Reuters Money

Turn home into a winter wonderland, reap profit later?

Want to kick up your feet no matter how hard the cold weather kicks its heels? With winter on the way, we examine luxury renovations ideal for cocooning. Judge for yourself whether they’re worth a set of blueprints and a stack of greenbacks.

Item: Home theater system

Why you want it: Screening movies in your own theater — complete with rump-shaking sound and a larger-than-life picture — can bring out the Hollywood mogul in anyone. Cost: Estimates vary widely, but figure a minimum of $5,000 for a high-end setup that includes 7.1 Dolby Digital surround sound, at least seven speakers and a subwoofer, amplifiers and a 73-inch rear projection TV that can reproduce 3D and HDTV images. Rich Conklin, a principal engineer with Grand Home Automation in Grand Rapids, says the company’s “Signature Series” surround systems range from $15,000 to $30,000. Value: A survey conducted by Axiom Home Theaters in Dwight, Ontario, Canada found that a 375-square-foot home theater can add $15,000 to $25,000 to a house priced between $150,000 and $350,000. (Those figures apply to both U.S. and Canadian dollars.) However, this is one asset you can take with you to a new home, as many of the components are portable. Did you know?: Music engineer/producer Jeremy Kipnis designed a home theater system that reportedly cost more that $6 million, and incorporates three dozen-plus speakers and a motion-picture screen measuring 18 x 10 feet.

Item: Heated driveway

Why you want it: Who wants to shovel during a snowstorm when you can flick a switch and melt the white stuff away? Cost: About $1,500 to outfit 100 square feet of driveway with radiant heating elements and controls, according to Warmup United States of Danbury, Connecticut. Heated Driveway Systems, a division of Warmzone in Salt Lake City, Utah, estimates operating costs at 28 cents per 100 square feet per hour. Value: A $2,000 investment in a heated driveway equals of 80 man-hours of shoveling, if you paid two local kids $25 each to shovel your driveway for an hour. Did you know?: In some cases, heated driveway systems can reduce the cost of homeowner’s insurance due to reduced risk of accidents from walking on slippery property.

If you want lower property tax rates, you’ve got to ask

For years, the mantra of American homeownership was to count on home appreciation. Every year like clockwork the value went up and houses were a  growing source of wealth.

Now, more than three years after the housing market imploded, the tune is different. It may make sense for you to prove that your home’s value has dropped so you can file for reduced property taxes.

This is the time of the year when local assessors send out notices of your home’s assessed value. Note, however, that this is not your real market value. It’s a base value that’s used to calculate your property taxes. If you want to reduce your real estate taxes, start with paring your assessed value.

You have a reasonably good chance of winning a challenge to your assessed valuation. It’s estimated that some 60 percent of residential properties are over-assessed, although only a handful of home owners appeal, according to the National Taxpayers Union.

As someone who’s volunteered with a local non-profit in Northeastern Illinois on property tax issues, I know it’s worth fighting assessments every year. Sometimes I win, sometimes I lose. If you feel that your assessment is too high, there are many ways to challenge it, but it takes some homework and diligence.

You can always start by checking the property record of your home, which is on file with the assessor. Does it have the correct number of bathrooms and bedrooms? Is the total living space correct? Does it list a finished basement in error? You can fix any incorrect data by either allowing the assessor to inspect your home or by submitting an approved builder’s drawing or survey.

Although you can dispute the assessed market value of your home with your assessor, it’s not an easy task since you may need at least three comparable homes in your neighborhood with lower values.

Why household debt reduction could jumpstart economy

If we could move beyond the housing crisis, where would we find the seeds of a broad-based turnaround?

Right now most of the country is anguished over the slack job market and global economic uncertainty. Almost half of U.S. homeowners are feeling house poor. That is, most folks can’t get their wealth out of their homes or even put a realistic price tag on it. They may even be stuck in a house that’s worth less than its mortgaged value.

This morass has led to a massive liquidity and consumer psychology malaise. Is there a way out? Yet there are signs that the clouds are parting.

Ingo Winzer, president of Local Market Monitor, a real estate information service, says he is seeing indications that lower consumer debt and increased spending may lead to an uptick.

“After 28 straight months of pulling back on the reins, consumers have finally found a level of debt that feels good enough to allow more spending to flow,” Winzer surmises.

“During those 28 months, the level of consumer debt per person — let’s leave mortgages out of this — fell 13 percent, from $8,600 to $7,500. During the last recession with a real estate crash, 20 years ago, consumer debt dropped 14 percent.”

Yet what about all of those millions of homes on the market, the unresolved foreclosure mess and an economy that isn’t really creating any new jobs?

What new jumbo mortgage rules mean for expensive zip codes

On Oct. 1, the size of mortgages eligible for purchase by Fannie Mae and Freddie Mac will shrink. That isn’t necessarily a big deal in most parts of the country; the new lower limit of $625,500 — down from today’s $729,750 — still is big enough to cover most homes in almost all markets in the United States.

Furthermore, mortgage bankers are stepping up with new money to cover those bigger loans, reports Mortgage Daily. “Programs here and there are popping up,” says publisher Sam Garcia. He reports that some new lenders, including TMS Funding and New Penn Financial LLC, are launching programs that will make mortgages as big as $2 million available to lenders with good credit scores and enough cash to keep up with the payments. And many existing mortgage lenders currently will make those so-called “jumbo” loans and just keep them in their portfolios instead of selling them.

But those loans will cost more. Currently the difference between rates on so-called conforming loans and private-made loans is about 0.64 percent. Over the last two years that spread has been as low as 0.48 percent and higher than one percent, says Garcia.

So in some pricey places, the new limits will really pinch borrowers. Those limits vary from market to market and are determined in part by local housing prices. In expensive housing markets where prices have fallen, the limits will drop the most. Hardest to be hit, according to a new analysis by Move.com, will be San Diego, where loans up until $697,500 qualify for Fannie and Freddie until Sept. 30. On Oct. 1, that limit drops to $546,250, a $151,250 difference.

Folks there who want to borrow a bunch for a home will see their costs rise significantly. A San Diego homebuyer who needs $600,000 would pay $2,937 a month for a 30-year loan at today’s rate of 4.18 percent, according to Bankrate.com. Starting next month, if rates stay stable and that borrower goes to a private lender, he would pay $3,155 a month. That’s $228 more a month, or $82,080 more over 30 years.

Some buyers (and lenders) may try to get around that by piggy-backing loans; piling a smaller non-conforming loan onto a conforming loan.

Here are some other areas, most often searched on Realtor.com, that could see significant changes in their loan limits, according to the Move analysis.

Six investment scams to avoid

Money is a powerful lure. Pretty much everyone wants more of it, and a whole lot of people want to get theirs by taking it from others. Investors are typically more savvy, but they’re targets nonetheless.

The North American Securities Administrators Association (NASAA) put together its annual list of “tricks and traps” for investors to avoid. For most, due diligence and skepticism is what stands between the investor and the scam.

Here are some of the scams to watch out for so you’re better prepared if one comes your way.

Real estate The beaten-down real estate market, with its abundant opportunities for real investors, has also spurred a growth in schemes tied to distressed properties. Earlier this year, Lawrence R. Hamel was convicted in federal court in Florida of a conspiracy that took $2.3 million from 39 investors around the country who thought their money was going to refurbish distressed properties that would then be sold for a profit. Authorities say Hamel didn’t buy properties and used the money from later investors to pay earlier investors in a Ponzi scheme.

Energy These scams are connected to the time-honored lure of buying into the big rewards that come with investing in oil and gas reserves. “Investors must realize the distinct possibility that they could lose their total investment in legitimate ventures. Energy investments tend to be poor alternatives for those planning for retirement and should be avoided by anyone who cannot afford to strike out when trying to strike it rich,” the NASAA warns.

Gold As the price of gold has risen, so has the temptation to get a piece of the action. That’s a powerful draw for a scam. There are a couple of variations in this arena, the NASAA says. One offers investors a chance to buy into a mine that had been closed with the promise of getting all their money back plus interest. Another involves marketing coins or nuggets that supposedly have a superior return. This summer, the operator of the Lake Worth, Florida-based Gold Bullion Exchange was accused of defrauding more than 1,400 investors of more than $25 million. Jamie Campany allegedly got investors to buy under a variation of margin financing, and collected commission and fees but never bought any bullion.

Promissory notes On the face of it, these seem like a good investment. After all, it’s on paper that you’re going to get a fat return on your investment. “Unregistered promissory notes are often covers for Ponzi schemes and other scams,” NASAA warns. Investors should check with their state regulator to determine whether a promissory note and the seller/borrower are properly registered. Former FBI agent Cary Alan Burdette pleaded guilty this summer to using promissory notes in a scheme that brought in more than $4 million.

Scam artists abound after Irene: How to keep your money dry

There is something about disasters that brings out the best in people — and the worst. Along with the Red Cross and National Guard, scam artists mobilize, too. They see opportunity in people’s misfortune.

“You’ve already been victimized by Mother Nature; don’t be victimized by an unscrupulous contractor,” cautioned Barbara Anthony, who heads Massachusetts’ Office of Consumer Affairs and Business Regulation. “People are vulnerable when they’ve been dealt a blow by a hurricane or a tornado.”

For those who have to deal with the aftermath of Hurricane Irene or know someone who does, beware the scams that are out there already or are certainly on their way. Even if you weren’t affected, but you just want to help, no worries, you’re a target, too.

In fact, post-disaster scams targeting people who want to be charitable got so bad in the aftermath of Hurricane Katrina that the federal government created the National Center for Disaster Fraud has a hotline just for reporting them: (866) 720-5721 or disaster@leo.gov.

Governors and attorneys general in just about every state that felt the brunt of Irene have issued warnings.

“Con artists pretending to be government officials have tried to steal personal information and money following other disasters,” North Carolina Attorney General Roy Cooper said, issuing a warning about con artists posing as government disaster aid officials.

Two of the most common ways storm victims are targeted relate to fixing storm-related damage: Home repairs and tree removal.

Earthquakes, hurricanes and smart insurance moves

What a week: An earthquake gave the East Coast a jolt and now a hurricane is bearing down.

No one’s immune. Virgin Atlantic mogul Richard Branson’s compound on Necker Island in the British Virgin Islands was destroyed by fire this week after being struck by a Hurricane Irene-connected lightning bolt.

And, according to The Chubb Group of Insurance Companies, lightning can strike twice. So there’s no such thing as being too prepared.

Given that the weather is in motion, it’s time to deal with most folks’ biggest investment — their homes. So, whether you’re going to hunker down or be evacuated, batten down the hatches.

The questions you should be asking, according to Scott Spencer, senior vice president and worldwide appraisal and loss prevention manager for Chubb Personal Insurance, are: “Where are you going to go? What are going to take with you? And how you are going to secure your property?

If you have the time, check your policy to see what coverage you have for evacuation. Spencer said some policies (Chubb’s do) cover hotel costs when you have to flee for your own safety.

He suggests leaving behind fragile items — things more likely to damaged in transit — and move them to an interior location with some degree of protection from potential wind and water entering the home. “You shouldn’t take with you your fine arts. I wouldn’t recommend you take your priciest art work with you as you go down I-95.”

High-end renovations on the back burner as economy wanes?

In 2008, Ron DeFore had dreams of putting his 3,000-square-foot basement to good use — think swank home theater system, game room, a couple of extra bedrooms — but then the global financial system went to hell in a handbasket.

“I haven’t thought of doing that [renovation] since 2008 for financial reasons,” says DeFore. Between 2001 and 2004, DeFore sunk roughly $500,000 into his 11,000-square-foot, Washington-area home, which he purchased for $1.1 million 10 years ago.

Before the crash, his property was valued at approximately $1.9 million. But a recent appraisal during a refinancing revealed his home was now valued at $1.3 million. “We’ve probably over-built for the neighborhood, which is a high-end neighborhood — nothing less than five-acre estates with pools and tennis courts,” he says.

DeFore is one of a growing list of homeowners delaying renovations, thanks to an anemic economic recovery. Spending on home improvement dipped in the second quarter of this year, with the National Association of Home Builders’ (NAHB) Remodeling Market Index falling from 46.5 in the first quarter to 43.9 in the second.

The remodeling market is expected to remain weak through 2012, with renovation spending projected to be down four percent through the first quarter of next year, according to the Leading Indicator of Remodeling Activity (LIRA) released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University.

“I think that largely has to do with the broader economy and what’s going on in the housing market,” says Kermit Baker, director of the Remodeling and Futures program. “Housing prices looked like they were recovering and then fell again, and that’s pretty critical for remodeling. It’s difficult for a home owner to take on a home improvement project if they’re not convinced that home prices are stable.”

And as the economy continues to stall, shoppers are also avoiding the aisles of home improvement stores. Earlier this month, consumer sentiment plummeted to its lowest level in three decades, helping to cripple the outlook for building-supply stores like Lowes. The home-improvement chain reported weaker-than-expected quarterly sales earlier this week and cut its fiscal outlook.

Just got a mortgage? Beware of the junk mail

Buying a new home (or refinancing your old one) comes with a typically unwelcome peril: a deluge of junk mail.

While some of the attempts will be obvious scams to separate you from your money, there will be some offers that might a bit less obvious. They can take the form of something very official-looking or contain language that makes it appear as though your mortgage-holder is the sender.

A homeowner’s mortgage information is easy to find through public sources. Some entities sell that information to outfits that then target homeowners. The information can then be used to lend credibility when attempting to extract upfront fees. That’s usually not clear from reading the mailings. There often will only be a tiny disclaimer at the bottom disavowing a connection to the lender cited  in the mailing.

Here’s some of the language from one mailing that keeps making the rounds in slightly varying forms:

“Bank of America realizes that sometimes things happen that are out of your control which can keep you from meeting your most important financial obligations … We would like to discuss your current loan situation to determine if you qualify for one of the Bank of America workout options … We have reviewed your property information and have determined that you may be eligible to modify the current terms of your mortgage.”

As much as the mailing, which resembles a W-2 form, appears to be connected to Bank of America, it isn’t. The Massachusetts Office of Consumer Affairs and Business Regulation said it recently heard from one consumer who bit on the offer and ended up spending $3,000 and received nothing in return.

“Consumers should run, not walk, away from these mailed offers,” said Barbara Anthony, who runs the office. “These companies cannot do anything beyond what a homeowner can do for herself, and in many cases they take a consumer’s money and personal information and do absolutely nothing.”

Time to refinance? How low can mortgage rates go?

Mark Sass and his wife Jan decided to refinance the mortgage on their Cincinnati, Ohio, home on Friday, just days before the Federal Reserve pledged to keep rates near historic lows through the first half of 2013.

“I knew the Fed statement was coming out and rates had dropped to historically low levels, and it just seemed like an opportune time. I hadn’t even thought about it until then,” says Sass, who owns his own marketing research company.

Their original mortgage had a 20-year amortization period — at a 4.875 percent rate — with 12 years remaining. They are rolling it over into a 10-year mortgage with a 3.5 percent rate. “I was able to knock a couple of years off the term with a very modest increase in the monthly payment,” Sass says. “It seemed like a no-brainer to me.”

Sass and his wife are both 55, so retirement is on the horizon. “The opportunity to look 10 years out and know that – unless things change – we won’t have a mortgage when we retire looked like a smart decision,” Sass says, adding the overall savings on interest by reducing his term will be in the neighborhood of $20,000.

Sass is one of many jumping on the refinance bandwagon in the wake of the current financial crisis. Mortgage applications shot up 21.7 percent for the week ending Aug.5, according to the Mortgage Bankers Association Market Composite Index. The spike was largely driven by a 30.4 percent jump in the group’s refinancing index.

“In a few years, these rates will be a memory that people talk about at cocktail parties. Just like when our parents talked about how low interest rates were when they bought their homes,” says Dan Nigro, principal at Warfield Consultants in Montclair, New Jersey. “These are the kind of levels that people should lock in for the long term and it certainly is what the government has in mind.”

But the question remains: With the average rate on a 30-year fixed mortgage hovering just below 4.5 percent – the lowest levels for 2011 according to LendingTree.com – should consumers jump to refinance or buy a new home? Or should they wait for a new bottom?