The recent downfall of the real estate market has caused many homeowners to be concerned as they watch their home's value plunge in a matter of months.

For some homeowners, obtaining a home equity protection plan may be just what they need to help with the anxiety gainst declines in the value of their home.  EquityLock Financial, based in Austin, Texas is a company that offers such protection.

Here's how it works: For a fee of 1% to 3% of their home's value, homeowners buy a contract that protects them against the loss of equity in their home if the market takes a turn for the worse. While this should not be confused with an insurance policy, this particular coverage will reimburse the homeowner when if they happen to sell their home in a market where average home prices have dropped since their purchase. The amount they receive is typically measured by one of two home price indexes (both of which are based on sales of single-family homes).

This coverage is not for everyone, one factor to consider is how long you plan to live in your home. Although home prices can fluctuate in the short term, they tend to hold steady and increase over longer periods. So for short-term homeowners-those who plan to be in the home for less than 10 years, it might make more sense.

Payment terms for this coverage vary with each company, but many require that the fee which ranges from 1 to 3% of the purchase price (or of the current value if you already own a home) be paid upfront. Be sure to ask about any lockout period which could prevent you from collecting payment before a set time. As with any protection policy, it is important to do your research and consider the costs versus the coverage. 
 

Most homeowners have insurance, but it is not until a disaster strikes they realize they don't have enough insurance to rebuild their home or to cover the loss. According to a survey by insurance-services firm MSB, Nationwide, 68% of homeowners are underinsured.  

So how do you know if you have enough coverage? Trying to figure out the right amounts of insurance coverage can be frustrating and confusing. To make the process more difficult, it may be hard to get the correct advice from your insurance company or agent. For example, many victims of Hurricane Katrina said their agents had told them they didn't need flood insurance when, clearly, they did. Courts ruled that insurers didn't have to pay for damage caused by flooding.

One way to ensure that you have adequate coverage is to use web tools to estimate replacement costs. One such service is AccuCoverage, this service charges $7.95 and walks you through a questionnaire that usually takes 20 to 30 minutes to complete. Compare the estimate with your policy limits. You'll find them on the declarations page of your policy. If your insurer can't explain discrepancies to your satisfaction, start shopping for another insurer.

If you are in area that is at high risk for disasters such as hurricanes or earthquakes, be sure to get the addition coverage as floods and earthquakes aren't covered by your homeowners insurance. Unless you're prepared to walk away from your home after a disaster, you need to consider such coverage.

Check your "loss of use." Homeowner policies typically provide money to pay your rent and related living expenses while your home is being rebuilt.  If the amount offered wouldn't cover you for two full years you may want to consider a higher limit..

Be sure to get "replacement cost," not "actual cash value." It's not just rebuilding coverage that falls short. Many policies restrict how much money you'd get to replace your belongings and may limit or even exclude some common household items from your policy. If you have a policy that pays out actual cash value on your home's contents, for example, you'd get a check for what your possessions were worth when they were destroyed, not what they would cost to replace.

It does come down to this, to be sure you're adequately covered  you will need to do a detailed household inventory, writing down all of your possessions and what they would cost to replace. ALso be sure you do your do diligence and read your policy from front to back and ask your agent if you have any questions of if you feel uncomfortable in any way.

A new set of future changes to the FHA loan program has been announced by the Federal Housing Administration (FHA). These changes are aimed to strengthen the FHA’s capital reserves, while enabling the agency to continue to fulfill its mission to provide access to homeownership for underserved communities. The agency hopes that these changes will help the FHA in a better position to manage its risk while continuing to support the nation’s housing market recovery.

The rising defaults on FHA loans have led to the FHA’s cash reserves falling below federally mandated levels.  FHA officials hope that policy changes will ensure borrowers have a stronger equity position and are less likely to default.

Some of the new policy changes include:

• Raising the up-front mortgage insurance premium: The premium will rise to 2.25 percent from its current 1.75 percent.  HUD is expected to release a Mortgagee Letter on Jan. 21 making the premium increase effective in the spring.
• Raising the minimum credit score requirements: New borrowers will be required to have a minimum FICO score of 580 to qualify for the FHA’s 3.5 percent down payment program.  New borrowers with less than a 580 FICO score will be required to put down at least 10 percent.  FHA expects this to take effect in early summer after it goes through the normal regulatory process.
• Reduce allowable seller concessions:  The agency is lowering the maximum permissible level to 3 percent from its current 6 percent limit.  FHA expects this to take effect in early summer after it goes through the normal regulatory process.

In addition to the proposed changes,the FHA is continuing to review its overall response to housing market conditions, and continuing to evaluate its mortgage insurance underwriting standards and its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward.

We are now in a buyers market, with historical low interest rates, a full inventory of homes to choose from  and rock bottom home prices. However, even with all of the advantages, many potential homebuyers are still questioning whether or not they should continue renting or go ahead an purchase a home and take advantage of the current market.

Everyone has a different situation so it is important to evaluate what is best for you. Some questions to ask yourself are:

• Do you think you're ready to move into the world of homeownership?
• Does your job require you to relocate frequently?
• Are you ready to "settle down" and raise a family? Not sure what you want to do yet?

So should you rent or should you buy? The Our Family Place Home Buyer's Information Center lists some of the pros and cons noted below, and I've added some of my own:

Buying Advantages:

* You gain equity in your home through mortgage payments.
* Your home could be one of the best long-term investments you will ever make.
* You can decorate and remodel the way you want.
* You get homeowner tax breaks.
* You build your credit standing.
* You can improve your property using home equity loans.
* You gain independence and pride as a homeowner.
* You can transfer your property through your will.

Buying Disadvantages:

* Your costs are variable.
* Your equity may change due to market conditions.
* You usually must sell your home to move.
* You handle maintenance and upkeep.
* You usually need more cash to get in.

Renting Advantages:

* Your costs are fixed for the term of your rental.
* You don't lose equity.
* You can move at the end of your lease term.
* You have fewer maintenance worries.
* You need less cash to get in.

Renting Disadvantages:

* You never get equity.
* You can't always decorate or remodel the way you want.
* You don't get any tax breaks.
* Your lease is for a limited time period determined by your landlord.
* Your rent may go up at the end of your lease and other terms may change.
* Your landlord may not fix problems or invest in routine property maintenance.
* You normally can't transfer your lease without the landlord's OK.
* You may face eviction if you and your landlord have a dispute.

There are many of variables to consider, and you'll need to do your homework to decide what's right for you. Please be in touch if you have any questions. I am always available to assist potential buyers debating the "rent v. buy" decision.

Tax time is here as as you prepare your return, you may qualify for a tax deduction.  Have you recently moved or relocated  to a new home as a result of a new job or job transfer? If so you may qualify for a tax deduction to help with some of the costs associated with a move. Below are some of the requirements so you can see if you qualify for this tax credit.

• The distance between the old home and the new job must be at least 50 miles 
• If you move within a year of taking the job at the new location
• If you work full-time for at least 39 weeks (the total is 78 weeks if you are self-employed)
• If you do not meet the time test in the year for which you are filing a return, you can still deduct your moving expenses if you expect to meet the time test within the current or succeeding year.

According to a recent article from Forbes, the Washington, DC and the Northern Virginia area were on the list of the 'Top Ten cities To Go From Renting To Buying.' This list labeled 10 US metro areas where the condition are favorable for potential homebuyers to make the jump to homeownership.

Now is the time to buy a home, with the recent extended tax credit for first time homebuyers, historically low interest rates and home prices. Forbes also wanted to pinpoint markets where home buying is a smart investment, so they factored in the five-year forecast in the S&P/Case-Shiller Home Price Index from Moody's.  The 10 cities on their list have some of the biggest discounts on the premium to buy coupled with big projected increases in home prices over the next five years.

This article also looked at local statistics, such as the local job market. In Washington, D.C., government jobs are plentiful, and anticipated to stay that way. The 6.1% unemployment rate here is well below the national average, which is partly why Moody's anticipates a five-year jump in home prices of 15%. And, at the moment, the premium to buy is 20 percentage points lower than its usual 57%. Click here to view more statistics on the Washington-Arlington, Alexandria, D.C. area.

The article indicated that the premium to buy--the spread between what you'd spend on renting and what you'd pay each month for a mortgage--is far narrower now than its 15-year average. And economists predict a significant home-price hike in five years. Potential home buyers are likely to get a good return on their investment.