Why we should politicize the Newtown school shooting, starting right now

Two events, each more than a century old, instruct us about how we should act in the face of what happened Friday in Newtown, Conn.
On March 25, 1911, fire broke out in the Triangle Shirtwaist Factory in lower Manhattan. Because the owners had locked the doors and stairwells, in an effort to prevent theft and unauthorized work breaks, the garment workers were trapped in the fire; 146 of them, almost all young female immigrants, died.
In the wake of the disaster, New York politicians–including future Gov. Al Smith and future Sen. Robert Wagner–“exploited the tragedy.” How? By helping push through a series of reforms that made New York state a model of workplace safety.
Little more than a year later, on April 15, 1912, the unsinkable ocean liner Titanic struck an iceberg and sank, taking 1,522 passengers and crew members to their deaths. After the disaster, regulators and public officials “exploited the tragedy.” How? By insisting that ships carry enough lifeboats for all passengers (the Titanic, operating under then-current rules, had barely enough for half); by insisting that ships man their radios 24 hours a day; by better designs of hulls and bulkheads.
A shocking event is exactly the right time to start, or restart, an argument about public policy. A story like the Newtown killings rivets our attention, forces it to the front of our consciousness, insists that we sweep aside the thousand and one distractions that compete for our brain space, and demands that we ask: Is this how we want things to be, and, if not, what do we do about it?
Consider a more recent example. On March 7, 1965, voting rights demonstrators on a march in Alabama from Selma to Montgomery were met by a phalanx of state troopers at the Edmund Pettis Bridge. They met the marchers with fists and billy clubs. A week later, President Lyndon B. Johnson spoke to a joint session of Congress. He made no apologies for “politicizing the tragedy.” Instead, he said:
“At times, history and fate meet at a single time in a single place to shape a turning point in man's unending search for freedom. So it was at Lexington and Concord. So it was a century ago at Appomattox. So it was last week in Selma, Ala.”
The speech—which borrowed the famous assertion that “we shall overcome”—propelled the Voting Rights Act into reality and effectively ended 100 years of state-sanctioned repression.
What those images from Selma did—as the images of police dogs and fire hoses in Birmingham had done in May of 1963—was to make real what for most of us had been an abstraction. The images said, This is what it means to be black in Alabama and seek the most elemental of civil rights.
What happened in Newtown, I think, was very much the same story. The day after the shooting, I was with my grandson at his elementary school’s book fair; I would wager that every parent, every teacher, every school staff member there looked at the kids, with their painted faces and their fists filled with cookies, and thought: This could happen to them. Those same thoughts were going through the minds of every parent dropping a child off at school on Monday, I imagine.
This is why the words of President Barack Obama on Sunday struck such a responsive chord. But it must not be forgotten that in the days, months and years before Newtown, the president has been something less than a profile in courage on the gun question. His response to a question on assault weapons during October’s town hall debate with Mitt Romney is best described as craven: “What I’m trying to do is to get a broader conversation about how do we reduce the violence generally,” Obama said in part. “Part of it is seeing if we can get an assault weapons ban reintroduced. But part of it is also looking at other sources of the violence.”
You can understand the thinking: I can’t get a bill through Congress, it’s a waste of political capital, there are lots of Democrats who hunt and shoot in Ohio. But it does not change the fact that the triumph of the gun lobby has been a bipartisan affair. To be fair, Republicans have been at the forefront of a never-ending effort at the state and federal level to permit guns of all sorts at all sort of venues, from schools to national parks. Before Newtown, it was only a matter of time before some zealot proposed letting citizens purchase Predator drones with Hellfire missiles.
The culture of hunting, and the legitimate case for self-protection, have too often been brushed aside by advocates of restricting gun ownership. But when a Second Amendment stalwart like Sen. Joe Manchin of West Virginia endorses a national commission on gun violence and tweets, "This awful massacre has changed where we go from here. Our conversation should move beyond dialogue," you know the Newtown murders can act as a hinge moment.
Newtown forces us to look at the consequences of decisions–or indecision–squarely, unflinchingly. It forces us to ask ourselves, “What do we do in the face of this new evidence?” That is as far from exploitation as you can get.
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A memory of Robert Bork: A bracing, imaginative teacher

Robert Bork, who died today, will be best-remembered for two things: First, he was the solicitor general who, the night of the 1973 "Saturday NIght Massacre", obeyed Richard Nixon's directive to fire Archibald Cox, the Watergate special prosecutor, when Attorney General Eliot Richardson refused to do so. Second, he was rejected by the Senate after President Ronald Reagan nominated him to the Supreme Court; the Democratic majority considered his constitutional views to be outside the mainstream.

I have another memory: He was a professor at the Yale Law School. In that capacity, he was as bracing a figure as a student could hope to find.

Without question Bork was out of the mainstream of the Yale Law School in the mid-1960s, when I was a student there. He was possibly the only member of the faculty to support Barry Goldwater for president. But that made him exactly the right person to teach, and to challenge, the assumptions of an overwhelmingly liberal group of students. I still remember the last question he posed to his first year constitutional law class: "Write a dissenting opinion in Brown v. Board of Education,” the Court's 1954 opinion that outlawed racial segregation in public schools.

Was this evidence of Bork's Neanderthal views on civil rights? I thought (and still think) otherwise. He was asking students to wrestle with legal concepts on which the opinion itself--which was unanimous--cast no light. He was asking us to go beyond our own convictions, and to think imaginatively. And yes, I'm sure there was an element of puckishness as well.

That same spirit was on display in a seminar Bork conducted, along with another legendary Yale law professor, Alexander Bickel. We spent weeks arguing--or, rather, listening to Bork and Bickel argue--about a single hypothetical case. A group of passengers flee a sinking ship for a lifeboat on which there is one passenger too many. A very wealthy passenger offers a deal to an impoverished crew member: Give up your seat to me and I will ensure your family financial security for generations. The question: Should American courts allow that contract to be enforced?

In the years after his Supreme Court rejection, Bork became a dyspeptic, partisan figure. On this day, I choose to remember him as a teacher who succeeded in the single most important job: He taught us how to think.
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5 important facts and misconceptions about Asperger's syndrome

Crucial info about the developmental disorder that reportedly afflicted the alleged shooter in the Newtown massacre — and has been linked, incorrectly, to violent tendencies
We have a natural, if often regrettable, tendency to fear the things we don't understand. In the aftermath of the Newtown shootings that claimed the lives of 20 young children, the blogosphere seized on unconfirmed reports that the alleged shooter, Adam Lanza, was once diagnosed with Asperger's syndrome, and the term rocketed up Google's search charts. A controversial first-person essay titled "I am Lanza's mother," which illustrated a mother's fear of violence from her own Asperger's-afflicted son, was widely distributed by websites ranging from Gawker to the Huffington Post, garnering millions of pageviews and inciting bloggers everywhere to weigh in (some more successfully than others). But what do we really know about the developmental disorder, which was hastily conflated with Sandy Hook's bloodshed. Five facts and misconceptions:
1. Asperger's is considered a form of autism, but differs in a few key ways
The National Institutes of Health (NIH) defines Asperger's syndrome, first identified in 1944, as an "autism spectrum disorder (ASD), one of a distinct group of complex disorders characterized by social impairment, communication difficulties, and restrictive, repetitive, and stereotyped patterns of behavior." Recent revisions to the Diagnostic and Statistic Manual (DSM-5) have merged Asperger's syndrome with autism, says Dr. Manny Alvarez at Fox News. However, one of the main differences is that Asperger's does not typically involve a speech delay, and autistic symptoms are typically less severe. Individuals with Asperger's often have strong language skills, "but their speech patterns may be unusual, and they may not pick up on subtleties such as humor or sarcasm." Sometimes Asperger's is referred to as "high-functioning autism." It shouldn't, under any circumstances, be confused with a mental illness like clinical depression.
2. We still have no idea what causes it
The root of Asperger's, like autism, is largely a mystery. Current research suggests it's connected to early developmental changes in brain structure, which may be caused by "abnormal migration of embryonic cells during fetal development" that "rewires" a person during early childhood, according to the NIH.
3. Asperger's individuals can be remarkably intelligent
People with Asperger's typically have an "unusual preoccupation" with very specific subject matter. "Basically, you get an individual who might have a real restricted repertoire of things they are interested in," Henry Roane, a specialist in the treatment of behavior disorders, tells ABC News, and that's why individuals with Asperger's often get bored easily or shy away from socializing. In fact, what separates Asperger's from many other forms of ASD is that individuals often demonstrate normal or above-normal levels of intelligence, and often perform well academically. For example, in a 2007 study measuring fluid problem-solving abilities, 17 children with Asperger's scored much higher than their age- and sex-matched peers.
4. The diagnosed often self-alienate
Individuals growing up with Asperger's often shy away from human contact, which can kick off a vicious cycle of social alienation. "Today, if you met me, you would think I'm a bit odd but you wouldn't guess that I have Asperger's," says an affected individual in a first-person iReport on CNN. "Because we alienate ourselves at first, and then society alienates us, we have no good reason to seek out friendships other than the basic human need to belong. It is unsurprising to me that many with Autism and Asperger's alienate themselves by choice." He continues: "We want what anyone in their right mind wants: We want to be loved. And we are stubborn people."
5. The connection between Asperger's syndrome and violence is misleading
Autism expert Dr. Ami Klin of the Emory University School of Medicine says that the link that's been drawn between the Newtown shootings and Asperger's is "an enormous disservice" to those affected by developmental disorders. "Any human condition can coexist with violence," but no correlation should be drawn, he tells New York Times public editor Margaret Sullivan. Now, experts are speaking out, saying that the carefully calculated attack carried out in Sandy Hook last Friday is out of character for someone suffering from Asberger's. "I have known a lot of people with Asperger's and I have never known one who is violent," Dr. Travis Thompson at the University of Minnesota tells NBC News. "They have a lot of problems with anxiety and they have problems with relationships with other people too but that doesn't translate into violence. When they are little kids, they have tantrums because they don't know what to do and they feel adults don’t understand them. When they become older they develop mechanisms and since they are usually very verbal they can ask questions."
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President Obama's gun-violence task force: A cop-out?

Some gun-control advocates are displeased that Obama isn't taking immediate action
President Obama on Wednesday launched a gun-violence task force, led by Vice President Joe Biden, that will be charged with offering recommendations by January on how to prevent massacres like the mass shooting in Newtown, Connecticut. "The fact that this problem is complex can no longer be an excuse for doing nothing," Obama said. "The fact that we can't prevent every act of violence doesn't mean we can't steadily reduce the violence and prevent the very worst violence." Furthermore, Obama called on Congress to vote on several measures that a "majority of Americans support," including a ban on assault weapons and high-capacity ammunition clips, as well as background checks for all prospective gun buyers.
It was Obama's most explicit call for gun control since the Newton tragedy, and represented the first time that a sitting president has even discussed the issue with any seriousness for years. But the creation of another presidential commission — the place where good ideas die before they even get to the mass graveyard of Congress — looked a lot like a classic political dodge. Obama, well aware of the sketchy reputation of task forces and the like, even went so far as to say that his Washington commission "is not some Washington commission."
So is the gun-violence task force a copout? "Appointing a task force on guns seems a little mealy-mouthed to me," says Michael Tomasky at The Daily Beast:
Obama's style is to be deliberative, gather evidence. It's a lot better than shooting from the hip on general principle. But sometimes there's a public mood out just waiting to be caught and exploited before it dissipates and before the opponents can confuse and redirect it.
Right now, there is an opportunity to make a very simple and straightforward statement: We need far, far tougher regulations on the kinds of guns that exist only to kill large numbers of human beings very quickly, and the ammunition that goes in them.
Well, of course the task force "will undoubtedly frustrate many in [the Democratic] party who want immediate action," says Byron York at The Washington Examiner:
Obama's move will likely dissipate the energy behind gun control advocacy on Capitol Hill. It's unlikely that even the most pro-gun-control Democrats would want to get out in front of the Biden Commission and pass specific measures. And the political world, and the emotional intensity behind the gun issue, could be quite different even a month from now. So Obama is stopping Democratic momentum, and he knows it. Republicans know it, too.
However, some liberals are more optimistic. Obama's action "demonstrates what presidential leadership on this issue is supposed to look like," says Greg Sargent at The Washington Post:
Obama didn't take refuge in generalities; he staked out very specific policy goals that need to be achieved. He voiced support for banning the sale of military style assault weapons and high capacity magazine clips, and for requiring background checks before "all" gun purchases… He tasked his Vice President to draw up ways to accomplish these goals, and also called for a Congressional vote on them in January. That means Obama understands the need not to let public sentiment dissipate on the issue, and for a specific time frame for legislative action.
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What the dark side of Saturn looks like

NASA's Cassini spacecraft captures the gas giant from an unusual angle, making for one haunting photograph
Thanks to a rare set of circumstances not unlike a solar eclipse here on Earth, NASA's Cassini spacecraft was able to capture this photograph of Saturn on Oct. 17, 2012, during the craft's 174th orbit around the gigantic ringed planet. Noticeably missing is Saturn's signature brownish orange hue; what the camera captures instead is an expansive, ominous shadow that highlights the gas giant's rings. NASA calls the newly released snapshot a "splendor seldom seen," adding that the "very scientifically advantageous and coveted viewing position... [reveals] details about both the rings and atmosphere that cannot be seen in lower solar phase." "Absolutely remarkable," says Robert T. Gonzalez at io9. We tend to agree.
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Rate on 30-year mortgage ticks up to 4 percent

WASHINGTON (AP) — The average rate on the 30-year mortgage stayed hovered above the record low for a third straight week. But cheap mortgage rates have done little to boost home sales or refinancing.

Freddie Mac said Thursday that the rate on the 30-year loan ticked up to 4 percent from 3.99 percent. Six weeks ago, it dropped to a record low of 3.94 percent, according to the National Bureau of Economic Research.

The average rate on the 15-year fixed mortgage rose to 3.31 percent from 3.30 percent. Six weeks ago, it hit a record low of 3.26 percent.

Rates have been below 5 percent for all but two weeks this year. Yet this year could be the worst for home sales in 14 years.

Mortgage applications fell 10 percent this week from the previous week, according to the Mortgage Bankers Association.

High unemployment and scant wage gains have made it harder for many people to qualify for loans. Many Americans don't want to sink money into a home that could lose value over the next three to four years. And most homeowners who can afford to refinance already have.

The low rates have caused a modest boom in refinancing, but that benefit might be wearing off. Most people who can afford to refinance have already locked in rates below 5 percent. Refinancing fell 12.2 percent last week, according to the mortgage bankers group.

The average rates don't include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fees for the 30-year and 15-year fixed mortgages were unchanged at 0.7.

The average rate on the five-year adjustable loan fell to 2.97 percent from 2.98 percent. The average rate on the one-year adjustable loan increased to 2.98 percent from 2.95 percent.

The average fees on the five-year and one-year adjustable loans were both unchanged at 0.6.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country Monday through Wednesday of each week.

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Rate on 30-year mortgage ticks up to 4 pct.

WASHINGTON (AP) — The average rate on the 30-year mortgage stayed hovered above the record low for a third straight week. But cheap mortgage rates have done little to boost home sales or refinancing.

Freddie Mac said Thursday that the rate on the 30-year loan ticked up to 4 percent from 3.99 percent. Six weeks ago, it dropped to a record low of 3.94 percent, according to the National Bureau of Economic Research.

The average rate on the 15-year fixed mortgage rose to 3.31 percent from 3.30 percent. Six weeks ago, it hit a record low of 3.26 percent.

Rates have been below 5 percent for all but two weeks this year. Yet this year could be the worst for home sales in 14 years.

Mortgage applications fell 10 percent this week from the previous week, according to the Mortgage Bankers Association.

High unemployment and scant wage gains have made it harder for many people to qualify for loans. Many Americans don't want to sink money into a home that could lose value over the next three to four years. And most homeowners who can afford to refinance already have.

The low rates have caused a modest boom in refinancing, but that benefit might be wearing off. Most people who can afford to refinance have already locked in rates below 5 percent. Refinancing fell 12.2 percent last week, according to the mortgage bankers group.

The average rates don't include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fees for the 30-year and 15-year fixed mortgages were unchanged at 0.7.

The average rate on the five-year adjustable loan fell to 2.97 percent from 2.98 percent. The average rate on the one-year adjustable loan increased to 2.98 percent from 2.95 percent.

The average fees on the five-year and one-year adjustable loans were both unchanged at 0.6.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country Monday through Wednesday of each week.

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Celebrity, Inc.

What can four drunk airplane passengers, first time parents, and a delightful new book called Celebrity, Inc. do for your wallet?

Plenty.

Let me start with the drunks and new parents. Monday night I boarded a very delayed flight from Houston to Los Angeles. Behind me were four 20/30-somethings boisterously swigging from "coffee" cups. (Our gate was across from a Cantina and you could practically smell the tequila in their paper cups.)

As the boarding continued they grew increasingly animated. Their frenetic energy seemed to wind up not just each other but everyone around them. Fellow passengers were visibly agitated.

Just before the plane doors closed, a young couple came on with a sleeping baby. The last two open seats were amongst this motley crew.

Suddenly, everything changed.

The presence of the earnest and exhausted parents had an immediate calming effect on both the inebriated passengers and those around them. It was as if a mirror had been placed in the center of the plane to remind us all of our humanity.

Enter, Jo Piazza's delicious new book, Celebrity, Inc: how famous people make money.

To me, this book is the figurative version of the newborn's parents getting on the plane. It serves as a mirror reflecting back the reality what's in the "coffee" cups of the celebrity scene.

That got me wondering what other financial lessons the author of Celebrity, Inc. might have stumbled across while writing this fascinating book. Thankfully, Jo Piazza was willing to share with us...

Q: Of the celebrities you profile in Celebrity, Inc. whose money attitude were you most impressed with and why?

Jo: Despite current controversy I was completely impressed with the Kardashian's money attitude and their work ethic. I have never met a celebrity crew who works so hard to maintain their brand. I don't necessarily agree with the massive amounts they are paid to do what they do, but unlike a lot of celebs they truly do work for it. And beyond that they manage their money well. They budget, they funnel funds back into new projects, they try not to spend excessively and they do donate a portion of their income to charity each year.

(2) What surprised you the most about the money habits you observed during your Celebrity, Inc. research?

Jo:  So many of the people I talked to over-spent their budgets on a consistent basis even though they were making crazy amounts of money. Spencer Pratt told me he and Heidi Montag pulled in about $10 million in 4 years but because they thought it would keep coming at the same rate they blew through it all. That's a common thread I found with a lot of celebs. They're making so much but they're spending just as quickly. They buy $5 million houses and spend half a million on a security detail and they rarely save a dime. I just don't think they realize the shelf life of fame is shorter than ever and they may not be famous tomorrow.

(3) What personal finance lessons do you think the rest of us can take away from the way famous people live their lives?

Jo: Budgeting for a rainy day is the best thing we can learn from celebrities in terms of personal finance. I saw so many cases of celebs who thought it would last forever and then forever came up really... quick.

I was inspired by the extent to which celebs expand their personal brands. Tim McGraw went from country singer to fragrance king. When Valerie Bertinelli's career as an actress seemed like it was over she reinvented herself through a weight loss campaign. I don't think we see these instances of celeb entrepreneurship as inspiring enough and I truly think they should be a lesson in taking chances, building a new business and making lemonade out of lemons.

In many ways our celebrity culture is like a group of chaotic drunk people. It lurches rapidly from one topic and fad to the next. In the heat of the excitement money can feel like no object. But the financial hangover of being, or trying to emulate, that lifestyle can result in a serious financial crash.
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The Benefits Of Buying A Home With Cash

When a 62-year-old financial advisor bought a two-bedroom Manhattan  co-op recently, he showed up at the closing with a check for the full $970,000 purchase price. No mortgage? “The money I had in cash was sitting getting 0% interest,’’ explains the man, who asked not to be named. “It made absolutely no sense to borrow.”

There were other benefits as well to buying for cash, he says. He figures he got a “liquidity discount” for being able to close quickly—the asking price had been $1.05 million. And he avoided the hassles and paperwork that come with getting a mortgage these days. At the closing, he gloats, “they spent more time making photocopies than anything, so we sat discussing Broadway plays.”

Similar closing scenes are playing out across the country these days—minus the theater chitchat. Rates for 30-year fixed mortgages are hovering at 4%, and 15-year fixed loans can be had for 3.5% or less, the lowest in more than 50 years. Yet the National Association of Realtors ­estimates that roughly 30% of U.S. home buyers are now making their purchases 100% in cash, compared with 15% in 2008.

Some cash buyers are foreigners, who have never easily qualified for U.S. mortgages. Some are very-high-net-worth folks who have long favored cash for their multimillion-dollar trophy mansion purchases. The increase in cash buying comes mainly from two other groups: real estate investors, who nowadays rarely qualify for mortgages at all, and older buyers (like the New York financial advisor) who could qualify for mortgages but don’t want to.

In foreclosure-plagued Florida, where prices in some areas are down 55% from the peak, investors and ­snowbirds bearing cash dominate the market. Charlie Brasington is chief executive of Hoffman Development Group, which since 2008 has been using cash from private investors to buy distressed Tampa- and Palm Beach-area condo buildings from banks. Hoffman fixes the properties up and then sells the units to end users. Brasington reports two-thirds of the roughly 300 units Hoffman has sold so far have gone for cash, as have all eight of the $1 million-plus penthouses it has moved.

“These people probably have $5 million or more, so to take 10% of it out and buy a quality home in Florida and know that you’ve got your stake in the sand, that may be a good investment,” Brasington says. “Your cash is not ­making money in a CD, that’s for sure, and in the stock market there’s volatility. In real estate, sure, you may have some downward trend still, but there’s not that volatility anymore.”

A sales pitch? Sure. But recent cash buyers make similar points, and signs abound that Florida prices may have bottomed. If you’re considering a cash purchase, here are some pointers.

Cash buyers often get a discount

“Until recently I’d say sellers didn’t care that the buyer was coming in all cash or financed, they just wanted the highest number. Now the game has changed,’’ says Tracie Hamersley, a senior vice president at Citi Habitats, a New York City-based realty firm. “While banks are lending again, it is much more onerous, and there are many hoops to jump through. So someone who can close in cash can in most cases qualify for somewhat of a price discount based on that sureness of a sale.”

That cash-is-king phenomenon is being reported by Realtors across the country. “It’s like all of a sudden ­having this four-star gold status,” says Karen Bergin of Coldwell Banker Advantage in Overland Park, Kans., who has represented three baby boomer cash buyers so far this year. One of her clients, a couple selling their western Kansas farm to relocate to the Kansas City area, even managed to secure an extended closing period while they awaited a buyer for their farm.

Closing costs are lower with cash

Cash buyers can also save on closing costs. You don’t have to fork over money to pay a bank attorney for the mortgage. This is an expense that can run $750 and up (although it can be wise to retain your own lawyer). You don’t have to put real estate taxes in escrow up front nor pay the estimated $300 to $600 for a mortgage application plus additional thousands in loan origination fees and assorted junk charges. And you aren’t required to cough up $400 to $600 for an appraisal, which mortgage lenders insist upon, or, in a growing number of cases, multiple appraisals. (The ­multiple appraisal requirement is popping up in foreclosure-riddled areas where nondistressed homes have few sales to be compared against.)

Should you get an appraisal anyway? Most Realtors still strongly recommend one, in addition to a home ­inspection, to ensure you aren’t overpaying or buying hidden structural problems. But if it’s clear you’ve negotiated a good price, an appraisal may not be an imperative.

Another expense that will drop: title insurance, which offers protection against problems with the chain of ownership and preexisting claims like unpaid property taxes or liens placed by stiffed contractors. On a $600,000 house with a 20% down payment, title charges, which include researching local land records, can easily top $2,000. But roughly one-third of that is for coverage that protects only lenders (which, of course, they mandate you get and pay for). Cash-only buyers don’t have lenders, so there’s an immediate savings right there. Indeed, as a cash buyer, it’s up to you whether you want title insurance at all. Realtors say it’s a prudent add-on.

Getting a mortgage is not guaranteed

No matter how good your credit, if you haven’t gotten a mortgage in a while, you could be in for a shock. Even if your finances pass muster, the lender will likely pull the funding if the required home appraisal doesn’t reach the price you’ve agreed to pay. That’s the biggest issue hampering home sales this year, says Jed Smith, a managing director at the National Association of Realtors, which tracks sales data. (Some Realtors gripe that gun-shy ­appraisers are low-balling property values.)

The mortgage approval process also takes longer these days—an average of 45 days, up from 30 in 2008, according to online mortgage supermarket LendingTree.

Here’s another factor to be aware of. The maximum size for “conforming” government-backed loans—those carrying the lowest rates with a traditional 20% down payment—was reduced in October. In highest-cost jurisdictions, such as New York City, Bergen County, N.J. and Los Angeles, the maximum is now $625,500, down from $729,750. Most everywhere else the maximum is now $417,000, down from $443,750. Those taking larger nonconforming loans generally must pay a 0.5% higher rate, put 30% down and meet even tougher credit standards.

On the other hand, if you are a cash buyer, all these mortgage difficulties are to your benefit, since they could wipe out other potential bidders who do need a loan. (If you’re paying cash, make a bid that doesn’t have a mortgage contingency—and stress that point to the seller.)

You’re giving up a tax break—now

Interest on up to $1.1 million in mortgage principal originally used to buy, build or improve a first (and second) home is currently tax-deductible.  But if you later borrow against your equity for anything other than home improvements (say, for college tuition) your deduction is far more limited. In that case, interest on only the first $100,000 of home-equity borrowing is deductible, and even that isn’t allowed when you’re calculating whether you owe more under the dreaded alternative minimum tax. (You might be stuck in the AMT if you pay high state and local taxes and earn between $200,000 and $500,000.)

Keep in mind that this is all under current law. There’s been lots of talk in Washington about a tax reform that might lower tax rates while curbing tax breaks, including the mortgage interest deduction.

Even without a mortgage you get two other tax breaks from owning a primary residence. First, when you sell, the initial $500,000 in capital gains profit per couple ($250,000 for a single) isn’t taxed. Second, you’re getting a tax-free economic return on your investment in the form of free rent for all your years of residency.

Cheap money is relative

With rates so low, why not take out a mortgage and use your spare cash to invest? That’s an attractive option, but only if you believe your aftertax return on that investment will be greater than your aftertax cost for the mortgage, says James Maule, a Villanova Law School professor who specializes in taxes. He explains, “It depends on where you think your cash will make the most money or be the safest investment.”

Finally, don’t let the mortgage question obscure the bigger issue. Since you can always rent, is buying a house in the market you’re looking at a good investment? That depends on whether prices have bottomed (or are close to bottom) and how high local rents are.

Remember that New York financial advisor who paid cash for his ­co-op? Here’s a little insight into how this longtime renter decided the time was finally right to buy.

He figures the apartment he bought would rent for $5,000 a month or $60,000 a year, a 6% yield on his $970,000 investment. But he pays the co-op corporation $2,540 a month, or $30,480 a year, in maintenance charges to cover things like building operating expenses, property taxes and debt service on the building’s own borrowings. If he itemizes he gets to deduct his share of those tax and interest bills. So he reckons he’s still getting a 3% yield on his $970,000 investment, compared with the 2% that U.S. Trea­sury bonds are paying.

That assumes no appreciation of the apartment—and he does expect some. After falling roughly 23% from their 2008 peak, Manhattan co-op prices have been showing signs of a revival. Moreover, rents there are rising fast, up 7% in the year through October, according to Citi Habitats.

All in all, a sound use of money he’d otherwise have sitting in cash. Not that he intends to rent out the apartment, mind you. He and his wife plan to enjoy their new home, particularly the five walk-in closets, a coveted amenity in the cramped quarters of Manhattan.
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How to Buy a Home Without 20% Down

With housing prices and mortgage rates still near historic lows, now could be a great time to become a homeowner. I recently talked to a caller on our Financial Helpline who had a great credit score and could afford the mortgage payment for the home value she wanted since it would be about the same as her current rent. (In many parts of the country, it's actually cheaper to buy than to rent right now.)

There was one problem though. The traditional down payment is 20% of the home value but she only had enough to put down about 10% and was worried about missing years of building equity if she tried to save up the rest over time. If you're in a similar situation, here are some thing to consider:

You Need More Than the Down Payment

Keep in mind that you'll also probably have to pay at least some closing costs, which are generally about 2% of the price of the home. You'll also want to have an emergency fund with at least 3-6 months and ideally 6-12 months of necessary expenses. That's because the last thing you want is to lose your home to a foreclosure if an unexpected emergency makes it difficult to pay the mortgage.

An Insured Mortgage

You might be able to put down less than 20% by having your mortgage insured against default. One way to do that is with a government guaranteed mortgage. For example, the FHA loan program uses more lenient credit criteria than traditional mortgages, requires only a 3.5% down payment, and has the seller pay most of the closing costs.

Sounds pretty good, huh? Of course, there are costs to this. First, to qualify you typically need 2 years of steady employment with a stable or increasing income, a minimum credit score of 620 with no more than 2 30-day late payments over the last 2 years, no bankruptcies in the last 2 years, no foreclosures in the last 3 years, and a mortgage payment no more than about 30% of your gross pre-tax income. Second, there are limits on how much you can borrow based on where you live. Finally, you have to pay a premium of up to 1% of the loan amount at closing (it can be rolled into your mortgage but that would increase your monthly payments) and a monthly premium of up to .9% of the loan amount each year.

VA loans are another type of government guaranteed mortgage but only veterans on active duty in World War II and later periods are eligible. The loan limits are determined by the lender but generally max out at $417k except in certain high-cost counties. No down payment is usually required at all and there are no monthly premiums. However, there is a one-time funding fee of up to 2.4% that is reduced based on the size of your down payment.

Alternatively, you can get private mortgage insurance. The premiums can vary but are reduced the more you put down. The best part is that unlike with the government programs, the premiums can disappear altogether once you have 20% equity in your home, whether by you paying down the loan, the property rising in value, or (hopefully) both.

Confused? Don't worry about it. Your mortgage lender can help you decide which programs you qualify for and which one might be most beneficial for your situation.

Piggyback Loans

In this scenario, you would get 2 loans. One would cover 80% of the home value and the other "piggyback loan" would cover the rest minus your down payment. The advantage is that you can avoid paying for mortgage insurance with less than 20% down. The disadvantage is that the piggyback loan has a higher interest rate and often has a "balloon payment" at the end. This is a final payment that's considerably larger than your normal payments so be sure to save up for it if you're going to keep the loan that long.

Using Your Retirement Accounts

Finally, there are several ways you can use retirement funds for a down payment. If you have an IRA, you can withdraw up to $10k penalty-free to purchase a home if you haven't owned one in the last 2 years. This is a lifetime limit for the total of all your IRAs so only use it if you must. If it's a Roth IRA, the earnings can also be withdrawn tax-free if the account has been open for at least 5 years (the contributions can always be withdrawn tax and penalty free). Otherwise, the withdrawals could be taxable.

If you have a retirement plan at work, you may be able to take a hardship withdrawal or a loan. A hardship withdrawal doesn't have to be paid back but it's taxable and subject to a 10% penalty if you're under age 59 1/2. A loan isn't taxable but must be paid back with interest. The good news is that the interest goes back into your account and the payments for a loan used to buy a home can often be spread over a longer time period than a regular loan.

The real cost of using your retirement accounts isn't the taxes or interest you pay but that those funds aren't growing for your retirement. The more aggressively you're invested, the greater that opportunity cost is likely to be. On the other hand, you have to weigh that against the value that owning a home can add as an asset that you can later sell or borrow against to help provide for your retirement.
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