3 ways an HOA can derail your home purchase

The United States is home to more than 350,000 homeowner associations (HOA). This represents more than half of all owner-occupied homes in the country, according to HOA-USA. This means that the chances are good that the home you will fall in love with will be in a managed community (governed by an HOA).

While not all HOAs are the evil, dictatorial entities we hear about in the media, their involvement in a home purchase adds another layer of difficulty to the process – an increase in the chances that something may go wrong and the deal will fall apart.

Remember, the HOA is just one entity with its fingers in your home-buying pie. Your lender is always there, in the background, scrutinizing every last slip of paper that floats its way. And, when it comes to homes in managed communities, lenders require lots of scraps of paper.

There are three common ways a HOA can mess up your real estate purchase and they all have to do with loan denial. They are all out of your control as well, but we believe that knowledge is your most effective weapon, and that if you know what to look for, you can avoid dealing with certain HOAs.

What is an HOA?

A homeowner association is a governing body of a community. Not all communities have a HOA, but homeowners in those that do are obligated to abide by the rules and regulations set forth by the HOA.

“Many HOAs are corporations; that is, legal entities that can enforce contracts with their homeowners,” according to Ilona Bray at lawyers.com.

Membership in the HOA is compulsory and automatic when you purchase a home in a managed community.

The association is governed by a board, populated with volunteers from among the community’s homeowners or elected by homeowners.

The HOA board members make decisions on how to enforce the rules (known as “covenants, conditions and restrictions,” or CCRs) and the penalties for violations. They also manage the organization’s budget, ensure fees or dues are paid, maintain the common areas and decide when special assessments are required and in what amounts.

They dropped a lien on it

If the owner of that home you have your eye on is in arrears on his HOA dues, the HOA may have no choice but to slap a lien on him. Yes, they do have that power. In fact, liens are often attached automatically to the property when a homeowner becomes delinquent on payments of dues or assessments.

The cost to remedy the lien can sometimes be exorbitant, with late charges, collection costs, interest and fines added to the amount originally owed. If the debt remains unpaid, the HOA can begin foreclosure proceedings and seize the property.

But those are the homeowner’s problems. Yours is that you want this home but there’s a lien against it. You’ll be unable to get title insurance until the lien is lifted and without title insurance your loan will be denied.

The only way to save this deal is for the seller to pay what he owes and request that the HOA release the lien.

Pending litigation

If the HOA is involved in litigation, either against it or if the board is suing someone, it may be almost impossible to get a loan to buy a home in the community.

Common HOA litigation cases include:

  • Failure to perform maintenance – If the HOA fails to repair roof problems and the roof leaks, damaging the home’s contents, the homeowner may initiate a lawsuit against the HOA. An injury on the property that occurred because of shoddy maintenance practices may also spur litigation against the HOA
  • Violations of the rules – Yes, the HOA can violate its own rules and homeowners can, and will, sue.
  • Building defects – An example of this is the HOA suing a roofing contractor for substandard work.

Homes in communities involved in pending or ongoing litigation are known in the finance industry as “non-warrantable,” and most lenders will deny a mortgage application for them. Yes, there are some who will, but they typically charge far more than you’ll pay for a conventional, 30-year mortgage.

You’ll find information about litigation in the HOA documents that will be supplied to you by the homeowner. If it’s a condo you’re after, and you’ll be using an FHA-backed mortgage, check HUD’s database to ensure that the community is FHA-approved. You’ll find that database online at hud.gov.

The importance of the HOAs finances

Earlier, we reminded you that an HOA introduces one more finger in the homebuying pie and, when it comes to finances, it isn’t just yours that the lender will scrutinize. It will also take a hard look at how the HOA deals with its money.

If you’ll be using an FHA-backed mortgage, determining whether or not a community’s HOA is fiscally responsible is easy; visit the aforementioned FHA database online to determine if the community is approved.

With conventional loans, Fannie Mae and Freddie Mac guidelines prevail. They have a list of conditions a community must meet before a loan will be approved. Those involving the HOA’s financial health include:

  • 10 percent of HOA dues must be set aside in the reserves fund.
  • No more than 15 percent of homeowners are delinquent in their dues or fees.
  • The property’s insurance must meet Fannie Mae and Freddie Mac guidelines.

Any financial problems, regardless of how small, may slow down the loan process, but they may result in a denial of your application.

Protect yourself 

As soon as you know for certain that you’ve found a home you want to buy and it’s located in a governed community, begin your research. Use the online FHA database for condos. Ask your listing agent to make inquiries to determine if there is ongoing litigation.

When you receive the HOA document package, run them by your attorney. These are legal documents, full of important information but littered with complex terminology. You are expected to understand them all and sign off that you accept the terms outlined within them. It’s worth the money you’ll spend for an attorney to help you understand the contents of these documents.

Once you sign off on them, you are obligated to adhere to the terms.

Be safe this summer

Americans love summer. Whether it’s because it presents the perfect opportunity for the annual getaway or because of the additional amount of sunshine on these deliciously long, summer days, summer, not winter, is truly the season to be jolly.

The National Safety Council (NSC), however, reminds us that July and August are the deadliest times of the year. From heat-related illnesses to burns and drownings, summer events present all kinds of safety hazards.

Water safety

The statistics are chilling: Between 2005 and 2014, there were about 10 drowning deaths every day in the United States. If you add in boating-related drownings, increase that number to about 11, according to the Centers for Disease Control.

Local news stories invariably quote parents as saying they only looked away for a moment. But, that’s all it takes. The CDC cautions parents to remain vigilant when your child is in or near water. Don’t depend on a lifeguard or anyone else and don’t become distracted.

Additional tips to avoid drowning incidents include:

  • Never swim alone
  • Should you get caught in a current, remain calm and don’t fight against it. Float with it or swim parallel to the shore.
  • Alcohol and swimming don’t mix. In fact, the CDC claims that alcohol was a contributing factor in half of male teen drownings.

Prevent heat stroke

When the mercury rises, so does the danger of heat-related illnesses. The National Safety Council (NSC) identifies three such illnesses:

Heatstroke – The most serious of the three, heatstroke occurs when a person’s body temperature rises quicker than the body’s ability to sweat. The NSC says that “The brain and vital organs are effectively ‘cooked’ as body temperature rises to a dangerous level in a matter of minutes. Heatstroke is often fatal, and those who do survive may have permanent damage to their organs.”

Symptoms of heat stroke include skin that is overly hot to the touch, confusion, coma and seizures. The NSC recommends that someone suffering from heat stroke must be placed in a half-sitting position in a shady spot, spray him or her with water and fan vigorously and, if the humidity level is more than 75 percent, apply ice to the armpits, neck or groin.

Don’t give the victim anything to drink or any pain relievers, such as acetaminophen or aspirin. And call for medical help right away.

Heat exhaustion — The symptoms of heat exhaustion mimic those of the flu and include fatigue, thirst, nausea, headache and vomiting. The person may sweat profusely and the skin will appear pale and feel clammy.

“Uncontrolled heat exhaustion can evolve into heatstroke, so make sure to treat the victim quickly,” cautions the NSC. Move the victim to an air-conditioned area if possible, otherwise, find a shady spot, give him or her water to drink and apply wet towels to the body. A cool shower is also recommended.

Heat cramps – When you exercise in extreme heat you may suffer muscle spasms and cramps, typically in the abdominal muscles or legs. These cramps are the result of a lack of salt in the body due to excessive sweating. Relieve them by sitting in the shade, drinking sports drinks, stretching and seeing a doctor if the symptoms aren’t relieved within one hour.

Summer safety for your pet

Dogs get sunburned too, so the ASPCA suggests that if your dog will be spending time in the sun this summer, slather on the sunscreen. Choose a brand that doesn’t contain fragrance and contains properties that block both UVA and UVB rays.

We all know not to leave kids and pets in cars on warm days – even for just a few minutes. Heat stroke can occur within moments. But, it can also happen outside the confines of a hot car, when a dog is overactive on a warm day.

It begins with dehydration, so if your pet is drooling excessively, its gums are dry and it feels hot to the touch, get it into the shade or indoors quickly. Slowly cool it down with water (but don’t submerge it in an ice bath). Then, get the pet to a veterinarian, quickly, even if it seems to be doing better.

Summer heat is tough on our cars and puddles of antifreeze prove it. Pets, especially dogs, are attracted to antifreeze and it’s deadly when ingested. Never allow your dog to lick anything off the ground.

If yours is an outdoor dog, supply access to shade and cool water.

Barbecue safety

Summertime ushers in a favorite American pastime – outdoor cooking. Despite the yummy smells and the tasty food they produce, barbecues cause nearly 9,000 home fires every year and July and August are peak grilling months.

Follows these tips to keep your family and your home safe during the summer grilling season:

  • Keep the grill clean. The National Fire Protection Association cautions that dirty grills are the leading cause of grill fires.
  • Place the grill at least 10 feet away from the house, other structures and landscape décor (such as hanging planters, pillows and patio umbrellas).
  • Keep both a spray bottle of water and a fire extinguisher nearby.
  • Never turn on the gas while the lid is closed.
  • Never leave the grill unattended.
  • Never use your grill indoors.
  • Don’t allow children and pets to play near the grill.

Protecting yourself, your family and your pets during the long, lazy days of summer is easy if you’re prepared. Get additional tips online at healthychildren.org, aspca.org and nsc.org.

Yes, you can: A millennial’s guide to buying a home

That moment when you just can’t stand writing one more check to your landlord so that he can pay his mortgage payment. That is the moment you are emotionally ready to buy your own home, at least according to investment experts.

We’d like to extend that list of moments to include the longing to get the kids a dog, drooling over the weird paint color you’d love to use to adorn the bedroom walls and the green thumb, itching to dig in its own backyard.

Now starts the sometimes-long road to home ownership that millennials just like you have traveled. Yup, others have paved the way for you, so if you follow their example, at least the examples of those who’ve been successful, you’ll soon be picking up dog poop in your very own backyard.

Cold, hard cash

Houses cost money. Big money. At least initially. And, according to a recent apartmentlist.com survey, of the 80 percent of millennials who want to buy a home, only 68 percent of them have managed to save less than $1,000 and a sad 44 percent of that group have nothing saved.

“Based on their current rate of monthly savings, our survey found that millennials in many of the nation’s large metros will need at least a decade to save enough money for a 20 percent down payment on a condo,” claim the site’s   Andrew Woo and Chris Salviati.

They go on to say that millennials in the pricier large metros, such as San Francisco, San Diego and San Jose have a waiting time of “almost 24 years.” Buyers armed with a 10 percent down payment can shorten the wait to five years or less, according to the study.

Which means that those who choose an FHA-backed loan, a Fannie or Freddie or USDA loan, with an even lower down payment requirement, are sitting pretty. Then, there are the many local, regional, state and national down payment assistance programs. See? Every cloud has its silver lining.

The moral of the story is to start saving now. Yes, you have student loan debt and, yes, you need to pay rent and all of the other typical life expenses. But paying yourself first should be your priority if you want to buy a home.

Your debt

The word “millennial” is so often followed by “student loan debt,” in the media one would think it’s the generation’s middle name. While it’s true that this debt is at an all-time high, and some millennials are on the hook to repay up to $53,000, it’s not the impediment to home ownership that some make it out to be.

The simplistic will advise you to boost your income and eliminate your debt when considering purchasing a home. While sage advice, it’s unrealistic to tell someone who longs to purchase a home to wait the aforementioned 24 years.

And, there is relief for many with two recent announcements by Fannie Mae.

Currently, lenders look at a borrower’s debt-to-income ratio (how much you owe vs. how much you earn, known as DTI) and require that it be no higher than 36 percent. After July 29 of this year, however, that ratio can be as high as 50 percent, under certain conditions.

Then, in April, Fannie Mae announced a new policy specifically aimed at millennial homebuyers who have student loan debt. Basically, it excludes any debt that isn’t mortgage-related (auto loans, credit cards and, yes, student loans) from the borrower’s DTI, as long as these debts are paid by someone else (such as a parent).

Curious about your debt-to-income ratio? Use the online calculator at nerdwallet.com.

If your DTI is still too high, despite the new solutions from Fannie Mae, get busy increasing your income and decreasing your debt. The College Investor offers a brilliant list of 10 “Easy” Ways to Earn $100 per Month and also see 8 Ways to Eliminate your Student Loan Debt.

Credit history

So, what if it’s not necessarily student loan debt but a lousy credit history standing between you and homeownership? There’s good news on that front as well.

The so-called “Big Three” credit reporting agencies, Experian, Equifax and TransUnion recently announced that most tax liens and civil judgments will no longer end up on credit reports, provided the information in the creditors’ report isn’t complete.

“Specifically, the data [submitted to the credit reporting agency] must include the person’s name, address, and either date of birth or Social Security number,” according to Diana Olick at cnbc.com.

Apparently, errors like this are common, impacting a large number of loan applicants. “With these hits to their credit removed, their scores could go up by as much as 20 points,” Olick claims.

Even if you don’t have judgments or liens on your credit record, it’s always a good idea to order all three reports and pore over them for other mistakes. The Federal Trade Commission claims that about 20 percent of American consumers have a mistake on their reports. Ridding your report of errors is one of the easiest ways to increase your credit score.

In fact, the FTC study found that “ . . . about 20 percent of consumers who identified errors on one of their three major credit reports experienced an increase in their credit score that resulted in a decrease in their credit risk tier . . .”

The FTC offers advice on not only how to get free copies of your credit reports but how to dispute erroneous information as well.

If you truly want to buy a home, stop listening to the naysayers in the media. The millennial generation currently makes up the largest group of first-time homebuyers, so obviously, not all is the gloom and doom they say it is. Especially with the new programs and relaxed requirements, buying a home is easier than you think.

Is it time for a closet makeover?

If you’re digging through sweatshirts and turtlenecks to reach your tank tops and shorts, it’s time for a closet makeover.

It’s like eating an elephant

The job is much easier, especially for those of us who tend to procrastinate, by taking one bite at a time. Schedule an hour every week to put a dent in the mess that you call a closet and, before you know it, the job will be done and getting ready to go somewhere may end up taking half as long.

You’ll need a clean slate

The first step to a truly made-over closet is to clean it out, completely. Pile the clothes on the bed and find a spot on the dresser or floor for the shoes, scarves, ties and other accessories. You are now presented with a clean slate, akin to Aristotle’s tablet “ . . .on which nothing has been written.”

Assess the space

How’s the paint looking? If you find yourself squinting to ensure that those slacks are really black and not navy blue, not only should you consider new lighting, but a fresh coat of light-colored paint as well.

Make that paint glossy and you’ll feel like you hit the exacta; the highly-reflective sheen offers better visibility in the confines of a closet. Consumer Reports offers a list of its top-rated paints on its website.

Next, decide what goes where and make a list of needed items, such as additional shelving, boxes, bins, hanging shoe racks or furniture (if space permits) and lighting.

Speaking of lighting, you don’t need to be an electrician to change out the lights in your closet. LED options include battery-powered lights in a variety of shapes and styles and are a snap to install. Some even include motion sensors. Get lighting ideas online at decoist.com, bobvilla.com (check out the brilliant LED-lit closet rod!) and Pinterest.

Sort and purge

Remember all the stuff you removed from the closet? Now it’s time to sort. You’ll need to make several piles – items you’ll put back in the closet, items to put somewhere else and items to throw away or donate.

The second category includes all those weird things that end up in the closet, such as borrowed clothing (time to return it), shoeboxes stuffed with receipts, bills and other paperwork, electronics (fax machine or printer, for instance) and sports equipment, such as your tennis racket.

The third pile should include anything that doesn’t fit. Yes, that weight-loss diet is a worthy goal, but if you’ve tried it before and are still hanging on to the size 6 jeans in hopes they will someday fit, consider moving the jeans to the “donate” pile.

Those items with missing buttons, broken zippers and holes in the seams? How long have you hung on to them, promising to have them repaired? You’ve managed to live this long without them, so consider tossing them in the trash or donate pile.

Fill it back up

Now you’ll get to use all the nifty organizing equipment you purchased. Designate a place for everything and return those items to their place in the closet.

This means that shoes go on the shelves, rack or hanging bag you purchased, scarves go in the bins or baskets and nothing – absolutely nothing – ends up on the floor. This is especially important if you’re organizing the closet in preparation for a home sale.

Organizing experts offer several ideas on where to place your clothing within the closet. Some say to put those items you wear most often front and center. Others recommend hanging like-items together, for instance, group all of your shirts in one spot, pants in another. Others suggest grouping your clothes by color.

Need ideas? Visit hgtv.com, instyle.com and pinterest.com.

What’s lurking in your home’s plumbing system?

While the surgeon general hasn’t taken up labeling water heaters as possibly harmful to your health, they may be. In fact, any of the many components that make up a home’s plumbing system are rife with the possibility of breeding Legionella pneumophila, the rod-shaped bacteria responsible for Legionnaires’ disease, according to a report at usnews.com.

The bacteria

Legionella is found naturally in freshwater environments, according to the Centers for Disease Control and Prevention (CDC). It most often causes disease, however, when it grows in “human-made water systems,” such as hot tubs, swimming pools, ice-making machines, landscape water features, water heaters, showers and faucets.

Stagnant warm water (at a temperature between 68 and 120 degrees Fahrenheit), that contains sufficient biodegradable compounds, is the condition that most favors growth of the bacteria, according to a study by the American Society for Microbiology.

Furthermore, temperatures of 90 to 105 degrees are the ideal range for the bacteria’s growth. Rust, scale, “and the presence of other microorganisms can also promote the growth of LDB,” warns the experts at the U.S. Occupational and Safety Health Administration (OSHA).

“It will grow anywhere in the piping system where conditions are favorable for growth,” Ron L. George, president of Plumb-Tech Design & Consulting Services in Michigan tells, U.S. News’ Devon Thorsby.

The disease

Legionnaires’ disease, a lung disease and specific form of pneumonia, is tricky to diagnose because it presents with flu-like symptoms. It is particularly deadly to smokers, those with compromised immune systems and those in poor health. Although the large outbreaks get all the media attention, OSHA estimates that between 10,000 and 50,000 Americans are hospitalized each year for the disease.

Those who come down with Legionnaire’s disease were exposed to the bacteria by inhaling airborne water droplets that contain the bacteria (such as in the shower) or drinking water contaminated with it.

How the bacteria reaches your home

The water crisis in Flint, Michigan was a wakeup call to the entire country: don’t assume that your tap water is safe.

Thorsby warns that “Federal water conservation bills passed beginning in the 1990s have slowed the speed of water [to our homes], making travel time from a treatment plant to the end of the line longer. It went from as quickly as two days to as long as two weeks, in some cases . . .”

Why is this slowdown a problem? Municipal water systems purify water with chlorine, which decays quickly, diminishing by the time it reaches your home. If the chlorine content is negligible at this point, water in the lines “ . . . could become more vulnerable to picking up contaminants from pipe corrosion, interruptions like water main breaks and other incidents that could introduce toxins into the water,”  Thorsby cautions.

How to protect yourself

The best way to ensure that Legionella is destroyed is by controlling the temperature of your water heater, according to OSHA. Set and maintain the temperature at 140 degrees.

Of course, this temperature introduces the danger of scalding, which can be minimized with the use of thermostatic mixing valves, according to the experts at Plumbing and Mechanical magazine. “Replacing standard faucet and shower fixtures with thermostatic mixing valves may allow a homeowner to maintain hot water at 140-degree F from the water heater to the mixing valve, but deliver water at a lower temperature to reduce the risk of scalding.”

Next, you’ll need to eliminate the bacteria’s food sources, such as scale and sediment. Something as simple as replacing your electric water heater with a gas model takes care of this requirement, according to the magazine. Not only do electric water heaters tend to have lower temperatures than their gas counterparts, but their heating elements are typically located on the side of the unit. Gas heaters, on the other hand, heat the water from below the tank, where sediment builds up, thereby destroying the bacteria’s major food source.

If that doesn’t convince you to ditch the electric water heater, consider a Canadian study of 211 homes, 178 of which had electric water heaters. The study found that 69 of these homes, or 33 percent, harbored Legionella. None were found in the homes with gas water heaters.

Regardless of which type of water heater you have, it needs to be drained and fully cleaned (not just flushed out) once a year.

Buying a vacant home?

Foreclosure and other vacant homes are perfect breeding grounds for Legionella. Since the plumbing system hasn’t been used, the water in the heater has been stagnant and, most likely, not hot enough to prevent the bacteria’s reproduction. The same holds true for the pipes in the system.

NSF International, a product testing, inspection and certification organization in Michigan, recommends that vacant home buyers flush the plumbing system with “superheated” water. In fact, they recommend that all homeowners perform this flush once a month.

  • Set the water heater thermostat to its hottest setting.
  • Turn on the water at each tap and allow them to run for 30 minutes. “If your water heater doesn’t have the capacity to flush all taps simultaneously (most home water heaters don’t), flush one or two taps at a time for 15 minutes, beginning with those closest to the water heater and ending with the farthest taps,” the experts at NSF recommend.
  • Run the dishwasher and washing machine at their hottest settings.

Don’t forget to lower the temperature after the flush’s conclusion. NSF cautions that “only nonsmokers in generally good health” perform the flush, that children and those with compromised immune system leave the house during the procedure and that the flow from each faucet should be regulated to avoid splashing.

3 reasons to think twice about looking at for-sale-by-owner homes

The housing market is moving at warp speed, with homes that are in decent condition and priced right flying off the market in a matter of days. When it will end, nobody knows.

One thing that is certain is that the percentage of homes on the market being sold by owner sits at around eight percent, nationwide. So, after being mortally wounded in the bidding wars, many buyers are tempted to pursue FSBOs – pronounced “fizzbo,” and short for for-sale-by-owner.

Sure, buying directly from the owner may seem attractive, at first glance. But, there are very real problems that commonly occur when the seller (and the buyer) isn’t represented by a real estate agent. Let’s take a look at three of them.

1. The paperwork

The 2015 National Association of Realtors’ Profile of Home Buyers and Sellers showed that “paperwork” is one of the most challenging aspects of selling a home without an agent. The FSBO’s first challenge is in knowing which forms are required. A Google search of “What forms do I need to sell my house” returns, in fact, 118,000,000 results.

The online discount brokers aren’t all that helpful when it comes to the proper forms, either. In fact, one of the largest offers only a purchase agreement. So, what happens when a FSBO buyer wants to amend that agreement with a demand for repairs? What form will the seller and buyer use and where will they get it?

The next challenge FSBOs claim they have with the paperwork is understanding it. Unless the seller is a lawyer or a real estate agent, or has a deep understanding of state law, this is perfectly understandable. These may look like “forms,” but each one is a legal document and, naturally, filled with legalese.

This lack of understanding leads many FSBOs to make assumptions about the documents’ meaning and about his or her responsibilities. Buying a home is a huge financial investment – be overly cautious about assumptions made by a legal and real estate novice when buying something as expensive as a home.

2. The money

During the FSBO purchase process, you’ll require the services of an attorney. It’s just far too dangerous to proceed without professional consultation. So, from the outset, buying a FSBO is going to cost you far more than were you working with a real estate agent – whose services don’t cost the buyer a dime – to buy a home.

Then, there are three additional seldom-considered financial pitfalls when dealing with a homeowner directly. The first is price. While coming up with a list price is easy, determining what buyers will actually pay for a home is a bit trickier and most homeowners haven’t a clue as to the true market value of their homes.

Even if the homeowner has decided to employ the services of an online discount broker or a for-sale-by-owner company, there’s no guarantee that he or she will have accurately priced the home for the market. In fact, since many of these companies aren’t helmed by real estate professionals, there’s a very real possibility that the homeowner received bad advice and that home you’re contemplating making an offer on is overpriced.

“There are a lot of variables that come into play when determining the list price of a home including local inventory, interest rates, average market price for comparable homes, appraisal value and the sellers’ personal and financial objectives,” Steve Udelson, President of Online Real Estate at Altisource (which oversees Owners.com and Hubzu) claims in an article he contributed to forbes.com.

Now, in all fairness, Udelson admits that he is not a real estate professional Yet, if his customers follow his advice, they may end up overpricing the home. And a homebuyer who lacks representation may just end up overpaying for it.

The truth is, the list price of a home should ideally match, or come close to, it’s current market value. This value has little to do with the asking price of currently listed homes, local inventory and interest rates, and nothing to do with the “ . . . sellers’ personal and financial objectives.”

It has everything to do with what a willing buyer will pay for the home. The proof of that amount of money is reflected only in recent sold prices of comparable homes.

That information, by the way, isn’t easy to come by without a real estate professional’s access to the Multiple Listing Service statistics. And, no, what you see on the big aggregator websites is not typically taken from the MLS and is rarely accurate.

So, how will you know that you aren’t overpaying for the home?

Then, there is the common assumption among homebuyers that, since the seller is saving money by not having to pay a real estate commission, he or she will pass some of that savings on to the buyer.

According to studies by the National Association of Realtors, the number one reason a homeowner decides to go it alone is to “save money.” Sharing the savings with the buyer rather defeats that purpose, don’t you agree? So, no, don’t count on getting a discount.

Which brings us to the third financial pitfall: closing costs. Do you know how to negotiate with the sellers to have them pay for all or part of your closing costs? Do you know the maximum amount your lender allows the seller to pay on your behalf? How will you word the purchase agreement to make the request?

3. The integrity

Nationwide, sellers have a duty to disclose the presence of lead-based paint in homes built before 1978. But there are other, state and locally mandated disclosures required of sellers as well. The most significant of these is the disclosure outlining any material defects concerning the property. The proviso to this disclosure is that the seller is only required to disclose items that are within his or her knowledge.

In the hands of an unscrupulous or ignorant seller, this may be seen as an opportunity to “fudge” on the details. Sellers represented by professional real estate agents, on the other hand, are warned that anything less than complete honesty is not in their best interests.

If it’s too late, and you’ve fallen in love with a FSBO home, take the following precautions:

  • Get everything in writing.
  • Do not sign anything until you’ve run it by your attorney.
  • Deposit your earnest money deposit with a neutral third party (ask your lender how to set this up) – never give it to the seller.
  • Never waive the home inspection and be willing to pay for additional inspections if conditions warrant.
  • Ensure that the seller actually owns the home and that no-one else has a claim to it by ordering a title report.

Protect yourself before looking at FSBOs by communicating with your real estate agent. He or she can approach the homeowners to determine if they are amenable to paying the agent’s commission. This way, you are represented and protected, and at no cost to you.

 

 

The down payment isn’t the whole enchilada – here’s how much cash you’ll need to buy a house

The real estate industry has done a bang-up job on letting consumers know they’ll need some cash when they purchase a home. Typically, it’s the down payment that’s mentioned. Seldom are closing costs brought up so they end up a major surprise for homebuyers.

Between the two of those huge chunks of money are other cash outlays you’ll need to consider.

Earnest Money Deposit

You found the home you want to buy and you and your agent structured the perfect purchase agreement. In it, you’ll find a section dealing with your earnest money deposit (EMD). Your agent will list the amount you are paying and where it will be held.

So, what is this? There are several functions of an earnest money deposit. First, it shows the seller that you are serious about pursuing the purchase. After all, he or she will be taking the home off the market. This “skin in the game” evens the playing field. The seller takes a gamble by removing the home from the market and you put your cash on the line with the possibility of losing it, under certain circumstances.

The amount of money used for your EMD varies according to several factors, including what type of market you’re in (in fast-moving markets, a larger-than-normal EMD may entice the seller to choose your offer).

Typically, it’s 1 to 2 percent of the offering price. In May of this year the median home price in the U.S. was $345,800, which would mean an earnest money deposit of between $3,458 and $6,916.

Down Payment

When the seller accepts your offer, your lender will request that you wire them your down payment funds.

Down payments are expressed as a percentage of the purchase price of the home. For example, using our national average home price, you will need $69,160 for a 20 percent down payment, $34,580 for a 10 percent down payment, $17,290 if you are required to come up with a 5 percent down payment and $12,103 for a 3.5 percent down payment.

Down payment percentages depend upon the loan you’ll be obtaining. Conventional loans generally require 20 percent down and the best choice if you hope to avoid paying a monthly private insurance premium.

Other loans, such as those through FHA or Fannie Mae, require significantly less for the down payment, while the VA and USDA require no money down.

Closing costs

This is the part of the process that catches far too many homebuyers by surprise. Closing costs are all the fees required of everyone who helps you purchase the home. From your real estate agent’s commission and appraiser’s fee to the title company’s research and issuance of a policy and, of course, the lender’s fees. These fees add up – fast – so it’s important to compare closing cost estimates from several lenders. It’s also important to understand which costs are negotiable.

It’s not unusual for closing costs to amount to 2 to 5 percent of the loan amount. Using our average home price mentioned above, with a 3.5 percent down payment, the loan amount will be about $333,697. Closing costs would be anywhere from $6,674 to $16,685. As you can see, closing costs, if not prepared to pay, can come as quite a shock to homebuyers.

3 Ways to reduce closing costs

1. You can reduce a portion of your closing costs by closing as late in the month as possible. Lenders charge interest in arrears, meaning that when you make a house payment, you are actually paying for last month’s interest (and the coming month’s principal). When you close escrow, the lender will have calculated how much interest you owe from the date your loan was funded to the end of the current month.

For example, if you close on your new home on August 15, you’ll pre-pay the interest due from August 15 until August 31. September’s interest isn’t due until October 1, when you will make your first house payment.

Reduce the pre-paid interest charge by closing at the end of the month.

2. You can eliminate the need to pay all or part of your closing costs by requesting that the seller contribute. The seller gets to write that amount off as a tax deduction and you get to skip the closing costs, so it’s beneficial to all parties.

3. Ask your lender if you can include the closing costs in your loan. Yes, there will be a charge for this but it won’t be nearly as large as the immediate outlay of cash necessary to pay closing costs.

Despite what many first-time homebuyers think, the down payment isn’t the whole ball of wax when it comes to cash outlays when you purchase a home. It’s important to determine exactly how much cash you’ll need to purchase a home so that you can budget for these expenses.

3 Low-Cost Tips to Increase your Home’s Curb Appeal

If you need to sell your current home before buying that adorable bungalow you’ve had your eye on, you have your work cut out for you.

Getting your house ready for the market requires work — cleaning, de-cluttering, repairs and maybe even paint.

Those are just the interior tasks; the exterior may need some attention as well. You’ve no doubt heard about curb appeal – you may even have some ideas on how you might go about adding some to your home to help it sell quicker and for top dollar.

The problem is that when one is not just selling a home but also purchasing another, money can be tight. Read on for three low-cost tips that you can use to boost your home’s curb appeal.

1. Lighting

Outdoor lighting gives a home more than curb appeal – it provides safety, ambiance and a dramatic but warm welcome. Experts at Better Homes and Gardens suggest that if you do nothing else outdoors, light the pathways and the trees.

When deciding where to place lights, don’t neglect the most important areas. These include:

  • Walkways
  • Steps
  • Patio/Porch
  • Driveway
  • Water features

While inexpensive solar lights that you just stick into the ground are fine, they don’t cast the amount of light that other fixtures do.

If it’s in your budget, consider LED lighting. The lights last for as long as 100,000 hours, according to the experts at Whitmer’s Lighting in Ohio. They also tolerate wicked weather better than other forms of lighting.

Whitmer’s also mentions three different types of lighting schemes.

  • Down-lighting – Giving the illusion of the moon shining on the landscape, this type of lighting is achieved by placing the lights overhead, such as in a tree, and facing downward.
  • Up-lighting – This style of lighting is more dramatic in that the lights are pointing directly at a feature in the landscape.
  • Cross-lighting — Whitmer’s claims this type of lighting is best for eliminating unwanted shadows. It involves placing lights both in front and in back of the element you want to highlight.

Most homebuyers will view your home during daylight hours, so snap some photos of the home’s well-lit evening look and leave them out where potential buyers can see them.

2. Use container plants

Even if you can’t afford to purchase mature shrubs and trees for the front yard, you can still add plants. Container plants can add just the pop you need, especially if you choose ornamental pots and use them to hold plants with colorful flowers or interesting foliage. Consider creating a vignette on the front porch or back deck or line the walkway or driveway with the potted plants.

To keep it interesting, vary the size and design of the pots as well as the design’s height. Use plant stands toward the back of the vignette to raise plants in shorter pots.

When planting, use the “Thriller, Filler, Spiller” concept of planting to create additional interest. This design technique calls for three different types of plants in one pot.

  • Thrillers are tall, striking plants, such as ornamental grasses or cannas. These are the stars of the container and are typically planted in the back or in the middle of it.
  • Fillers are the plants that you’ll stick around the thrillers. Rounded or mounded plants are ideal fillers. Consider petunias, coleus or dusty miller.
  • Spillers are the trailing plants you’ll want to put at the edges of the pot so that they can spill over the sides. Suitable spillers include bacopa and nasturtium.

3. Green up the Lawn

Improving your lawn is one of the least expensive curb appeal projects to tackle. Take care of dead patches by raking them and then adding seed or grass plugs to fill in the bare spots.

Apply weed and feed to get rid of the weeds and fertilize the turf. Keep the lawn well-watered and mow it to the mower’s highest setting during the marketing of the home.

If your lawn is in bad shape, consider installing sod before putting the house on the market. The average cost of sod installation, nationwide, is between $1,041 and $2,690, according to homeadvisor.com.

 

3 ways to avoid home catastrophes while you’re away on vacation

Call it the “Murphy’s Law of Home-Buying” if you will, but there’s a good chance that shortly after you move into your new home the water heater will die. It may trickle as it gives up the ghost or it may gush, but for some reason, these contraptions choose this time to self-destruct. We in the real estate industry see it a lot.

Then, there’s the “Murphy’s Law of Vacations.” Yes, we’re making these up, but they should be better known. This one says that “if anything can go wrong in your house while you’re on vacation, it will.”

Even the president of Quality Home Improvements, Inc., in Kingwood, Texas agrees. “If you’re going to have a leaking [main water] supply line, it’s going to happen while you’re away,” Fred Spaulding tells Popular Mechanic’s Brett Martin.

It’s summer vacation time, so let’s look at some ways to pay homage to Mr. Murphy’s key principle: always plan for worse-case scenarios.

  1. Getting back to that water main

Sure, most water main breaks occur in winter, when frigid weather freezes pipes. But, “Hot, dry weather can also take a toll; ground shifts and the increased volume and pressure can also stress water mains” cautions the experts at the Cape Fear Public Utility Authority.

Mains constructed of iron are the most conducive to leaking, and most of these water mains were installed in homes built before 1980. Iron cracks, especially with temperature changes.

Extreme temperatures aren’t the only things that may cause a leak in the water main. Soil erosion around the main may cause it to leak or break. Corroded pipes and those that are older than 60 years fail frequently and intrusion from construction work or homeowners (such as striking the main with a shovel) can also damage the water main.

It only takes a small leak to wreak havoc on your home. A leaking water tank in the attic can ruin whatever is in the room under it quickly, even from a small leak. Then there’s that water heater.

Prevent water damage while you’re away by closing the main supply valve to the home. The location of the shut-off valve depends a great deal on the type of home you live in. It could be in the basement, garage or a number of other places. Ask your plumber if you’re unsure of how to find it, or “ . . . look for your water meter, it should be nearby,” advises the Family Handyman. Visit his site to learn how to turn off the valve.

  1. Air conditioner: On or off?

Leave it on. Sure, it makes sense that you’ll save more money on your energy bill if you turn off the HVAC system before leaving town, but the money you save may eventually be spent to fix damage caused by the home overheating.

Air conditioning not only cools the air, but removes humidity from it as well. A hot home interior can cause condensation to form and that, in turn, can cause a rash of problems, according to the pros at Santa Fe Air Conditioning and Heating. These include warped wood floors, doors and furniture, peeling paint and mold. “For optimum comfort and for the health of your home, the humidity in your house should be no higher than 50%,” they say.

Set your programmable thermostat to 85 degrees for the duration of your vacation and to your favorite cooler temperature, set to kick in the day you are to return, or the evening before.

Manual thermostats, unfortunately, should also be turned up to 85 degrees while you’re away. Perhaps a neighbor can be talked into lowering the temperature before your homecoming so you don’t come home to an oven.

  1. Vacays mean unplugging – in more ways than one

Ok, so maybe you don’t consider a high power bill catastrophic, but some of us do – especially when we weren’t home to get the benefit of the power usage. So, if you’re among us, it’s time to unplug.

Still have a cable box for the TV?  According to Mother Jones’ Kiera Butler, “The EPA estimates that your box setups use about 500 kilowatt-hours per year, as much electricity as your fridge.” While you may not be leaving town for a year (lucky you if you are), you should still unplug it before your vacation. No word, however, on how much power your Roku stick uses.

Don’t just put your computer to sleep while you’re gone. Unplug it completely. Monitor, router and modem too.

The bigger your TV is, the more power it gobbles, according to Butler. “Flat-screen TVs use about twice as much power as their smaller cathode-ray counterparts,” she claims.

Unplug game consoles, DVD and Blu-ray players as well. Hopefully you have all of your electronics on surge protector power strips so one switch will kill the power to all of them. If you won’t be taking your phone charger with you, unplug it. Do the same with small kitchen appliances, such as the microwave oven, coffee maker, food processor,

If your washer and dryer have digital displays, consider unplugging them as well.

Don’t forget the security measures you’ll need to take before you leave as well. Safewise offers a handy guide on its website.

Then, when all the preparations are complete, you’ll need a vacation from your vacation preparation!

 

Psst: Millennials, come on out – it’s time to buy a home

Quick! What’s the number one reason that so many millennials aren’t getting into the housing market? No-brainer, right? It’s all about that stubborn student loan debt they racked up.

In fact, a recent study by the Federal Reserve claims that the 12 million millennials in their 30s with student loan debt, owe more than those in their 20s. The average student loan balance for the former sits at slightly more than $34,000 and most of you are, or were, grad students, according to U.S. News and World Report.

Your debt and your income and why they matter

The most common reason a borrower is turned down for a mortgage is because he or she has what is known as an unacceptable “debt-to-income” (DTI) ratio. And, millennials are the largest group of would-be homebuyers who walk away from a pre-approval session with a big, fat, rejection.

Lenders naturally want to know that lending you the money to buy a home doesn’t expose them to risk. While there are many types of tests and statistics to help them figure this out, the DTI is the granddaddy of them all.

After you drop off your tax returns, pay stubs, bank statements and all the other documents the underwriter wants to see, he or she will determine your DTI two ways, a so-called front-end and a back-end DTI.

The latter involves dividing the amount you pay for total recurring debt every month by your gross monthly income. To get a mortgage in the past, this figure would typically need to be no higher than 36 percent. We say “typically” because Fannie Mae would consider a DTI of 45 percent under certain circumstances (high credit scores and reserves, for instance).

To determine the front-end DTI ratio, which represents the percentage of your income you will have to put toward housing expenses, the lender will determine the total amount of your expected housing expenses and divide it by your gross monthly (before-tax) income. Hopefully, the result will be no more than 28 percent.

But wait – that’s about to change

So, you used Fannie Mae’s online calculator and figured out that your DTI is 50 percent. Does that mean you should kiss your home-ownership dreams aloha? Nope. Not any longer.

In early June of 2017, Fannie Mae announced that it will now accept a backend DTI of up to 50 percent for loan applications submitted, after July 29 of this year, through its new version of Desktop Underwriter (DU).

Not to get all technical on you, but DU is a software program that uses algorithms to weigh a loan applicant’s risk factors. Some borrower files aren’t DU eligible (for any number of reasons) but many are. Hopefully, you are among the latter because if you require manual underwriting you will fall into that dratted “don’t-lend-money-to-anyone-with-a-DTI-higher-than-36-percent” pile.

Why the change? Are they crazy?

Remember the housing market crash? Of course you do. In its aftermath, an interesting study was published that found that while most borrowers who defaulted on their loans because they were underwater on them and couldn’t make the payments, a small percentage of underwater borrowers – 35 percent, according to a September 2010 University of Chicago Booth School of Business study — simply “walked away” from their homes and their mortgages. These people became known as “strategic defaults,” and further study of them produced surprising results.

Strategic defaulters tended to have high credit scores, didn’t use credit often and when they did, their balances were lower than the other group of underwater borrowers and they rarely exceeded their credit limits. In other words, these folks were the quintessential ideal credit risk.

Fast forward to 2017 and a new Fannie Mae study finds that borrowers with a 50 percent DTI are much better credit risks than previously assumed. The study looked at more than 15 years of statistics and data from borrowers with back-end DTI ratios between 45 and 50 percent. Many of them had decent credit scores and the default rate was quite acceptable.

Steve Holden, Fannie Mae’s VP of single-family analytics said that they were seeing a lot of other factors, aside from a borrower’s DTI ratio, in the data that make this group of borrowers more attractive. These included the borrowers with hefty cash reserves (at least 12 months or more) or a willingness and ability to come in with a higher down payment. And many of these borrowers are millennials, just like you.

So, if you’ve been sitting at the home-buying station, feeling derailed by student loan debt and a less-than-ideal debt-to-income ratio, it’s time to buy your ticket and catch the train before interest rates become the next culprit that keeps you out of your dream home.