical care required by a client who is injured in your
           home office.
          Your tenants--Your homeowners policy will not cover you for damages or injuries suffered by the
           tenants who rent any part of your home.

          Other insurance--If an injury or damage is covered by other insurance in addition to your homeowners
           policy, your homeowners insurance company will only pay its proportionate share of the amount due.

          Theft by another insured--Your homeowners insurance will not cover you for a loss caused by a theft
           committed by another insured person under the policy. This means your policy will not cover you if your
           nephew (who lives with you) steals a valuable baseball card from the family room.
          Multi-family dwellings--Structures that have more than two family-dwelling units cannot be covered by




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           homeowners insurance.



Questions & Answers
Your brother-in-law tells you that you can buy separate policies for property and liability insurance to
protect your property and insure you against personal injury claims. If that's the case, why might you
choose to buy homeowners insurance instead?

Because buying a single homeowners policy provides you with the same property and liability insurance that you
would receive from two separate policies. Plus, buying a single homeowners policy eliminates any chance of overlaps
or gaps in coverage and might also be cheaper.

If you build an addition to your house or otherwise increase its value, do you need to increase the
amount of coverage?

It is important that your policy continue to cover at least 80 percent of the replacement cost of your home. That way,
the insurance company will pay you the full replacement cost for any damage up to the coverage limit. If you anticipate
adding improvements to your home, or if you fear inflation will decrease the value of your policy, you can add an
Inflation Guard endorsement to your policy. An Inflation Guard endorsement ensures that your coverage amount
increases a small fixed percentage every year. If your house increases in value by 5 percent or more, you should
contact your insurance agent to arrange for a new appraisal of the house. In this case, it might be worth increasing
your policy's coverage amount.
Is your car covered by your homeowners policy when it's parked in your garage?
No. Cars are specifically excluded from personal property coverage. Only vehicles like motorized wheelchairs and
lawn mowers, which are not usually registered with the state, are covered by personal property insurance. Your car is
also not covered under the "Personal Liability and Medical Payments to Others" sections of your homeowners
policy because insurance companies prefer you to insure vehicles with an automobile insurance policy.




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Flood Insurance

What is flood insurance?
Because standard homeowners insurance doesn't cover damage from flooding, you will need to purchase a separate
flood insurance policy to obtain coverage for your home and its contents. Fortunately, flood insurance is widely
available from insurance companies that participate in the National Flood Insurance Program (NFIP), a partnership
between the Federal Emergency Management Agency (FEMA) and the private insurance industry. A handful of
insurance companies also offer excess flood insurance policies that can supplement NFIP coverage.

You are eligible to purchase national flood insurance if your community is one of the approximately 19,000
nationwide that participate in the NFIP. Participating communities must adopt certain floodplain management
practices in exchange for the availability of flood insurance for their residents.

Do you need flood insurance?
You should consider purchasing flood insurance even if you don't live in a high-risk area for floods. According to FEMA,
approximately 25 percent of all flood insurance claims come from areas that are at low to moderate risk for floods.
Even if you don't live near the ocean, a river, or other body of water, factors such as storms, melting snow, inadequate
or overloaded drains, or hurricanes can cause serious flooding.

       Tip:If you are buying a home located in a high-risk flood zone, and are obtaining a federally backed
       mortgage, you will be required to purchase flood insurance.

How can you purchase flood insurance?
If you decide you want flood insurance, start by calling your homeowners insurance representative. Although
NFIP policies are backed by the federal government, they are sold through private insurers. If your current insurer can't
offer you flood insurance, you can call the NFIP Telephone Response Center at (888) CALL FLOOD. The response
center can provide you with names of local agents or companies who can sell you flood insurance.

How much flood coverage can you obtain?
You can purchase coverage for your home through the NFIP up to the following amounts:

          $250,000 for the building

          $100,000 for the contents


If you own a home whose value exceeds the amount available through the federal program, you may want to look into
purchasing excess flood insurance through a private insurer. Excess flood insurance covers amounts above the
$250,000 federal limit, and unlike NFIP coverage, may cover your home for its full replacement cost. You may be able
to purchase these policies even in high-risk flood zones. A few insurance companies have begun offering flood
policies designed to replace NFIP coverage, but these policies are generally available only in low- to moderate-risk
flood zones.
       Tip:Renters can also purchase contents coverage through the NFIP to protect their belongings from
       flood damage.




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                     See disclaimer on final page


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How much does flood insurance cost?
According to FEMA, the average annual premium for a $100,000 flood policy is a little over $500 (FEMA, 2008).
However, the cost of flood insurance depends on many factors, including the type of occupancy (e.g., single family,
nonresidential), the amount of coverage, the deductibles you choose, and the location, design, and age of the
building. Your insurance representative can give you a premium quote that accurately reflects your
circumstances. You can also get a quick premium estimate at the National Flood Insurance Program's consumer
website.

What else should you know about flood insurance?
Here are some other facts you should know about flood insurance. First, you can purchase an NFIP policy at any time
if you live in a participating community. You can even purchase it immediately before or during a flood. There is one
catch, however. A 30-day waiting period generally applies before the policy becomes effective. Second, you can
purchase an NFIP policy even if you live in a high-risk region for floods. As long as your community participates
in the NFIP, insurance companies will be able to offer you a policy. Third, NFIP policies don't cover flooding from
wind-driven rain or damage from hail. Your homeowners policy will likely cover these situations. Finally, NFIP policies
offer some protection for flood-related basement damage but doni cover all types of damage. They ordinarily
covers items such as furnaces, water heaters, foundation elements, stairways, and oil or natural gas tanks, as well as
appliances such as clothes washers, dryers, and freezers. They doni cover basement structures such as finished
walls, floors, ceilings, or personal belongings such as furniture or clothes.
Keep in mind that your homeowners policy doesni cover most types of basement flooding, either. Although flood
insurance doesni cover every situation, it's probably your best bet for dealing with basement flooding.




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                     See disclaimer on final page


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Vacation Home Tax Considerations

What are vacation home tax considerations?
First of all, the IRS differentiates between vacation homes and second homes. The tax treatment of your
additional residence will depend largely on how much time you (or a family member) use the property for personal
purposes relative to the amount of time you rent it to others. Whether you own a vacation home or second home,
you should understand what types of home-related expenses you can deduct on your federal income tax return
and the extent to which they may be deducted. You should also know how to treat rental income.
For information about capital gain and loss, See Sale of Vacation Home: Tax Considerations.

Definition: "personal use" of home

For tax purposes, you must count as "personal use" any day your home is used by:

          You or any other person having an ownership interest in the property

          A member of your family or a family member of any other person having an ownership interest in the
           property (unless the family member uses the home as his/her primary residence and pays a fair rental
           value for the use of the home)

          Anyone who, in return for use of your vacation home, allows you to use another home or dwelling unit

          Anyone who pays less than fair market rent for the use of the home


       Example(s): This year, you used your vacation home for four days and allowed your daughter and her
      family to use it for three days. In addition, your sister (who has a 50 percent ownership interest in the
      vacation home) used it for seven days. She allowed her son to live in the home for six months.
      During that time, it was his primary residence and he paid fair market rent for it.

       Example(s): Here, the total personal use for the year is 14 days (your 4 days of use, your daughter's
      3 days of use, and your sister's 7 days of use). Because your nephew paid fair market rent and used
      the home as his primary residence while living there, his use of the home is not counted as "personal
      use" for your tax purposes.

       Tip:If you use the bulk of a day spent at your vacation home to repair or maintain the home, you need
      not count this as a personal use day. This is true even if members of your family use the home for
      recreational purposes on the same day or days.

Definition: "family member"

Regarding personal use of your home, a member of your family is defined as a brother or sister, half-brother or
half-sister, spouse, ancestor (i.e., parent or grandparent), or your "lineal descendant" (i.e., child or grandchild).

Vacation home tax treatment
A vacation home may be defined as a second residence with a combination of personal and rental use, where the home
is rented 15 days or more per year and your personal use exceeds the greater of 14 days per year or 10 percent of the
days rented.

          Deductions--You'll be allowed to deduct any casualty losses and property taxes you paid, as well as




                                                                                                   See disclaimer on final page
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          qualified residence interest (but only on one vacation home). Mortgage interest will only qualify as
          "qualified residence interest" if it is incurred with respect to your principal residence and one other
          residence. Thus, you will not be able to deduct the mortgage interest on more than one secondary
          residence or vacation home. There are also limits on the amount of indebtedness that may be taken into
          account in determining the amount of qualified residence interest that is deductible each year. For more
          information, see Home Mortgage Interest Deduction.
          Rental income--All rental income is reportable.

          Expenses--Expenses must be allocated or prorated between personal use and rental use of the
           property. Essentially, deductions (other than qualified residence interest, property taxes, and casualty
           losses) are limited to the amount of income generated by the property. These expenses include
           insurance, repairs, utilities, and depreciation (in that order); you are required to subtract these expenses
           from the rental income in a specified order.


Allocation of expenses: specifics

Limited expenses must be allocated in the following order:

         1. First, expenses that are allowable regardless of the rental activity, such as qualified mortgage interest,
            property taxes, and casualty losses

         2. Second, rental expenses that do not affect the basis of the property, such as utilities, management
            fees, maintenance fees, Realtor®commissions, and advertising fees

         3. Third, expenses that will affect the basis of the property, such as depreciation


When applying these rules, the expenses in the second and third categories cannot produce a taxable loss.
Rather, these deductions can be claimed only to the extent of rental income. However, any expenses limited
under this rule may be carried forward and taken into account as a vacation home deduction for the following
year.

Proration of expenses

Vacation homes are subject to a proration of expenses. The prorated amounts attributable to the rental activity are
based on the number of days during the year that the home was rented. The rental portion equals the number of days
the home is rented, divided by the total number of days during the tax year that the home was used for both rental
and personal purposes.

       Example(s): Assume you used your vacation home for one month and rented it for the remaining 11
      months of the year. Your expenses on the home during the year (including mortgage interest and
      property taxes) came to $9,200, and the total rent you received was $8,000.

       Example(s): In this case, you must show the $8,000 as gross income on your tax return, but you can
      offset this "gain" by 11/12 of the expenses you incurred on the property, up to the full $8,000 in rental
      income. However, any shortfall between your expenses and the rent you received on the home is
      not deductible.

       Tip:Note that a controversy exists between the IRS and the U.S. Tax Court regarding proration of
      expenses when a vacation home is vacant for part of the year. The IRS position is that all expenses are
      prorated based on the period of actual usage or occupancy, rather than based on the entire year.
      Be sure to check the status of the law in your jurisdiction with your tax advisor.
       Example(s): Jill bought a vacation home in Colorado and uses it each year during the month of April.
      She rents it out for three months during the year; the property is vacant the rest of the time. Jill incurs
      the following expenses this year: qualified residence interest of $2,000, real estate taxes of $400,
      maintenance and utilities of $1,500, and depreciation of $2,500. If the gross rental income is

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                             May 06, 2008
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       $3,000, the proration under the IRS method is as follows:

       Example(s): Rental income ............................................................................................
       $3,000Deductions:1. Taxes and interest ($2,400 x 3/4) .....................................................
       ($1 ,800)2. Maintenance and utilities ($1,500 x 3/4) ......................................................($1 ,125)3.
       Depreciation ($2,500 x 3/4, but limited to remaining income) ................. ($75)

       Example(s): Jill will report no income on her Schedule E for this rental property. The remaining $600
       of qualified residence interest and tax ($2,400 - $1,800) is for personal use and may be deducted as
       an itemized deduction on Schedule A.

For additional information about vacation homes, See Sale of Vacation Home: Tax Considerations. For
information about passive activities and at-risk rules, See Converting a Residence to Rental Property.

Second home tax treatment
A second home is a personal residence that you rent to others for fewer than 15 days per year. The tax treatment is
as follows:

          Deductions: You'll be allowed to deduct any qualified residence interest and property taxes you paid on
           the home during the year (subject to the normal limitations on mortgage interest deductions for primary
           and second homes). You can also deduct casualty losses.

          Rental income: Rental income you receive is not subject to taxation.
          Expenses: Expenses related to the rental of the property are not deductible.


See also Home Mortgage Interest Deduction.




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                     See disclaimer on final page
                     See disclaimer on final page
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Deductibility of Points and Other Closing Costs

What is the deductibility of points and other closing costs?
When you take a loan to purchase a first or second residence (or to refinance an existing loan on a first or second home),
you generally will be charged closing costs (also known as settlement charges). These generally include points as well
as attorney's fees, recording fees, title search fees, appraisal fees, and other loan or document preparation and
processing fees. The question you will face is whether you can deduct these fees immediately or whether they are
added to the cost basis of your home.

What are points?
Points are costs that are often charged to you by a lender when you take a loan secured by your home. One point
equals 1 percent of the loan amount borrowed. (For example, 1.5 points on a $100,000 loan would equal $1,500.) If
the points are charged for services provided by the lender in preparing or processing the loan, then they are not
deductible. However, if the lender charges the points as up-front interest and in return gives you a lower interest
rate on the loan, then the points may be deductible.

       Tip:It doesn't matter whether your lender calls the charge points or a loan (or mortgage) origination
       fee. If this charge represents prepaid interest, it may be deductible.

Are points deductible and when?
Points charged as prepaid interest are deductible over the term of the loan except when they are paid on a loan used
to buy or improve your primary residence. Points are deductible for the tax year in which they are paid if you meet all
of the following conditions:

          Your loan is secured by your main home

          Paying points is an established business practice in the area where the loan was made

          The points paid were not more than the points generally charged in that area

          You use the cash method of accounting (most individuals use this method)

          The points were not paid in place of amounts that ordinarily are stated separately on the settlement
           statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes

          The funds you provided at or before closing, plus any points the seller paid, were at least as much as the
           points charged

          You use your loan to buy or build your main home

          The points were computed as a percentage of the principal amount of the mortgage

          The amount is clearly shown on the settlement statement as points charged for the mortgage. The points
           may be shown as paid from either your funds or the sellers


For more information on deducting points, see IRS Publication 936.




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                     See disclaimer on final page
                                    May 06, 2008
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What if the points are withheld by the lender from the loan proceeds?
If the loan is for the purchase of your primary residence, any points withheld by the lender will be deductible as
up-front interest if (at or prior to the closing of the loan) you pay a down payment, escrow deposit, or earnest money
equal to the charge for points. If, however, the loan is used to improve your primary residence, then the points paid
related to the home improvement loan may be deducted in the year paid (if certain criteria are met).

Can you deduct points paid by the seller?
Yes, these can be deducted by you as an up-front interest charge. However, because they are also considered a
reduction in the cost of the home, you must lower your cost basis in the home by an amount equal to the points paid
by the seller.

Can you deduct points charged on a mortgage secured by a second home?
Yes, but they must be deducted ratably over the term of the loan.

       Example(s): If you pay $3,000 in points on a 30-year mortgage secured by a second home, you can
       deduct $100 in points each year during the term of the loan.

If you are amortizing the deduction of points on a loan over the term of that
loan and the loan ends early, how do you treat the points you have not yet
deducted?
If the loan ends early (because, for example, you sell the home or refinance the mortgage), you may fully deduct the
remaining points for the tax year the loan ends.

How are points paid on a refinanced loan treated?
Points paid on a refinanced loan must be amortized over the life of the loan. However, there is one exception: If part of
the loan is used to make improvements to your primary residence, you can deduct that portion of the points
allocable to the home improvements made in the year the points are paid (if certain criteria are met).

       Example(s): Suppose you take a cash-out refinance mortgage for $100,000 and pay two points
       ($2,000). Then, $90,000 is used to pay off the principal debt owed on the old mortgage, $4,000 is used
       to pay off bills, and $6,000 is used to put in a new kitchen. Since 6 percent ($100,000 divided by $6,000)
       is used for home improvement, then $120 (6 percent of $2,000) may be deducted in the year the loan is
       taken. The remaining $1,880 in points must be deducted ratably over the life of the loan.

Can other closing costs be deducted?
Other closing costs that are charged to you, such as attorney's fees, recording fees, title search fees, appraisal
fees, owner's title insurance, and other loan or document preparation and processing fees, are not deductible. Rather,
they are added into the cost basis of your home.

       Example(s): Over and above points, assume that your closing costs on a loan you take to purchase a
       $200,000 home total $1,500 dollars. Your initial cost basis in that home would be $201,500.

       Caution: Fees that you pay at closing, placed in escrow to cover costs that you will be required to pay
       later (e.g., fire insurance premiums), are not added to the basis of your home.




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Popular Types of Mortgages

Like homes themselves, mortgages come in many sizes and types. The type of mortgage that's right for you depends on
many factors, such as your tolerance for risk and how long you expect to stay in your home. Here are some characteristics of various
popular types of mortgages.


            Conventional Fixed Rate Mortgages                        FHA, VA, or bond-backed
                                                                     Interest rate sometimes lower than
             Low risk                                                conventional fixed rate mortgage
             10- to 40-year terms                                   Variety of programs available
             Interest rate doesn't change                           Low down payment requirements
             Large down payment (compared to government             Liberal qualifying ratios
              mortgages) may be required                             Attractive to first-time homebuyers
             Payment remains the same                               Higher insurance costs may apply for FHA
                                                                      loans
                                                                     Payment remains the same




            Adjustable Rate Mortgages (ARMs)
                                                                    Hybrid Adjustable Rate Mortgages
             Higher risk
                                                                    (ARMs)
             Initial interest rate often lower than conventional
              fixed rate mortgage                                    Higher risk
             Interest rate may go up or down                        Initial interest rate often lower than conventional
             Interest rate usually adjusted annually                 fixed rate mortgage
             Rate adjustments may be                                Fixed term for 1-10 years, then becomes a
              limited by cap(s)                                       1-year ARM
             Payment caps can result in negative                    May have option to convert to a fixed rate
              amortization in periods of rising interest rates        mortgage before becoming a 1-year ARM
                                                                     Interest rate may go up or down
                                                                     Rate adjustments may be
            Government Mortgages                                      limited by cap(s)
                                                                     Payment caps can result in negative
                                                                      amortization in periods of rising interest rates



                                                        Jumbo Loans
                           Any loan over $417,000 ($729,750 in expensive parts of the country) for a single-family home or
                            condo
                           Size of loan increases lender's risk, so interest rates are generally higher than for conventional fixed rate
                            mortgages
                           Jumbo loans are not available with government mortgages




                                                                                                                See disclaimer on final page


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Less Common Mortgage Options

 Sometimes the more common fixed or adjustable rate mortgages aren't advantageous or aren't available because of your
circumstances. Here are some less common mortgage alternatives and their characteristics.


            Graduated Payment Mortgages                       Growing Equity Mortgages
             Fixed interest rate                              Formalized prepayment method
             Medium risk                                      Medium risk
             Low monthly payments increase over 5-10          Payments rise over 5-10 years, then level off
               years, then level off for remainder of term      for remainder of term
               (usually 30 years)                              Excess payment applied to principal
             Initial low payments can result in negative      Fixed interest rate usually lower than
               amortization during early years of the loan      conventional fixed rate mortgages



            Balloon Mortgages                                 Shared Appreciation Mortgages
             High risk                                        Low interest rate in return for agreement to
             Low interest                                      share appreciation of home value with lender
             Short term (3-10 years)                           upon sale or at a specified time
             Large final payment                              Low monthly payments
                                                               Medium to high risk; if value of home doesn't
                                                                increase as expected, lender may charge
                                                                additional interest



                                                Seller-Financed Mortgages
            Seller-Financed Mortgages                         Wraparound Mortgages
             Medium risk
             Seller acts as lender                            Medium risk
             Terms are negotiated between you and the         Seller acts as lender
               seller                                          Terms are negotiated between you and the
                                                              seller
                                                               Your mortgage payment repays both seller's
                                                              original mortgage and any additional amount
                                                              seller financed for you
                                                               Interest rate higher than on seller's mortgage
                                                              but often lower than conventional fixed rate
                                                              mortgages




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Personal Liability Umbrella Insurance


Like a roof over your head, the liability
coverage under your homeowners and
auto policies is your primary layer of
protection. But if you need additional
liability protection of up to $1 million or
more, you'll need to turn to an umbrella
policy.
Personal umbrella liability protection is
secondary coverage that works in
conjunction with your primary policy.
When the liability limit of your primary
policy is exhausted, the umbrella policy
will open up, paying the balance of a
liability claim against you (up to the
umbrella policy's limit).
For example, let's say you are found
liable for a bodily injury claim totaling       Primary - When limits of
$1.3 million as a result of an auto             primary liability policy are
accident. If your auto policy liability limit   reached...
was $300,000 and you had a $1 million
                                                Secondary - Umbrella
umbrella policy, your auto policy would
                                                policy opens up, providing
pay the first $300,000 and the umbrella
                                                secondary level of
would cover the remainder of the claim.
                                                protection.




                                                                               See disclaimer on final page
                                                                               See disclaimer on final page
                                                                                              May 06, 2008
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Buying a Home

There's no doubt about it--owning a home is an exciting prospect. After all, you've always dreamed of having a place
that you could truly call your own. But buying a home can be stressful, especially when you're buying one for the
first time. Fortunately, knowing what to expect can make it a lot easier.

How much can you afford?
According to a general rule of thumb, you can afford a house that costs two and a half times your annual salary. But
determining how much you can afford to spend on a house is not quite so simple. Since most people finance their
home purchases, buying a house usually means getting a mortgage. So, the amount you can afford to spend on
a house is often tied to figuring out how large a mortgage you can afford. To figure this out, you'll need to take into
account your gross monthly income, housing expenses, and any long-term debt. Try using one of the many real
estate and personal finance websites to help you with the calculations.

Mortgage prequalification vs. preapproval
Once you have an idea of how much of a mortgage you can afford, you'll want to shop around and compare the
mortgage rates and terms that various lenders offer. When you find the right lender, find out how you can
prequalify or get preapproval for a loan. Prequalifying gives you the lender's estimate of how much you can borrow
and in many cases can be done over the phone, usually at no cost. Prequalification does not guarantee that the
lender will grant you a loan, but it can give you a rough idea of where you stand. If you're really serious about buying,
however, you'll probably want to get preapproved for a loan. Preapproval is when the lender, after verifying your
income and performing a credit check, lets you know exactly how much you can borrow. This involves completing
an application, revealing your financial information, and paying a fee.
It's important to note that the mortgage you qualify for or are approved for is not always what you can actually afford.
Before signing any loan paperwork, take an honest look at your lifestyle, standard of living, and spending habits to
make sure that your mortgage payment won't be beyond your means.

Should you use a real estate agent or broker?
A knowledgeable real estate agent or buyer's broker can guide you through the process of buying a home and make
the process much easier. This assistance can be especially helpful to a first-time home buyer. In particular, an agent
or broker can:
          Help you determine your housing needs

          Show you properties and neighborhoods in your price range

          Suggest sources and techniques for financing

          Prepare and present an offer to purchase

          Act as an intermediary in negotiations

          Recommend professionals whose services you may need (e.g., lawyers, mortgage brokers, title
           professionals, inspectors)

          Provide insight into neighborhoods and market activity

          Disclose positive and negative aspects of properties you're considering




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Keep in mind that if you enlist the services of an agent or broker, you'll want to find out how he or she is being
compensated (i.e., flat fee or commission based on a percentage of the sale price). Many states require the agent or
broker to disclose this information to you up front and in writing.

Choosing the right home
Before you begin looking at houses, decide in advance the features that you want your home to have. Knowing what
you want ahead of time will make the search for your dream home much easier. Here are some things to consider:

          Price of home and potential for appreciation

          Location or neighborhood

          Quality of construction, age, and condition of the property

          Style of home and lot size

          Number of bedrooms and bathrooms

          Quality of local schools

          Crime level of the area

          Property taxes

          Proximity to shopping, schools, and work



Making the offer
Once you find a house, you'll want to make an offer. Most home sale offers and counteroffers are made through an
intermediary, such as a real estate agent. All terms and conditions of the offer, no matter how minute, should be put
in writing to avoid future problems. Typically, your attorney or real estate agent will prepare an offer to purchase for
you to sign. You'll also include a nominal down payment, such as $500. If the seller accepts the offer to purchase,
he or she will sign the contract, which will then become a binding agreement between you and the seller. For this
reason, it's a good idea to have your attorney review any offer to purchase before you sign.

Other details
Once the seller has accepted your offer, you, your real estate agent, or the mortgage lender will get busy
completing procedures and documents necessary to finalize the purchase. These include finalizing the mortgage loan,
appraising the house, surveying the property, and getting homeowners insurance. Typically, you would have made
your offer contingent upon the satisfactory completion of a home inspection, so now's the time to get this done as
well.

The closing
The closing meeting, also known as a title closing or settlement, can be a tedious process--but when it's over, the house
is yours! To make sure the closing goes smoothly, some or all of the following people should be present: the seller
and/or the seller's attorney, your attorney, the closing agent (a real estate attorney or the representative of a title
company or mortgage lender), and both your real estate agent and the seller's.

At the closing, you'll be required to sign the following paperwork:

          Promissory note: This spells out the amount and repayment terms of your mortgage loan.




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          Mortgage: This gives the lender a lien against the property.

          Truth-in-lending disclosure: This tells you exactly how much you will pay over the life of your mortgage,
           including the total amount of interest you'll pay.

          HUD-1 settlement statement: This details the cash flows among the buyer, seller, lender, and other parties
           to the transaction. It also lists the amounts of all closing costs and who is responsible for paying these.


In addition, you'll need to provide proof that you have insured the property. You'll also be required to pay certain costs
and fees associated with obtaining the mortgage and closing the real estate transaction. On average, these total
between 3 and 7 percent of your mortgage amount, so be sure to bring along your checkbook.




                                                                                                    See disclaimer on final page
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                     See disclaimer on final page


                                   May 06, 2008
Applying for a Mortgage

With all of the paperwork and questions that you need to answer, applying for a mortgage can be stressful. But knowing
what's involved in the process can make things a lot easier. Here's some information to get you started.

Before you apply
Do some homework before you apply for a mortgage. Think about what type of home you want, what your budget will
allow, and what type of mortgage you might seek. Get a copy of your credit report, and make sure it's accurate;
dispute any erroneous information to get it corrected. Be prepared to answer any questions that a lender might
have of you, and be open and straightforward about your circumstances.

What you'll need when you apply
When you apply for a mortgage, the lender will want a lot of information about you (and, at some point, about the
house you'll buy) to determine your loan eligibility. Here's what you'll need to provide:

          The name and address of your bank, your account numbers, and statements for the past three months

          Investment statements for the past three months

          Pay stubs, W-2 withholding forms, or other proof of employment and income

          Balance sheets and tax returns, if you're self-employed

          Information on consumer debt (account numbers and amounts due)

          Divorce settlement papers, if applicable


You'll sign authorizations that allow the lender to verify your income and bank accounts, and to obtain a copy of your
credit report. If you've already made an offer on a house or condo, you'll need to give the lender a purchase contract
and a receipt for any good-faith deposit that you might have given the seller.

Prequalification and preapproval
In many cases, you'll want to know how much mortgage you can get before you look at homes so you won't
waste time drooling over places that you can't afford. Your potential lender can either prequalify you or
preapprove you for a mortgage.

Lenders use several standard ratios to determine how much mortgage you're eligible for. Generally, if you're
applying for a conventional mortgage, your monthly housing expenses (mortgage principal and interest, real estate
taxes, and homeowners insurance) should not exceed 28 percent of your gross monthly income. In addition, your
total long-term debt (monthly housing expenses plus other debt payments that won't be repaid within a year)
should be no more than 36 percent of your gross monthly income. Government mortgage programs, such as FHA
and VA mortgages, have higher qualifying ratios.
Keep in mind that qualifying ratios vary among lenders, and you may still qualify for a mortgage even if you exceed
the ratios listed above. For example, some lenders will allow higher ratios if you have excellent credit, a large down
payment, or substantial savings, or meet other conditions.
Prequalifying for a mortgage is simply a matter of a lender crunching these numbers to tell you how large a
mortgage you'll qualify for based on those ratios. Remember, what you qualify for may not be what you can
afford--only you can determine that after examining your own budget and lifestyle. Because the lender has not




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LQ Wealth Advisors                                                                                  Page 98 of 111
verified your income or examined your credit report, prequalification promises you nothing; it simply tells you how
much mortgage you might get.

Preapproval, however, means that the lender has checked out your income and credit. You'll get a letter of
commitment stating that you'll be given a mortgage up to a certain amount. Preapproval lets you know exactly how
large a mortgage you can get. In addition, it gives you more credibility as a buyer, since a seller can see in the
lender's letter that you're going to get the mortgage if he or she accepts your purchase offer.

Finalizing the application
As your mortgage application is processed and finalized, your lender is required by law to give you several
documents. Within three business days of applying for the loan, the lender must inform you of the mortgage's
effective rate of interest, or annual percentage rate (APR). If relevant, the lender must also give you consumer
information on adjustable rate mortgages. In addition, the lender is required to give you an itemized good-faith
estimate of your closing costs and a government publication that explains those costs.
Since the home that you're purchasing will serve as collateral for the loan, the lender will order a market value
appraisal of the property. The lender will not lend you more than a certain percentage of the value of the property. If
your down payment will be less than 20 percent of the value of the property, your loan will require private mortgage
insurance, and the lender will obtain insurer approval. If the lender has not already done so as part of a preapproval
process, it will verify your employment and bank accounts as well as obtain and evaluate your credit report.




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See disclaimer on final page
See disclaimer on final page
               May 06, 2008
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Refinancing Your Mortgage

When you refinance your mortgage, you take out a new home loan and use some or all of the proceeds to pay off the
existing one. If you obtain a lower interest rate on your new loan than you had on your old one, you'll be saving
money.

When to do it
Generally, there are two good times when it's wise to refinance your mortgage. If you've got an adjustable rate
mortgage, one of those times is during periods of rising interest rates. If you refinance to a fixed rate mortgage,
particularly to a rate similar to your present low adjustable rate, you'll avoid the higher costs when the adjustable rates
start going up.

The other time it's a good idea to refinance is when you'll save money by getting a lower interest rate. In this case,
you'll want to make sure that your monthly savings will pay back your refinancing costs while you're still living on the
property. If you sell your home before your refinancing has paid for itself, you won't be saving anything.

If you are experiencing cash flow difficulties, you may be tempted to lower your monthly mortgage payments by
refinancing to extend the term of the loan. From a savings perspective, this is not a good reason to refinance. Unless
you get a lower interest rate on the new loan as part of the bargain, you're not really saving any money; in fact, the
reverse will be true. If you extend the term of your mortgage without changing anything else, you might loosen your tight
cash flow situation, but you'll actually pay more total interest on the mortgage in the long run.

The cost of refinancing
Your refinancing cost is the total of any points, closing costs, and private mortgage insurance (PMI) premiums that
you pay when you take out the new loan. In addition, any lost tax savings must also be regarded as part of the cost
of refinancing.

There are times when lenders offer "no points, no closing costs" refinancing deals. Check the terms of the offer
carefully to make sure that you understand what's involved.

Points are prepaid fees. One point equals 1 percent of the amount you're borrowing, and any points you're charged
are usually deducted from the mortgage proceeds you receive. Mortgage lenders typically charge one point as a
loan origination fee. Beyond that, lenders may charge additional points on loans with interest rates below the current
market rate. By doing so, the lender makes a little more money up front, and you get a lower interest rate on your
mortgage. So, if you're going to stay in your house for a long time and can afford to do so, paying more points in the
beginning may get you a better interest rate and save you more money in the long run.
Your closing costs include a variety of fees, such as an appraisal fee, a title search fee, recording fees, and other fees
associated with processing and finalizing your mortgage. If your loan-to-value ratio is greater than 80 percent of
the appraised value of your property, you may also be required to carry PMI. The premiums for this insurance usually
become a portion of your new monthly mortgage payment and thus reduce your savings from refinancing. In addition,
you may discover hidden costs. For example, if you're paying less interest on your new mortgage, you'll have less to
deduct on your income tax return. If this makes your tax payments higher, your savings will be further offset.
Once you've determined what your refinancing costs will be, you can then determine how long it will take for your
refinancing to pay for itself. To do so, divide the total of the points and closing costs that you paid by the net monthly
savings that the new loan provides you. Your net monthly savings will be your interest savings less any PMI
premiums and tax advantage losses expressed as monthly figures.

For example, assume you refinanced $200,000. You paid two points and total closing costs of $1,800. You got a




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great interest rate on the loan, so you'll save $80 a month in interest charges. However, your PMI premiums are now
$10 per month higher, and you've lost tax savings of $120 a year, or $10 per month. Your refinancing costs are
$3,800--two points of $1,000 each and $1,800 in closing costs. Meanwhile, your net savings are $60 per
month--$80 per month saved interest less $10 per month increased PMI premiums and $10 per month lost tax
savings. If you divide $3,800 by $60, you'll find your refinancing will pay for itself in a little over 63 months.

No cash-out versus cash-out refinancing
No cash-out refinancing occurs when the amount of your new loan doesn't exceed your current mortgage debt (plus
points and closing costs). With this type of refinancing, you can typically borrow up to 95 percent of your home's
appraised value.

A cash-out refinancing occurs when you borrow more than you owe on your existing mortgage. In this case, you are
often limited to borrowing no more than 75 to 80 percent of the appraised value of your property. Any excess proceeds
remaining after you've paid off an existing mortgage can be used in any way you see fit, but the best use might be
to pay off other outstanding high-interest debt, such as credit card debt.

Cash-out refinancing has certain advantages. The interest rate that you'll pay on the mortgage proceeds will
usually be less than the interest rate on the other debts (e.g., car loans, personal loans, credit cards, and even
some student loans). Moreover, the interest paid on your refinanced mortgage is generally tax deductible, whereas
the interest on consumer debt is not.

There are disadvantages to this approach, too. Your refinanced mortgage is secured by a lien on your home. If you
can't make the mortgage payments, the lender can foreclose on your home and sell it to pay the mortgage. Credit card
or automobile lenders can't take your house away in this fashion. Moreover, unless you're well disciplined, you
could pay off the high-interest (credit card) debt only to run it up again, further damaging your financial position.

If you're going to explore a cash-out refinancing, do it only if all of the following are true:

          Your savings make the refinancing worthwhile, even if it wouldn't give you the chance to repay other debt
          Your savings are "real," due to a lower interest rate or a shorter loan term, and not due solely to tax
           factors, since tax laws may change

          You're sure that you can afford the new monthly mortgage payment

          You trust yourself (and your spouse) not to run up the repaid debt again


Even if the rate on a new mortgage would be only slightly lower that what you've got now, refinancing is a good idea
if your savings will outweigh the costs of refinancing during the time you own the home. If you're unsure how much
longer you might live in a particular locale, use recouping your refinancing costs in five years or less as a good rule of
thumb.




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                     See disclaimer on final page


                                   May 06, 2008
Tax Benefits of Home Ownership

In tax lingo, your principal residence is the place where you legally reside. It's typically the place where you spend most
of your time, but several other factors are also relevant in determining your principal residence. Many of the tax
benefits associated with home ownership apply mainly to your principal residence--different rules apply to second
homes and investment properties. Here's what you need to know to make owning a home really pay off at tax time.

Deducting mortgage interest
One of the most important tax advantages of home ownership is the deduction of mortgage interest. If you
itemize deductions on Schedule A of your federal income tax return, you can generally deduct the qualified residence
interest that you pay on certain home mortgages taken on your principal residence. (This also applies to second
homes.) That is, you may be able to deduct the interest you've paid on a mortgage to buy, build, or improve your
home, provided that the loan is secured by your home. Such a mortgage is known as acquisition indebtedness by the
IRS. Your ability to deduct interest depends on several factors.

Up to $1 million of acquisition mortgage debt ($500,000 if you're married and file separately) qualifies for interest
deduction. (Different rules apply if you incurred the debt before October 14, 1987.) If your mortgage loan exceeds $1
million, some of the interest that you pay on the loan will not be deductible.

Although this deduction also applies to certain home equity loans secured by your home, the rules are different. Home
equity debt involves a loan secured by your main or second home that exceeds the outstanding mortgages on the
property. Home equity debt is limited to the lesser of:

          The fair market value of the home minus the total acquisition debt on that home, or

          $100,000 (or $50,000 if your filing status is married filing separately) for main and second homes
           combined


The interest that you pay on a qualifying home equity loan is generally deductible regardless of how you use the loan
proceeds. For more information, see IRS Publication 936.

Tax treatment of real estate taxes
Along with mortgage interest, you can generally deduct the real estate taxes that you've paid on your property in the
year that they're paid to the taxing authority. Only the legal property owner can deduct the real estate taxes. In some
cases, prepaid real estate taxes can be deducted in the year of the prepayment. Taxes placed in escrow but not yet
paid to the taxing authority, however, generally aren't deductible.

Note: Qualified mortgage insurance payments paid in 2007 through 2010 can be deducted in the same manner as
qualified mortgage interest, but only for mortgage insurance contracts issued on or after January 1, 2007 and before
January 1, 2011. In addition, the deduction is phased out if your adjusted gross income exceeds $100,000 ($50,000 if
married filing separate).

Tax treatment of home improvements and repairs
Home improvements and repairs are generally nondeductible. Improvements, though, can increase the tax basis of
your home (which in turn can lower your tax bite when you sell your home). Improvements add value to your home,
prolong its life, or adapt it to a new use. For example, the installation of a deck, a built-in swimming pool, or a second
bathroom would be considered an improvement. In contrast, a repair simply keeps your home in good operating
condition. Regular repairs and maintenance (e.g., repainting your house and fixing your gutters) are not considered
improvements and are not included in the tax basis of your home. However, if repairs are




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performed as part of an extensive remodeling of your home, the entire job may be considered an improvement.

If you make certain improvements to your home that improve your home's energy efficiency, you may be eligible for
one or more federal income tax credits.

Deducting points and closing costs
Buying a home is confusing enough without wondering how to handle the settlement charges at tax time. When you
take out a loan to buy a home, or when you refinance an existing loan on your home, you'll probably be charged
closing costs. These usually include points, as well as attorney's fees, recording fees, title search fees, appraisal
fees, and loan or document preparation and processing fees. You'll need to know whether you can deduct these fees
(in part or in full) on your federal income tax return, or whether they're simply added to the cost basis of your home.

Before we get to that, let's define one term. Points are costs that your lender charges when you take a loan secured
by your home. One point equals 1 percent of the loan amount borrowed. As a home buyer, you can deduct points
in the year that you buy your home if you itemize your deductions. However, you must meet certain requirements. You
can even deduct points that the seller pays for you. More infor mation about these requirements is available in
IRS Publication 936.
Refinanced loans are treated differently. The points that you pay on a refinanced loan generally must be
amortized over the life of the loan. In other words, you can deduct a certain portion of the points each year. There's
one exception: If part of the loan is used to make improvements to your principal residence, you can generally
deduct that portion of the points in the year that the points are paid.

And what about other closing costs? Generally, you cannot deduct these costs on your tax return. Instead, you
must adjust your tax basis (the cost, plus or minus certain factors) in your home. For example, if you're buying a
home, you'd increase your basis with certain closing costs. If you're selling a home, you'd decrease your amount
realized from the sale (i.e., your sale price). For more information, see IRS Publication 530.

Exclusion of capital gain when your house is sold
Now let's see what happens when you sell your home. If you sell your principal residence at a loss, you generally
can't deduct the loss on your tax return. If you sell your principal residence at a gain, however, you may be able to
exclude from taxation all or part of the capital gain.

Generally speaking, capital gain (or loss) on the sale of your principal residence equals the sale price minus your
adjusted basis in the property. Your adjusted basis is the cost of the property (i.e., what you paid for it initially), plus
amounts paid for capital improvements, less any depreciation and casualty losses claimed for tax purposes.

If you meet the requirements, you can exclude from federal income tax up to $250,000 ($500,000 if you're
married and file a joint return) of any capital gain that results from the sale of your principal residence, regardless of
your age. In general, an individual, or either spouse in a married couple, can use this exclusion only once every two
years. To qualify for the exclusion, you must have owned and used the home as your principal residence for a total
of two out of the five years before the sale.
For example, you and your spouse bought your home in 1981 for $200,000. You've lived in it ever since and file
joint federal income tax returns. You sold the house yesterday for $350,000. Your entire $150,000 gain ($350,000 -
$200,000) is excludable. That means that you don't have to report your home sale on your income tax return.

What if you fail to meet the two-out-of-five-years rule? Or what if you used the capital gain exclusion within the past
two years with respect to a different principal residence? You may still be able to exclude part of your gain if your home
sale was due to a change in place of employment, health reasons, or certain other unforeseen circumstances. In such
a case, exclusion of the gain may be prorated.
Additionally, special rules may apply in the following cases:




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          If your principal residence contained a home office or was otherwise used partially for business
           purposes

          If you sell vacant land adjacent to your principal residence

          If your principal residence is owned by a trust

          If you rented part of your principal residence to tenants

          If you owned your principal residence jointly with an unmarried taxpayer


Note: Members of the uniformed services and foreign service personnel may elect to suspend the running of the
2-out-of-5-year requirement during any period of qualified official extended duty up to a maximum of 10 years.

Consult a tax professional for details.




                                                                                                              May 06, 2008
May 06, 2008
  LQ Wealth Advisors                                                                                    Page 150 of 111


Opening the Door to Homeowners Insurance

Your home is your castle, so the saying goes. And you're going to want to protect it. Homeowners insurance can give
you just the protection you need. It provides coverage if your home is damaged or destroyed. It also covers your
family's possessions and provides you with compensation for liability claims, medical expenses, and other expenditures
that result from property damage and bodily injury suffered by others.

Why you need it
You may need homeowners insurance because your mortgage lender requires it. But even if you own your home
outright, you still need homeowners insurance to protect that which you can't afford to lose. It's really that simple. After
all, you've spent years building up a solid financial foundation for you and your family. Without homeowners insurance,
all of that hard work can go down the drain in a matter of minutes when, for example, a tornado
devastates your house, a burglar robs and vandalizes your home, your dog bites and severely injures your
neighbor, or your mail carrier slips on your front steps and breaks his leg.

Property coverage
The main purpose of homeowners insurance is to protect your home and other structures, like a shed or detached
garage. Your policy will cover not only the cost of the damage (the exact amount depends on your policy) but also
your living expenses (up to a limit) while you wait for your home to be repaired.

In addition to protecting your home, the typical homeowners policy covers your personal property, both on and off
premises. Your personal property consists of the contents inside your home (e.g., furniture, appliances, clothing,
jewelry) as well as outdoor items (e.g., sporting equipment, lawn tools). It's important to note that homeowners policies
set specific dollar limits for certain types of personal property (e.g., jewelry, coins).

Although policies vary, a typical homeowners policy provides coverage for damage to property caused by:

          Fire and lightning

          Windstorm and hail

          Explosions

          Theft or vandalism

          Vehicles

          Smoke

          Falling objects

          Weight of ice, snow, and sleet

          Freezing of plumbing, heating, or air conditioning system

          Riots


But be aware that homeowners insurance does not cover a wide variety of perils (e.g., flood, earthquake
damage). You may need to purchase an endorsement or separate insurance policy to ensure adequate coverage in
these instances.




                                                                                                     See disclaimer on final page
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LQ Wealth Advisors                                                                                 Page 105 of 111
When reimbursing you for a loss, insurance companies use one of two methods to determine the value of
property:

          Replacement cost: This pays you the cost of replacing damaged property, with no deduction for
           depreciation, but with a maximum dollar amount

          Actual cash value: This pays you an amount equal to the replacement value of damaged property
           minus a depreciation allowance


Keep in mind that before an insurance company reimburses you for a loss, you'll need to satisfy a deductible.

Liability coverage
In addition to insuring your property, the typical homeowners policy includes liability protection that provides coverage
for damages caused by your negligence. Medical payments to third parties and your legal costs for any lawsuits
brought against you are also included. Most homeowners policies provide a standard amount of liability coverage
(usually $100,000) per accident.

Purchasing homeowners insurance
Homeowners insurance policies are written individually, typically at the time you purchase a home or when you take
out a mortgage on a home. For the most part, you'll want to purchase enough property coverage to cover the
replacement cost of your home and its contents. The amount of liability coverage you'll need to purchase will depend
on the assets you would like to protect (e.g., home, car, investments).
The cost of homeowners insurance depends on the amount of your coverage, any endorsements you add to the
policy, and policy deductibles. But since premiums for similar policies vary from company to company, it pays to shop
around and compare rates.




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                     See disclaimer on final page


                                   May 06, 2008
  LQ Wealth Advisors                                                                                Page 153 of 111


Insuring a New Home During Construction

While the house of your dreams is being built, you should insure the structure and its contents. If you don't, you'll be
exposed to unnecessary risks like fire or adverse weather that could damage or destroy your partially completed
home. You should also protect yourself from liability by verifying that the people building your home carry proper
insurance coverage.

You can insure your new home during construction with a homeowners
policy
One way to protect your new home during construction is to purchase a standard homeowners policy. This will cover
any damage to your new house as it's being built. The time to insure your new home is before construction begins.
Although it may seem a little odd to buy insurance protection for a structure that's still in the blueprint stage,
remember that your house is vulnerable to damage during every phase of construction. For a time, you may need to
carry one homeowners policy for your new home and another for your old home.
There are temporary policies available that escalate the coverage amount as the construction progresses. Be
sure to purchase full homeowners coverage after the home is completed.

Liability and theft coverage are provided
A homeowners policy for your new house also provides you with liability coverage in case someone has a mishap while
visiting the new home site. For example, if one of your friends trips during a tour of your dream house, his or her
injuries may be covered.

In addition, your policy provides coverage for the theft of building supplies, such as carpets, lumber, and roofing
shingles (although your homeowners policy at your old house may also provide theft coverage at your new home).
Uninstalled finished products like ceiling fans and the kitchen sink, however, are generally covered by your
contractor's insurance.

Keep in mind that your policy will not cover your personal property at your new house until the building is secure and
lockable.

A dwelling and fire policy is another option
Another option apart from standard homeowners insurance is to purchase a dwelling and fire policy. This type of policy
can be purchased in comprehensive form, with property, liability, and theft coverage included. Or, you can buy a policy
that covers only damage to the physical structure of your new home. A dwelling and fire policy may be a wise choice
during construction of your new house if you have a standard homeowners policy on your old house that covers
liability and the theft of items at the construction site.

Workers' compensation coverage
Whenever a contractor or subcontractor steps onto your property to work on your house, you face the risk that
someone may get injured and hold you liable. You can protect yourself from a potential lawsuit by verifying that the
contractor and subcontractors have workers' compensation insurance. Ask to see proof. Get a copy of your contractor's
certificate of coverage for both workers' compensation and contractor's liability insurance (which covers
miscellaneous damage to your house by the contractor). All subcontractors should also make these documents
available. You would be wise to call your contractor's and all subcontractors' insurance carriers to verify the
information. Consult your insurance agent to be certain that the amount of workers' compensation is adequate and that
the certificates are active. All general contractors should carry proper coverage for their employees, but you may
need to extend the liability portion of your homeowners policy to cover underinsured subcontractors.




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  LQ Wealth Advisors                                                                                 Page 154 of 111


What if you're the boss?
Some do-it-yourself homeowners do most of the construction work on their homes by themselves, with a little help
from their friends and family members. Other owners act as the general contractor and hire subcontractors to do the
actual work. If you're building your own home, a homeowners policy covering the new home site will generally cover
any injuries incurred by your friends and family members. If you are the general contractor, you are required by the
laws of most states to carry a certain level of workers' compensation insurance to protect the people who build your
new house.

Re-evaluate your coverage when construction is complete
Once the building is complete, you should re-evaluate your homeowners insurance coverage. If you opted for
dwelling and fire coverage, you will need to purchase a full homeowners policy. If you bought standard
homeowners insurance, make sure that you have purchased the right amount, especially if you have made
alterations to the original building plan. For instance, if you added an extra bathroom, you'll probably need to raise
the amount of your coverage.




                                                                                                   See disclaimer on final page
                                                                                                                  May 06, 2008
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                             May 06, 2008
  LQ Wealth Advisors                                                                                 Page 156 of 111


Insuring a Condo or Co-Op

Insuring a condo or co-op is a little different from insuring a typical home because you don't own the entire
building. Usually, two policies are involved: the master policy provided by the condo association or co-op board, and
your individual policy, which is typically written on a standard homeowners form, known as Form HO-6. If you know what
the master policy covers and purchase individual coverage to fill in the gaps, you should have the protection you need.

The master policy
The common areas you share with other owners should be covered by a master policy. These areas usually
include the roof, stairways, elevators, and basement. Check the condo or co-op documents to be sure. If physical damage
occurs to these areas, the repairs are covered under the master policy's provisions. The master policy also offers
protection for liability incurred in the common areas. This means that if your guest or another person suffers a bodily
injury while in a common area, the insurance company will step in to defend you and the other unit owners in the
event of a lawsuit.
Make sure that the master policy provides broad coverage. A cheap policy may save you and your fellow residents
some money in the short term but may prove disastrous if the coverage is too limited. The condo association or
co-op board should be able to provide you with the appropriate documents that explain the coverage. If the coverage
appears inadequate, take steps to ensure that the association or board purchases a comprehensive policy.

Additional coverage for improvements
It is important for you to know exactly what the master policy covers in order for you to purchase appropriate
individual coverage for your unit and its contents. For instance, the master policy may cover individual units as they
were originally built, but not improvements you have made to your property. You may need to buy an endorsement
to cover any additions and improvements. A typical personal condo or co-op policy covers your personal property
and other property, including private balconies, private entranceways, private garages, and other property that is
your insurance coverage responsibility under your condo or co-op agreement.

What your personal policy will and will not cover
Although the liability coverage on Form HO-6 is similar to that found in other homeowners policies, the property
coverage is less comprehensive than that under the HO-3 form. This policy covers only the physical damage to
your property and possessions caused by named perils specifically identified in the policy. These perils include fire,
lightning, storm, explosion, riot, aircraft, smoke, vandalism, theft, broken glass, and volcanic eruption, to
name a few. Review the perils covered by your policy, and remember that you may have the option to purchase
coverage to protect you against additional perils. Certain perils specifically not covered are listed in the exclusions
section of your policy. These typically include damage due to enforcement of building codes, earthquakes, flooding,
power failures, neglect, war, nuclear hazard, or intentional acts.

The dwelling policy alternative
You might be able to save money on personal condo or co-op coverage by purchasing a dwelling policy rather than
a homeowners policy. Some comprehensive dwelling policies provide full coverage for property, liability, and theft. With
others, you only need to buy the property coverage portion of the policy. This can save you money on your premium
payments, but be certain your condo association or co-op board provides a strong master policy.




                                                                                                   See disclaimer on final page
                                                                                                                  May 06, 2008
LQ Wealth Advisors     Page 157 of 111




                     See disclaimer on final page


                                   May 06, 2008
  LQ Wealth Advisors                                                                                Page 158 of 111


Loss assessment
Check your personal policy and pay particular attention to the paragraph titled Loss Assessment. This paragraph
entitles you to collect up to $1 ,000 for loss assessments charged to you by the condo or co-op association. Loss
assessments typically result from losses suffered by the condominium or co-op as a whole, such as damage to a
roof that is not covered by the master policy at all or is subject to a large deductible. These uninsured damages
are then passed through to all unit owners.

Loss settlement
Your policy will specify the amounts you can recover in the event of a loss. Depending on the provisions of your
personal policy, your insurance company may pay the total replacement cost of your property, which would allow you
to replace or repair your lost or damaged items. Or, you may receive only the actual cash value (ACV) of your
property, which is generally the current fair market value or the property's purchase price minus depreciation.
Your settlement will almost always be less under the ACV method. Also, certain property items are assigned a specific
dollar value for loss purposes, no matter what its age or condition. Loss settlement is always subject to the coverage
limits described in your policy.

Read your policy before making a claim
To qualify for payment from your insurance company, you must meet the conditions spelled out in your
homeowners policy. Some conditions dictate your responsibilities before a loss occurs, and some dictate the actions
you must take after the loss to remain eligible for coverage. Read your policy carefully to familiarize yourself with
your responsibilities. If you need assistance, consult your agent to go over the details in your policy. Be sure you use
an agent who is knowledgeable about condo and co-op policies.

Coordination of benefits under the master policy and personal policy
When a loss is covered by both the condominium's or co-op's master insurance policy and your individual policy,
your homeowners insurance will pay only for the balance of the loss that remains after the master insurance
policy pays 100 percent of its limit.




                                                                                                  See disclaimer on final page
                                                                                                                 May 06, 2008
LQ Wealth Advisors    Page 159 of 111




                     May 06, 2008
  LQ Wealth Advisors                                                                                   Page 160 of 111


Insuring Your Vacation Home

Vacation homes require a special type of insurance--one that protects your vacation home but doesn't overlap with
your already existing homeowners insurance coverage. Here are some things to consider when insuring your vacation
home.

What is covered under your primary residence's homeowners insurance?
Most homeowners insurance policies provide limited coverage for personal property at an additional residence.
However, if your coverage needs for your vacation home exceed this amount, you're going to want to fill this gap by
purchasing a policy that will cover your vacation home in its entirety. One way to do this is to purchase a dwelling fire
policy.

What is a dwelling fire policy?
A dwelling fire policy is specially designed for a second home in that it provides coverage for the dwelling itself, along
with your personal property. There are three types of dwelling fire policies:

          Standard form: This covers the building and contents from the perils of fire and lightning, and the
           removal of property from the dangers of fire and lightning

          Broad form: This covers your property from the above perils, plus windstorm, hail, explosion, riot and civil
           commotion, damage by aircraft or by vehicle, and smoke

          All-risk form: This covers the property from damage for all perils that are not specifically excluded on the
           policy


Just like your primary homeowners insurance policy, coverage for certain types of personal property may be
limited (e.g., jewelry, money).

What about liability insurance?
Your primary residence's homeowners policy will provide liability coverage for you at your vacation home. In fact, it
will provide liability coverage for you anywhere in the world. However, if you need more liability coverage, you may
want to either increase the limits on your primary residence's policy or purchase an umbrella policy.

How much does it cost?
A dwelling fire policy is usually less expensive than your primary residence's homeowners insurance since it usually
doesn't carry liability insurance. However, if your vacation home is located in a high-risk area (e.g., coastline,
mountainside), if you rent your vacation home to others, or if you don't spend a lot of time there, your premiums may be
higher. The good news is that you can usually save on your premiums by insuring your vacation home with the
same company that provides coverage for your primary residence.
A vacation home is a wonderful luxury. As with any home, it's important that your investment is properly protected
with the right insurance. Consult your insurance agent if you have any questions regarding the type of coverage that
you have or to determine if your liability coverage is sufficient.




                                                                                                     See disclaimer on final page
                                                                                                                    May 06, 2008
                                                                                                             Page 111 of 111




 LQ Wealth Advisors                 Neither Forefield Inc. nor Forefield Advisor provides legal, taxation, or
Wealth Advisory Team                investment advice. All content provided by Forefield is protected by
             Ray Sims               copyright. Forefield claims no liability for any modifications to its content
           6960 Drake               and/or information provided by other sources.
 Cincinnati, OH 45243
        513-985-3400
  lifequestinstitute@cinci.rr.com




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