The cost vs. benefit of buying a new-build home

You have to admit that the real estate industry is way out in front of the auto industry when it comes to marketing lingo.

The latter, for instance, gives us a choice between “new” and “used” cars while the former offers new and “existing” homes.

Unless we’re contemplating buying a priceless antique, it’s safe to say that most of us prefer new to used, whether it’s cars or homes.

In fact, a 2014 Harris Poll survey found that 41 percent of Americans prefer a newly-built home.

Can you blame them? You won’t get that “new car smell” in an old beater any more than you’ll get the satisfaction of knowing that nothing in a new home has ever been touched or used by anyone else. No grease on the appliances, smudges on the walls or pet or kid odor in the carpet.

It all boils down, like many things in life, to how much we can afford to spend. For instance, remember that survey I mentioned earlier?

The 41 percent of Americans who would prefer a new home over an existing one went on to claim that they weren’t willing to pay the extra money required to buy a new home.

Now, notice I said “buy” one; it’s not necessarily more expensive to own a new home but may be more expensive to purchase one. I’ll clear up that confusion in a minute.

Price considerations

Most of the homebuyers that we have worked with have one overriding concern when looking at homes: The price.

As a general rule, you’ll pay more for a newly-built home than you will if you buy an existing home.

Nationwide, for example, the median price of a newly-constructed home was $330,800 in the third quarter of 2019 according to the U.S. Census Bureau.

The median price of an existing home was $274,000. That’s a $56,800 difference, which is slightly more than the so-called 20 percent “new home premium.”

Keep in mind that the list price of the new homes is for the basic model and doesn’t include upgrades, which can cause the price to rise significantly.

One final note when it comes to the price of a new home: Negotiating on the price, an option when you purchase an existing home, is typically not an option available to you when you purchase new construction.

Ongoing costs

A mortgage payment is comprised of the loan’s principal, interest, property taxes and homeowner insurance. While all aspects of the payment should be considered when purchasing a home, we’ll take a look at the two most significant.

Property taxes

Taxes levied on an older home are typically lower than those for a new home. But, that doesn’t tell the whole story because for the first year to two years, taxes on a new home may be significantly lower.

Why? Because current-year taxes are based on the value of a home as of January of the previous year.

For example, if a home was completed in June 2020, the taxes for the property will be based on its value in January 2019. Most likely, at that time, there was no home, just a dirt lot. So, for the remainder of 2020, the homeowner would pay property taxes based on the value of a plot of dirt.

In 2021, the homeowner will pay taxes on the home’s value as of January 2020. Remember, the home wasn’t completed until June, so the property’s value was still quite low, ensuring another year of low property taxes.

This difference can be significant, possibly saving the new homeowner up to $250 a month for up to two years. We aren’t tax professionals, though, so this is an issue to run by your accountant.

Insurance

Consider that fourth “leg” of the mortgage payment — insurance. The new home definitely wins when it comes to homeowner insurance, generally being less expensive to insure.

The primary reason for this is that, with newer and more cost-effective building methods, new homes cost less to rebuild or repair.

There are additional factors to consider, however. These include:

  • The home’s location – homes built in areas with weather risks (floods, wildfires, etc.) will cost more to insure than new homes located outside these areas.
  • Proximity to a fire department – insurance rates are typically less for homes located in close proximity to a local fire station.

Maintenance

No, home maintenance costs aren’t a part of a monthly mortgage payment, but they do factor in to comparing the cost of owning a newly-built home vs. an existing home.

Although new homes can have problems, many builders offer a home warranty. As a general rule, you can plan on almost a decade of repair-free ownership when you purchase a newly-built home.

One aspect of the new-home purchase not often addressed is the home’s energy efficiency – a true money saver over the purchase of an existing home.

New homes are built with newer, better insulation and energy-efficient windows, for example. This significantly cuts the cost of heating and cooling the home.

As homes age, the need to repair things happen more frequently. This is why older homes in a managed community, such as townhomes and condos, typically have higher HOA fees.

There are a number of other benefits to purchasing a newly-constructed home, including that you can choose the floorplan that best fits your family’s lifestyle, you can choose the location within a neighborhood and, if you can afford it, you can choose upgraded features for the home.

If you’re interested in viewing newly constructed homes, reach out to us. We’re happy to help you avoid some of the more common pitfalls in the process.

Yes, you can over-improve a house and lose value in the process

It’s one thing to hope your house is the nicest on the block and another thing entirely to own the nicest home on the block. And, the latter isn’t what you should aim for when preparing the home to sell.

Sounds crazy, doesn’t it?

Not when you know how the market value of a home is determined. In a nutshell, your home is worth what a willing buyer will pay for it. Now, this isn’t necessarily what they offer you for the home.

The proof of what a buyer is willing to pay is what he or she actually pays. It’s what homes like yours have sold for in the recent past.

The reality is that if you make improvements to the home that bring the value to more than the neighborhood average, your home might not sell.

Would you pay $500,000 in a neighborhood of $200,000 homes?

Even individual rooms can be overimproved and return zilch on your investment

The two rooms Americans choose to renovate most often are the kitchen and bathroom. If you plan on joining them, ensure that you’re doing it for your enjoyment and not to add value to the home. Because, depending on the surrounding homes, it may not.

If you plan on moving soon, and the rooms need minimal work, go for it. Otherwise, “Save the million-dollar kitchen for a million-dollar home,” warns Katie Severance, co-author of “The Complete Idiot’s Guide to Selling Your Home.”

Even if you aren’t planning on moving in the near future, some renovations will haunt you when the time comes that you want or need to sell.

Take the couple who decided that a walk-in closet was more important than a bedroom. So, they converted the small bedroom adjacent to the master into the dream closet.

Which changed his home from four bedrooms to three in a neighborhood of four- and five-bedroom homes – a value killer.

The opposite holds true under certain conditions. Adding square footage would seem to be a good thing, right?

And, it typically is, unless you add a room so large that it eats up the backyard or unless that excess square footage figure swamps that of neighboring homes.

Call us before you make improvements

Before one hammer hits one nail, you should know the current market value of your home and that’s something we can help you with.

It’s a free service, and we offer it to you regardless of whether or not you plan on selling your home soon.

Once you’re clear on its present value, you’re better able to determine which improvements will give you the best return on your dollar and which might put you over the top when it comes time to sell.

If the improvements you want to make are for your own use, and you plan on staying in the home for the long-run, then go for it. If, on the other hand, you’re hoping to improve your home’s value, be careful. Remember:

The most expensive home in the neighborhood often intimidates homebuyers.

Maintaining your home is far more important than upgrading it. That said, if you’ve kept up the home and it needs cosmetic upgrades, we suggest making them.

 

Your handy real estate glossary

Once you enter the realm of real estate, whether buying or selling, you’ll hear a lot of language that may sound foreign.

Keep this decoder handy – you’ll most likely need to refer to it often in the beginning.

A

Addendum – Any time a change is made in the original purchase contract the party that makes the change must submit an addendum to the other party. Some of the changes that may be made include an extension of the closing date, additional time for inspections or changes in the purchase price to reflect the seller’s payment for repairs.

Appraisal – The buyer’s lender will have the house appraised by a professional appraiser to determine its current market value. This ensures the lender that it is lending the appropriate amount of money for the home.

C

Closing costs – An umbrella term for the fees paid at closing. These include lender charges, the down payment and others.

Closing disclosure – A five-page document detailing the exact terms of a mortgage, provided by the lender, by law. The borrower is entitled to receive this form no later than three days before closing. It includes, among other items, the fees required to close (closing costs).

CMA (Comparative Market Analysis) – A CMA is the determination of the home’s value by a real estate agent and is used to determine a fair asking price. It is similar to the appraisal but does not take the place of it.

Comps – Short for comparables, it describes homes that have sold within the last six months, typically within one mile of a subject property. Real estate agents and appraisers study comps to determine a home’s current market value.

Contingency – When certain conditions must be met before the buyer is locked into the contract the buyer’s agent will insert these conditions into the contract. Common contingencies include those for the sale of the buyer’s home, the successful procurement of financing at certain terms and inspections.

Contingency Release — When the contingency requirements are met, both parties to the transaction will be asked to sign a contingency release form to acknowledge that fact.

Counteroffer – If you are not in agreement with the price or terms of the buyer’s offer we’ll file a form known as a counteroffer, eliminating or changing the parts of the offer to which you don’t agree.

D

Debt-to-income ratio – You may hear this referred to as your “DTI.” It is a ratio of a borrower’s debts to his or her gross income.

Deed – A document used for the transfer of real property.

Disclosures – Full disclosure is the seller’s most important duty. Not only is it required by law, but it protects you as well as the seller.

Down payment – A percentage of the purchase price paid to the lender, typically at closing.

E

Earnest Money Deposit – Often 1 percent of the purchase price, the earnest money deposit is to show your good faith in following through on the purchase. The funds are held by either the escrow company or the broker’s trust account and applied to the purchase at closing.

Escrow – Escrow is a process that ensures the purchase funds are distributed and the transfer of the house is completed. It is overseen by an escrow company, which is a neutral third party.

Escrow Impounds – Escrow impounds include prepaid taxes and insurance. The impounded funds provide insurance to the lender that taxes and insurance payments will be made. The lender can request no more than two months payments.

F

Final Walk-Through – The final walk-through is performed by the buyers. They have one last chance to view the house to ensure that it is in the same condition as when they agreed to purchase it. The final walk-through generally happens during the week leading up to closing.

L

Loan estimate – The loan estimate is a document that the lender is required to send you within three days of applying for a mortgage. It details the terms of the loan, estimated closing costs and an estimate of the monthly payment. Consumers use this 3-page document to compare lenders when shopping among them. Learn more about it ConsumerFinance.gov.

Loan-to-value ratio – A mortgage formula that help lenders assess risk in lending to borrowers. It is realized by dividing the value of the home by the price. Some real estate agents are under the impression that the “price of the home” is the figure used, but it is not. The higher the DTI, the riskier the borrower. Borrowers with LTVs below 80 percent typically get more favorable loan terms.

M

MIP – Short for “mortgage insurance premium,” it’s FHA’s version of PMI (see below). Unlike PMI, MIP is payable for the life of the loan, in most cases.

MLS – Short for Multiple Listing Service, the database of properties for sale, sold, pending sale, withdrawn from the market and expired listings.

P

PITI – Short for principal, interest, taxes and insurance, the four parts of your mortgage payment.

PMI – Short for “private mortgage insurance,” it describes the fee charged to homebuyers who pay less than 20 percent down on the home. The fee is a percentage of the annual loan amount, and it varies.

T

Title Insurance – An insurance policy that protects against damages due to defects in the chain of title.

Title search – A search of public records to determine who owns the title of a piece of real estate and if there are any encumbrances on it, such as liens. These are known as “defects” or “clouds” on the property’s title and must be cleared before the sale can close.

Transfer taxes – Fees imposed by the federal, state, county or municipal government whenever there is a transfer of title of real property.

 

 

Buying a House: Pleasant Surprises and Details

I don’t know if there are actual statistics on this one, but I can tell you from experience that water heaters wait until the new homeowner moves in to fail. This is why home warranties are such a good idea.

What about pleasant surprises? We don’t hear much about those.

Jana Moy moved into her Wisconsin home during a bleak late winter. When spring rolled around, her new yard came to life, with plants leafing out and bulbs sprouting.

The showstopper occurred in mid-summer when at least 30 (she stopped counting) exquisite Stargazer lilies burst into bloom along the back wall in the garden. She had no idea the bulbs were snug underground when she bought the house and it was, most definitely, a pleasant surprise.

For some new homeowners, living in a home on a day-to-day basis brings on little surprises, such as the extra storage space you missed while touring the house or the way the living area flows just right.

While you house hunt, think about some of the little things that would be pleasantly surprising after you move in and put some of them on your “must-have” list.

Interior Design and Home Buying

One of the biggest surprises when buying a house is walking into a home that looks drab and uninteresting on the outside, only to find that the inside is a wonderful example of tasteful interior design.

While some elements of the interior – such as furniture and window treatments – may not be included in the sale, you may find structural design elements of the house that you like.

Of course, what qualifies as good interior design depends largely on your personal needs, interests and taste.

The Importance of Closet Design and Extra Space

Storage space is an important consideration for many people. There’s an old joke that people “expand to fit” their surroundings, gathering and storing possessions as the years pass.

Sure, good closet design isn’t as impressive as a whirlpool bath when you’re viewing a home, but over the long run it’s probably more essential. A walk-in closet or extra space for storage is almost always an advantage when buying a house.

Kitchens and Bathrooms

It’s well known in real estate circles that kitchens and bathrooms sell homes. An outdated kitchen or a cramped, dingy bathroom can easily break a deal.

Maybe you don’t need a heated towel rack or a steam shower system, but if you’re like most Americans, you don’t want a dinky bathroom. Lots of space is the name of the game for today’s homebuyers.

So, pay close attention to the bathroom in any home you’re considering purchasing. Look for the details that will turn out to be pleasant surprises when you move in.

The kitchen, for many people, is much more than a place to prepare food – it’s also a gathering place for family and friends, so an open, comfortable kitchen is a big plus in a home’s favor.

Americans have specific “wants” in their new kitchen and one of the most popular is a pantry, according to the National Association of Homebuilders. More than 80 percent of people polled stated that a walk-in pantry is a must-have, with double, side-by-side sinks and space for a dining table coming in not far behind.

Keeping Home Buying Surprises in Context

Pleasant surprises can be the difference between buying a home and continuing to house hunt, but do remember to keep them in perspective.

No matter how nice a home’s interior design, how lush its garden or how much extra space it has for storage, if the house itself isn’t structurally sound it isn’t worth buying.

Cosmetic defects, on the other hand, are fixable, so don’t let them dissuade you from an otherwise ideal house.

It’s important to take care of the basics when home buying before looking at a home’s little extras. However, a well-built home with extra closet space? Now that’s a nice surprise when buying a house!

Do these 5 things if you want to sell your house

There are throngs of homebuyers and not enough homes on the market for them to buy. Like last year, 2020 should see continued robust buyer demand, according to George Ratiu, Realtor.com’s senior economist.

This is wonderful news for any homeowner who is considering selling. But, despite the fact that demand is high and supply is low, there is still competition in the marketplace and buyers are still particular about the homes they agree to view.

Let’s make yours one that is high on their list by doing 5 things to get homebuyers out of their cars and into your home.

Hire the right real estate agent

There’s far more to listing a home for sale than for-sale signs and lockboxes. Even in the best sellers’ market, homes need to be professionally marketed.

Since your home is such a huge financial investment, now is not the time to feel you have to be loyal to your Aunt Martha or cousin Joe who happens to hold a real estate license.

You need an ace marketer. Ask for examples of how an agent has marketed homes in the past. Look for professional photographs, compelling presentations and a broad range of marketing venues.

Avoid trying to test the market

Unless you truly don’t need to sell your home and you’ve lots of time to allow it to sit on the market, list your home as close to market value as possible.

Yes, it’s tempting to list higher, testing the market to see if a higher price will fly. But the chances are that it won’t, and your listing will lose its most valuable marketing period. Lowering the price later sends a message to buyers and their agents that perhaps something is wrong with the home.

Listen to your listing agent. If you took our advice and hired wisely, he or she knows just where to price the home.

Grab them at the curb

It’s a known fact among real estate agents that homebuyers make their decision on whether or not to view the inside of a home while sitting at the curb, looking at the outside. We’ve had many clients who, despite the compelling interior photos of a home, decide not to tour it when they see the exterior.

Appearances do count, especially in real estate. Take the time to spruce up the exterior of the home, from landscaping to paint, if required.

Some inexpensive fixes that add star power include:

  • Fresh paint on the front door
  • Colorful plants in pots on the porch
  • New house numbers to match the new hardware on the freshly-painted front door
  • New mailbox
  • New front door mat
  • Clean windows
  • Fresh layer of mulch in the planting beds
  • Mowed lawn
  • Pruned trees

Do sweat the small stuff

It’s easy to overlook the small problems when you’ve lived in a home for some time. That dripping faucet, the wiggly banister or the rip in a window screen.

Homebuyers, however, will notice these problems and, if there are enough of them, your home will appear uncared for.

Before that first homebuyer tours your home, do your own tour, checking each room from ceiling to floor. At a bare minimum, do the following:

  • Remove cobwebs near the ceiling
  • Check that all the light fixtures are in working condition
  • Check the windows for cracked glass and torn screens
  • Do any of the baseboards need repair, replacement or a coat of paint?
  • Inspect the floor coverings for signs of wear

Inform the appraiser

Appraisers aren’t mind readers and many welcome a homeowner’s input. Gather up any documentation you may have on home improvements you’ve performed or had professionally performed, any major purchases or replacements (such as a new HVAC system, roof replacement, major plumbing overhaul, etc.) and organize them in a folder.

Also, if you have information on any neighboring home sales that the appraiser may not be privy to, write about them and include the document in the folder.

For instance, Joe down the street sold his home for $50,000 less than market value. You know that he took the low offer because he needed to quickly move to take a job transfer. This is important information for the appraiser to have, so by all means, document it and include it in the folder.

Don’t hover over the appraiser while he or she is working, but do mention that you have a folder of information you’d like to pass along.

Don’t take anything personally 

It’s hard to set your emotions aside when you’re selling a home. This is, however, a business transaction so you may need to keep reminding yourself of this fact.

Don’t be insulted by lowball offers, suggestions for improvements, attempts to negotiate repairs or snide remarks you may overhear from potential buyers.

Divorce yourself from the home – treat it as the commodity it now is and you’ll be able to negotiate like a pro.

3 Reasons not to Buy THAT House

Falling in love with a house is a lot like falling in love with a person. It’s almost impossible to see any flaws, even if they’re apparent. When so many other aspects seem perfect, it’s easy to fall into denial about the possibility that there may be problems.

Down the road, when the initial blush wears off, the negative aspects become more apparent. By now, though, it’s difficult to reverse any decisions you’ve made. This is why it’s important to keep emotions out of the home purchase process. Yes, it’s difficult, but it’s also imperative that you do so.

Although there are many so-called “red flags” to look for when touring a home, let’s take a look at the top five that – if you see them — should make you reconsider submitting an offer without a contingency for further inspection.

Sloppy Maintenance

So, the gutters are full and grass is growing in them. Maybe the homeowner is a busy person and hasn’t had a chance to clean them.

If this sounds like something you might think, adjust your expectations. If the homeowner is too busy, too broke or too lazy to perform routine maintenance, what else might be wrong with the home? Look for the following telltale signs of sloppy home maintenance and neglect:

  • Peeling paint and cracks in plaster
  • Low water pressure (may be an indication of plumbing problems)
  • Missing roof shingles or signs of roof wear
  • “Spongy” feel to the floors around toilets and bath tubs
  • Torn window screens and cracked window glass
  • Ceiling stains

To check the home’s water pressure run water in the bathroom sink and, while it’s running, flush the toilet. If the flow from the faucet decreases, water pressure is low, according to Pat Mertz Esswein of Kiplinger.

Of course these aren’t the only signs of deferred maintenance but, if present, they should set off alarms and prompt you to place a call to the appropriate contractor for an inspection.

Foundation Problems

If the yard is sloped toward the house instead of away from it, there could be a water intrusion problem, which is pricey to repair. The condition is known as “negative grade,” and it directs rainwater right to the home’s basement and, worse, its foundation.

Since 99 percent of foundation problems are caused by water, according to

Chris Elliot of Homeland Inspection Services in Colorado, this is a condition that the homeowner should remedy, or pay to have remedied, before you purchase the home.

Check the foundation for cracks larger than 1/3 inch, those that zig-zag diagonally or bulging of the foundation. Determine if the floors slope.

While this may be normal in a historic home, in a modern home it may be a sign of a defective foundation. One other sign of foundation problems are horizontal cracks or jagged cracks that run diagonally across a wall.

Foundation repair bills can run between $900 and $10,000, although the average American homeowner spent $4,447, according to a survey conducted by HomeAdvisor.

That’s a hefty amount of money for a homebuyer who just had to shell out tens of thousands of dollars for a down payment and closing costs so if anything looks unusual, and you love the house, call an engineer for a professional inspection.

A Neighborhood in Decline

There is an old adage in the real estate industry that when one home in a neighborhood goes on the market, two others will follow. Then, there is the one that says if you notice more than two or three homes for sale in a neighborhood, be suspicious.

In a recovering housing market it’s normal for homeowners who have been sitting on the sidelines to jump into the market. In a normal market, however, when many homes in a neighborhood are up for sale, it’s time to do some investigating.

There are various reasons that homeowners may decide to leave a neighborhood en masse.

The relocation of a sex offender to the neighborhood, for instance, not only causes families to flee but home values to drop by as much as 15 percent. Other causes of neighborhood decline include:

  • An increase in crime
  • Urban decay
  • New zoning restrictions
  • Businesses fleeing the area
  • Traffic rerouting
  • Bad (noisy, messy, etc.) neighbors
  • Local government action, such as closing a nearby school

Red flags need not kill a real estate deal, but they should let you know that something isn’t right and needs inspection by a professional.

Lead-based paint: What’s the big deal?

Every year, thousands of American children suffer from lead poisoning. In fact, 1.2 million children have lead poisoning, according to researchers at the Public Health Institute.

Surprised? Aside from sporadic recalls of toys that are found to contain lead, we don’t hear much about the dangers of lead that still exist in 2019.

Dust from lead-based paint, whether in the form of chips from peeling paint or “on surfaces that rub together, such as windows and doors” can pose health hazards, according to the Environmental Protection Agency (EPA).

So, federal law requires that homebuyers must be warned that homes built before 1978 may contain lead-based paint on the walls.  

A little history on lead-based paint

From the 1920s until 1978, lead, which is found naturally in the earth’s crust, was used in a wide range of American products, such as pottery, gasoline, plumbing supplies and even women’s cosmetics.

As the toxic effects of this heavy metal became apparent, the U.S. government banned its use in paint. That was in 1978, so homes built after that are free of lead-based paint.

About 75 percent of homes built before that, however, contain at least some lead-based paint, with those built before 1950 containing the most.

Why you should be concerned

Because children’s bodies are growing, they absorb lead more readily than do adults. Their nervous systems also react more strongly to lead than ours do.

The EPA says that children suffering from lead poisoning show:

  • Lower IQ
  • Behavioral or learning problems
  • Delayed growth
  • Anemia
  • Hearing problems

Does your current home have lead-based paint?

Not all homes built before 1978 have lead-based paint. If you are concerned that yours might, purchase a DIY lead-testing kit. ConsumerReports.org offers advice on which tests are best and a walk-through of how to correctly use them.

If you prefer to have a certified inspector check your home, use the EPA’s online search function to find one near you.

If the tests are positive for lead, don’t freak out. If the paint isn’t peeling or otherwise rubbing off and creating dust, you may choose to leave it alone. Removing lead paint requires a professional and the services tend to be expensive.

If you choose to leave the paint in place, inspect the surfaces at least twice a year. Look for paint chips and dust on the floors and window sills.

Other tips include:

  • Repair water damage immediately.
  • Mop floors at least once a week with warm water and TSP. Experts recommend that you wear safety equipment during the job and use two buckets (one for the TSP solution and one with clear water for rinsing).
  • Wipe window sills weekly.

Home seller requirements

All home sellers with homes built before 1978 must provide potential buyers a pamphlet with information about the hazards of lead-based paint. You can view the EPA-authored pamphlet at epa.gov.

The seller must also divulge any information about the paint in the home – whether it contains lead. This is typically accomplished with a lead-based paint disclosure form.

Finally, buyers of homes built before 1978 must, by law, be given 10 days to inspect the paint in the home. The buyer can waive the inspection and the 10-day period is negotiable.

If you have any concerns regarding lead-based paint in a home, we urge you to hire a certified inspector before committing to buying the home.

How to buy a condo with a FHA-backed loan

Shopping for a condo with a pre-approved FHA-backed loan? Here’s a tip: don’t look at even one condo in a community that isn’t approved by the U.S. Department of Housing and Urban Development.

Since an estimated 90 percent of the U.S. condos communities are not FHA-approved, there’s a good chance that you could fall in love with a home only to find out that FHA won’t guarantee a loan on it.

Thankfully, if you’re working with the right real estate agent, you’ll know which communities are approved before you start condo hunting.

FHA requirements for condos

There are a number of reasons a community may be considered too much of a risk for it to qualify for HUD approval and most of them can be traced back to the homeowner association.

Some of the problems HUD considers too risky include:

A high number of rentals

HUD wants to see no more than half of the units occupied by tenants. There is a way to get around this, however.

If the association can show at least three years of stable finances, has a current Reserve Study and shows low delinquency rates, HUD may ok a loan in complexes with up to 65 percent rentals.

Too much commercial space

If part of what attracts you to the community is the Starbucks and grocery store on the bottom floor, ensure that the space devoted to these and other commercial concerns doesn’t exceed 50 percent of the community’s total square footage.

If it does, the community won’t be HUD-approved and FHA won’t back a loan for one of its homes.

Too many deadbeats

If too many homeowners aren’t up-to-date on their fees, HUD won’t approve the community. How many is too many? Anything more than 15 percent of homeowners, delinquent for more than 60 days.

One individual owns too many of the units

Often, investors will snatch up multiple units in a community. Whether it’s one individual or a group of investors, if they own more than half the homes, HUD will take a closer look.

If the remaining homes are owner-occupied, it will pass this part of the inspection. If not, the community won’t be approved.

Too many lawsuits

HUD will check to ensure there is no outstanding litigation going on. Believe it or not, this is one of the more common problems that condo associations run up against when attempting to become HUD-approved.

These are just a few of HUD and FHA’s requirements for condos and they are always subject to change. You can find additional items at FHAReview.com.

Being approved has additional advantages

When buying in a managed community (one overseen by a homeowners association), the homebuyer is presented with a pile of paperwork to read and approve.

These documents include just about everything you need to know about the community, including:

  • CC&Rs, short for Covenants, Conditions and Restrictions. They let you know what you can and cannot do in the community, such as noise rules and pet restrictions.
  • The budget and other financial documents
  • HOA meeting minutes
  • Articles of incorporation
  • Bylaws
  • Rules and Regulations. These include anything not mentioned in the CC&Rs.

The advantage to buying a condo with an FHA loan is that you’ll have an additional set of eyes poring over these documents – the government.

This doesn’t mean you can shirk your due diligence, however. If you don’t understand anything in the paperwork, run it by your attorney.

But the biggest advantage is that the HUD approval process weeds out communities with shady financials or other problems. And, communities must be re-approved every two years.

Find out if that condo you have your eye on is FHA approved on HUD’s website. Then, contact us for a private tour.

What to consider when you inherit a home

Over the next decade or two, members of the silent generation and older baby boomers will be leaving their children and grandchildren $68 trillion, most of which will be in the form of homes.

“More than half of all existing-homes are owned by baby boomers and the silent generation,” according to Mark Fleming with First American Title.

Heirs have several choices as to what to do with these assets. The three most common include:

  • Move into the home and live in it
  • Rent the home to tenants
  • Sell the home

Many of our clients decide to sell the home, splitting the proceeds among the heirs.

Last year when Louise Bishop and her brother Frank Becker inherited their childhood home in a Minneapolis suburb, they entertained all three options.

Going through their dad’s paperwork they learned that he’d fallen behind on payments and the home was in pre-foreclosure. Working with the bank’s attorney, they were able to secure a hold on the foreclosure so that they could sell the home.

Sounds easy, right? There is a lot to consider when deciding to sell an inherited home.

Will your pocketbook stretch?

Dad was a bit of a hoarder, which Becker and his sister learned as they sifted through their late father’s belongings. Faced by more than 50 years’ accumulation of that they’d need to somehow dispose of was challenging enough.

Two inoperable trucks, a salvaged boat on a trailer and odds and ends from Dad’s old plumbing business littered the property.

Hiring the professionals required to remove all the “junk,” clean the home and perform needed upgrades was expensive. Thankfully, Louise and Frank had the funds between them to pay for it.

We’ve worked with other families whose bank accounts aren’t as flush, in which the home sale may involve a lower asking price for the home to compensate the buyer for having to perform the removal.

Then, there may be liens on the home. Those will need to be paid off before selling the home. Your best bet is to hire a highly experienced real estate agent to help you walk through your options.

There’s often an emotional toll to pay

Cleaning out a lifetime of memories, in a home that you may have grown up in, while still grieving the loss of a parent is something nobody should have to go through.

But we do, and it can be quite emotional. Be ready for it, in yourself and other family members.

Take it a step at a time

Other family members swore that Louise and Frank’s father didn’t leave a will (known as dying intestate). This means that state law will determine how and when the property can be disposed of.

Louise, however, clearly recalled her mother telling her that her did, indeed, have a will. Within 30 minutes of rifling through paperwork, the will was found, with clear instructions as to the division of Dad’s property.

The best first step then is to locate any paperwork having to do with the house. This includes loan paperwork, letters from the lender, tax information and deeds.

When you hire an attorney (another expense, but necessary), he or she will want to know how title was held, among other things.

Why an attorney?

Check state probate rules to determine if the home will be included in the probate of the deceased’s will.

Probate is a legal proceeding that determines the legitimacy of the will or, lacking a will, identifies the deceased’s legitimate heirs (according to state laws regarding inheritance).

It’s a long and often expensive process. Thankfully, Becker hired an attorney who agreed to take the bulk of her fee at the close of probate.

Speaking of probate, if you’re facing the procedure, it’s important to get familiar with it. Don’t dispose of anything of value before probate. Anything that might be considered part of the estate must be included in probate.

We aren’t lawyers

The information we’re providing is from a layperson’s point of view. We are not lawyers and cannot dispense legal advice.

We can tell you that you’ll need professional legal and, perhaps, tax advice and assistance if you plan on selling an inherited home.

 

How to Compare Mortgage Lenders

Hooray for the homebuyer who understands the importance of lining up financing before ever stepping foot into a house for sale or placing eyes on a real estate listing website.

It’s one thing to understand the steps to take in the home buying process and yet another to understand the whole “how does the loan stuff work?” question.

Because it seems like such a mysterious process, most first-timers look for the lender with the lowest interest rate, sign on the dotted line and call it a day.

That is a huge mistake, and here’s why: there’s more to a loan than the interest rate and not all loan products are identical, so it takes some serious comparison shopping to make sure you’re getting the best deal out there.

It starts with a comparison of the three most important parts of a mortgage loan – those for which the borrower has to pay.

Find some lenders to compare

Your best source for contact information for at least one lender is your real estate agent. Check online sites for attractive rates and add those lenders to the list.

One of the most popular comparison sites is BankRate.com.

If you’ll be using an FHA loan, you’ll need to shop among FHA’s approved lenders, which you can find here.

Don’t forget to list your local bank, especially if you have a good working relationship with the manager. Finally, consider using the services of a mortgage broker. These men and women shop for loans that match your criteria and circumstances, from a variety of lenders.

Rate

The first thing you need to understand is that advertised rates don’t necessarily apply to the product you want to purchase.

We wanted to find out which loans were offered for comparison today at Bankrate.com. The criteria we entered was for a purchase loan, for a purchase price of $257,939, a down payment of 5.4 percent (the nationwide average), a credit score of 720 to 739 for a 30-year loan.

The lowest interest rate offered for this scenario is 3.625 percent. But the site lists other options we may be interested in, including several lenders offering 2.625 percent rates.

Look closely, though, and you’ll see that those low rates are for a 20-year term.

These rates, by the way aren’t the whole ball of wax when it comes to understanding how much your loan will cost. It’s the annual percentage rate, or APR, that you want to use when comparing rates.

The APR reflects the interest rate plus fees. According to Bankrate.com, “the APR shows which loan is less expensive over the entire term of the loan.”

In our scenario above, both loans offer the same interest rate. Their annual percentage rates, however, are 3.631 percent and 3.64 percent.

Know how much – to the penny – that you’ll be putting down in cash for the home. Then, determine what kind of a mortgage rate you want: fixed rate or adjustable.

Finally, decide on a term for the loan: 30 years, 15 years, five years, etc. You may eventually change your mind on the last consideration after shopping around, but that’s ok.

Now, pick up the phone and make some calls. Ask the following questions:

  • Request the lender’s current interest rates and find out whether these rates are the lowest for just that day or for the week and if the rates quoted are for adjustable or fixed mortgages.

 

  • If you’re inquiring about adjustable rates, ask when the rate increases, how the payments vary and whether the payments will go down with a reduction in the interest rate.

 

  • Ask for the loan’s annual percentage rate (APR) and use that to compare the cost of each loan you’re comparing.

Points

Bank of America defines points as “fees paid to the lender at closing in exchange for a reduced interest rate.” One point equals one percent of the loan amount.

Ask the lender’s representative to translate the points quoted into a dollar amount. This makes it easier to determine exactly how much you’ll be paying for the loan and, thus, easier to compare it to other offers.

Fees

Costs of the loan listed vaguely as “fees” need to be itemized for you to compare one lender to another. Ask the loan representative to do that for you.

The Loan Estimate Form

Legally, the lender must provide you, within three days of applying for the loan, a Loan Estimate Form, detailing of all fees that will be due at closing.

This form is what you will use to compare lenders. If you notice any large discrepancies between lenders, call them and ask for clarification.

When you’ve chosen a lender, see if it will allow you to lock in the interest rate, especially if the Feds seem on the verge of raising them. There may be a cost involved, so find out what that is.

To pay less on your monthly house payment requires that you take this initial step – even before choosing the house you’ll eventually purchase.