|
|
|
|
|
|
|
| Real Estate Guide |
|
Articles and Advice |
|
 |
|
| How to profit from home appreciation By Liz Poppens There are many ways to save money, but taking advantage of a run-up in home prices isn’t usually on any financial planner’s list. However, appreciating property values can offer at least two ways to save money. Many homebuyers today, especially first-timers, purchase homes with less than 20 percent down payments. In such situations, lenders require buyers to buy private mortgage insurance, or PMI, and to set up an escrow account to pay homeowners insurance and property taxes until you have more than 20 percent equity in the house. It can take up to 10 years to reach the 20 percent equity point on a standard 30-year loan. However, when home values are appreciating, as they are in most markets nationwide, that point can be reached much sooner. Dropping PMI and the escrow account could save hundreds of dollars a year in insurance premiums and interest earnings. On average, PMI adds $50 to $100 to monthly mortgage costs, about $5,000 to $10,000 over the life of the loan. As for interest earnings, some lenders do pay modest interest on escrow accounts, but not as much as homeowners could earn by saving money for property taxes and insurance themselves. Because of new federal legislation requiring lenders to be more vigilant about canceling PMI on loans of 80 percent or less, most lenders have set up guidelines for consumers. In most cases, a property must be reappraised to prove its new higher value. Appraisals cost between $300 and $400. Still, that cost is minimal relative to the long-term cost of PMI, especially if appreciating property values make it unnecessary. Canceling an escrow account may take more time, depending on the lender. However, it is worth pursuing while property values are on the upswing. Once the account is canceled, it is wise to set up an automated monthly withdrawal of funds for future property taxes and homeowners insurance into some kind of interest-bearing account. Property taxes usually come due twice a year while homeowners insurance premiums vary. Until those bills are due, the funds could be earning interest. Over the course of a standard 30-year loan, the interest could total thousands of dollars of extra savings. Not only could such savings pay for a child’s college or a terrific vacation, but some could be put toward paying off the mortgage early, too. |
|
| What is a clean contract? By Dian Hymer Real estate agents often talk about the merits of a clean contract. A clean contract, or purchase offer, is simple and straightforward -- one that's not complicated by lots of contingencies, restrictions and conditions. A contingency in a real estate purchase is something that must be satisfied in order for the sale to go through. Contingencies protect buyers and sellers, but they also provide opportunities for real estate transactions to fall apart. For example, the buyers may need to sell another property to come up with enough cash for the down payment. If their property sells, the deal goes forward. If it doesn't, the deal is off. Other common contingencies are for inspections, for financing, and for approval by other parties (like attorneys or accountants). Less common contingencies are sometimes more difficult to satisfy. Perhaps the buyers only want to buy a property if they can modify it, or use it, for a specific purpose. For example, they might need city approval to run a day-care center. Seller contingencies can also complicate matters. For example, a property that's being sold to settle an estate might require court approval of the sale. In this case, the buyers don't know that the house is theirs until the sale is confirmed in court. Given the emotional nature of home buying and selling, most buyers and sellers prefer the cleanest contract possible. Buyers often shy away from buying homes where the sellers have complicating factors effecting the sale, like a requirement for court confirmation. Sellers often reject an offer if it's contingent on the sale of another property. In both cases, the degree of uncertainty is high. Being able to offer a clean contract may give you an advantage when negotiating with the sellers. This is particularly so if you find yourself competing with other buyers for a property. Put yourself in the seller's shoes. The fewer strings attached to an offer, the better the chance it has of going through. The more contingencies there are, the more opportunities there are for something to go wrong. FIRST-TIME TIP: Even though a clean contract may give you a competitive edge, you shouldn't delete contingencies from your offer if, in fact, you need to satisfy certain conditions in order to close the sale. For example, if you need to line up a mortgage in order to close, you will need a financing contingency. If you write your offer without a financing contingency, you may risk losing your deposit money if you can't get the loan. Rather than giving up the contingencies you need, shorten the time period required for satisfying these contingencies as much as possible. A typical financing contingency is about 30 days following acceptance. If you can shorten this by a week or two, the sellers will know they have a solid deal that much sooner. In order to shorten a financing contingency, you need to be planning ahead. Many buyers get preapproved for the loan they need. To get preapproved you must submit a loan application and documentation such as verifications of employment and down payment. You must have your credit checked. Then the lender gives you loan approval subject to you finding the home you want to buy. Buyers who aren't preapproved when they enter into contract to buy a home will need to submit a loan application within a day or so of acceptance to get approved within 2 or 3 weeks. THE CLOSING: To make a clean offer, get your financing set up and take care of as many conditions as possible before you start negotiating. |
|
| How can I reduce my closing costs? By Dian Hymer Often it's easier for buyers to qualify for a mortgage than it is for them to scrape together enough cash for the down payment and closing costs. Down payment amounts vary. Usually they're in the range of five to twenty percent of the purchase price. In addition, closing costs can run another $5,000 to $10,000, depending on where you buy and the cost of your loan. Closing costs are fees associated with a home purchase that are paid at closing. Buyers and sellers both pay closing costs. Who pays which costs is often set by local custom, but it can be negotiable. Typical buyer closing costs include such items as: fees associated with getting a mortgage, homeowner's insurance, titles and closing fees, inspection fees, proration of property taxes and transfer taxes (if there are any). FIRST-TIME TIP: One of the easiest ways to lower your closing costs is to get a zero-point mortgage. Points is the term used for the loan origination fee. One point is equal to one percent of the loan amount. A $180,000 mortgage with a 2-point loan fee will cost you $3,600 at closing. A no-point $180,000 loan will save you $3,600 in closing costs. But, expect to pay a higher interest rate on a no-point loan. There's an inverse relationship between the points you pay and your interest rate. Another way to reduce your closing costs is to close late in the month. Lenders usually collect interest for the current month at closing. If you close on the fifth day of the month, you'll owe the lender 25 days of interest at closing. If you close on the twenty-fifth day of the month, the lender will collect 5 days of interest when you close. Closing at the end of the month can reduce your closing costs considerably if your loan balance and interest rate are high. Asking the sellers to credit you money to pay for some of your closing costs is another way to reduce the amount of cash you'll need to close. Keep in mind that when you ask sellers to do this, it's the same as asking them to accept less for their home. For example, if you offer $200,000 with a credit from the sellers of $3,000 for your closing costs, this is the same as a $197,000 offer. In a competitive situation, where multiple buyers are trying to buy the same home, you may have to pay full price or more to be the successful bidder. If you need the closing cost credit to make the deal work, raise your offer price by the amount of cash you need and then ask for the credit. For example, if the list price is $200,000, offer $203,000 with a $3,000 credit for your closing costs. The property must appraise for the higher price for this to work. Also, lenders have restrictions on how much they'll allow sellers to credit for closing costs: often it's 3 to 6 percent of the purchase price. And, most lenders won't allow a credit that exceeds the actual amount of the buyers' non-recurring closing costs (costs paid by the buyers one time only at closing, such as points and title fees). THE CLOSING: If the sellers are renting back from you after closing, ask them to credit you their rent money at closing. Clear this with the lender in advance, otherwise, the lender might require that rent be given to you later, when the sellers vacate. If the rent is credited, it reduces the cash you'll need to close. |
|
| Should buyers and sellers meet? By Dian Hymer Real estate agents almost always advise sellers to leave when their home is shown to prospective buyers. Buyers are also advised to conceal their excitement about the listing if they do happen to run into the sellers. Why are real estate agents so nervous about chance meetings between buyers and sellers? Some agents worry that the buyers could jeopardize their negotiating position if the seller becomes aware of the buyers' enthusiasm for the property. In some cases, this might be so, but such an encounter could just as easily have the opposite effect. One couple returned to see a listing they were considering at night so they could appreciate the city lights view. The seller was home. The buyers and sellers engaged in a friendly conversation, which left the seller with a positive impression of the buyers. The seller subsequently received three offers. The couple he met at the property offered the lowest price of the three. The seller wanted these buyers to have the house if they were willing and able to pay the highest price he was offered. So rather than accept the highest offer, he issued a counteroffer to the buyers who'd made the lowest offer. They accepted. If he hadn't had the personal connection to these buyers, they wouldn't have received preferential treatment. HOUSE HUNTING TIP: There are many advantages to having buyers and sellers meet, but there are several issues to be aware of. Buying and selling a personal residence is unlike any other business transaction. There is an emotional component that can have an effect on the outcome of the transaction. If you were to meet the seller at the property and have an unpleasant encounter, this could hinder your chances of a smooth negotiation. Sellers who list their homes for sale with a real estate agent often do so because they don't want to interact directly with the buyers. They want to put the marketing and negotiations in the hands of trained professionals. A buyer should respect a seller's wishes if he doesn't want to meet with you until you have completed your negotiations. This includes any negotiations that might be required to resolve inspection-related issues. After that, it's usually beneficial for the buyers to meet with the sellers for the purpose of learning more about the property. If the seller has lived in the property for some time, he has had time to decipher idiosyncrasies that could take you months or longer to figure out. Recently, a buyer learned that if she lowered a shade in the kitchen during warm weather, she could avoid walking into an unbearably hot house when she returned at the end of the day. Make a list of questions you have before your meet with the seller. If you're buying a home with a garden, you might appreciate knowing what the seller recommends about ideal times to prune, or which plants will require more or less water when the season changes. Ask the sellers if they have any service providers—like gardeners or a handyman—that they would recommend. Write down their names and phone numbers. Contact these people as soon as possible if you want them to continue working for you. It could take you months to establish relationships with new service providers using a hit and miss, trial by yellow pages approach. THE CLOSING: If you do meet with the sellers, it's usually best to keep your redecorating and remodeling plans to yourself. The sellers may have a strong attachment to their own taste in such matters. Try to culminate your transaction on good terms. |
|
| How to choose the right contractor By Paul Bianchina For anyone who owns a home, do-it-yourself projects are a fact of life. Being able to undertake a project with your own two hands has a number of advantages. You have the feeling of pride that’s associated with your own accomplishments. You know the work is being done exactly the way you’d envisioned it, with the exact materials you want. You can schedule the work – and any resulting inconvenience – around your family’s schedule. And, of course, you can save some money. But there are some projects that, due to time constraints, your own skill level, or simply the overall size of the project, you don’t want to undertake on your own, so you make the decision to hire a professional contractor. And the first question that arises is almost always "how do I find the right one?" Know what you want – know what you need Before you even start looking for the right contractor, you need to know as much about what you want to have done as possible. That sounds simple enough, but a surprising number of people have only a vague idea of what they want to do, and that can result in lots of disappointments and misunderstandings. The more details you have ready to give the contractor – from room sizes and intended uses to colors and types of appliances and trim – the better your chances will be of getting the finished product you’re hoping for. You also need to know what types of companies perform the types of services you’re looking for. As the saying goes, you don’t hire a proctologist to do brain surgery - even though they’re both doctors, they have different specialties. If you want a contractor to repair your fire-damaged home, look for someone who specializes in fire damage, not a firm that only builds new homes. There are also times when you need a general contractor, and times when you don’t. If you want to have a new toilet installed, you need a plumber, not a general contractor. But if you want to have a room addition built, you want to employ the services of a general contractor with specific remodeling and room addition experience, as opposed to hiring five or ten individual subcontractors. Referrals The single best way to find a contractor is to get a referral from someone you trust. If you have a friend or a relative who had some work done on their home that they were pleased with, that’s a great starting point. You can get some honest feedback about the contractor’s skill level, price, scheduling, level of cooperation, and much more. There are a lot of contractors out there to choose from, and like most businesses, they succeed or fail mostly by their reputation, so a good referral is very helpful. There are other sources of referrals as well. If you see a room addition being built down the street and it seems like it’s going well, stop and talk to the homeowner. Most people are more than willing to share their experiences – good and bad – about the contractor they’ve hired, and here again you can get some great first-hand information. Material suppliers are also great sources. Ask the people where you buy your lumber or your plumbing supplies if they know of anyone who’s particularly good at the type of project you have in mind. Retailers have a reputation to protect as well – they want to keep you happy and coming back as a customer – so they will typically only refer contractors whom they know are honest and will do a quality job. Ask questions, then follow up When you have a referral or two, call the contractors to set up an appointment. Ask the following four questions: Do they do the specific type of work you’re looking for? It could be they no longer do kitchens or room additions, or they now do remodeling and have stopped building new homes. Clarify that up front. What is their schedule like? If you have a project that has to be done within the next month and the contractor can’t even start until then, there’s no point in wasting your time or theirs. Can they provide you with referrals? Most companies are more than willing to provide you with names and phone numbers for past clients - if they can’t or won’t provide you with referrals, don’t hire them! Between the time you call the contractor and the time they come out to your home, be sure and follow up on a couple of the referrals and get some feedback from the homeowners. For larger projects, you may even ask if you can come out and view the contractor’s work. What is their name and license number? Get the contractor’s full business name, address and business phone number, as well as their contractor’s license number. Immediately follow up on this information, and call the proper state or local licensing agency to verify the status of the license and that any required bonds and insurance policies are in place. |
|
| Pre-approval vs. pre-qualification By Inman News Is pre-approval a general endorsement by a bank? No, when you are pre-approved, it is for a specific loan program from a specific lender. Not all lenders offer all loan programs. You may need to get approved with a different lender or for a different loan program with the same lender, depending on your financing options at the time you buy a house. Check with the agent or broker who helped you gain loan pre-approval before you write an offer. If you think you will need to get re-approved for a loan, make sure to allow enough time for this in the purchase contract. Is the pre-qualification a guarantee that I will get the loan? No. The lender or mortgage broker is under no obligation to grant you a loan. Most pre-qualification letters state that a buyer appears to be qualified for a certain loan amount. There is usually a disclaimer to protect the lender or broker in case you fail to qualify. Before a lender will actually loan money, you must complete a loan application. Is there anything official about a pre-qualification? No, loan pre-qualification is an informal process. After a review of your financial status, a loan agent or broker will issue a letter stating that if the information provided is accurate you should be able to qualify for a loan of a certain amount. Often, these letters are form letters. Even if a pre-qualification letter is personalized, it usually contains disclaimers to protect the loan agent. Consequently, some real estate agents feel that pre-qualification letters are worth little more than the paper they're written on. |
|
| Repairing damaged exterior paint areas By Paul Bianchina As the weather warms and you start wandering around outside a bit more, you may be noticing that winter rain, snow and wind have played havoc with your exterior paint in some areas. Particularly affected are those sides of the house exposed to the direction of winter storms, and you’ll often find that while the entire house doesn’t need repainting, those damaged areas certainly do. Preparation The key to any good paint job is proper preparation, and that’s even more true when you’re repairing a weathered portion of your home’s exterior. There are several steps required in a good prep job, and you’ll need to determine which of them are applicable in your particular situation. First, you need to complete any necessary repairs. If the weathering has rotted or splintered siding or trim boards, for example, they need to be replaced or re-secured before proceeding. This includes repairs to windows and doors, weather stripping, roofing and any other damaged areas. Next, you’ll need to prepare the site to receive paint. Any loose or peeling paint needs to be removed first, working back until you are certain you’re into undamaged paint that is well adhered to the underlying surface. For small areas of wood or flat masonry such as brick – or for an entire wall if you have the stamina – you can use a paint scraper and remove the loose paint by hand. Hold the scraper at a low angle, relatively parallel with the board you’re scraping, and work with short, firm strokes to scrape the paint off. Work with the grain of the wood to avoid raising grain fibers, and be careful not to dig into the wood’s surface. Be sure and wear eye protection against flying paint chips! Small areas can also be handled with a belt or pad sander. For larger areas, you might consider the use of a gas-powered pressure washer, which can be rented by the day from most rental yards. Use the lightest pressure setting and the widest nozzle spray pattern that will get the paint off – high pressure and narrow, concentrated spraying can gouge into wood and soft masonry, or possibly damage surrounding areas. If the siding, trim or other surfaces you’re working on have been painted several times in the past, when you have scraped down to bare wood you may notice that the surrounding areas of existing paint are considerably higher than the surface of the wood. This will show through your final paint job, so take some sandpaper and feather the sharp edges of the old paint so that it blends more smoothly down to the bare wood areas. When the paint has been removed, let the surfaces dry completely before proceeding with the painting. If you’ve used a pressure washer, the surface of the wood will be damp but not saturated, and should dry fairly quickly. If the wood has been exposed to a full winter of driving rain, however, the moisture will be deep into the wood or brick, and you may need to wait several weeks until the wood is dry. Painting over it while it’s still moist will simply cause the paint to fail prematurely. The final preparation step is to re-caulk any areas that require it. Use a good quality latex caulk with silicone, and make sure you close up all the gaps in siding and trim before painting. Priming and painting With the surfaces clean and dry, you’ll next need to apply a primer over any bare wood. This is an important step, and to ensure a good coating and long paint life, it should not be omitted. Use a good quality oil-base primer that’s formulated for the wood or masonry you’re working with. For surfaces that are damaged or very dry and porous, apply two coats. The final step is the application of the topcoat of paint. If you have any of the original paint available for touch-up use, be sure and check its condition before trying to use it. Latex paints will harden in the can if they’re exposed to any oxygen, and, depending on where they’ve been stored, they are subject to freezing as well. Oil-base paints will separate over time, and need to be thoroughly re-mixed prior to use. If you have questions or doubts about the paint, have your local paint store check it for you. If you don’t have paint, or if the existing material is ruined, your paint store can custom match new paint for you. Simply bring them an old paint can or a piece of wood or other material that’s been painted with the color you want, and they can do a remarkable job of matching the color. As always, specify only top-quality, name-brand material when buying paint. One final word of caution – if you have an older home and suspect that one or more layers of the paint you’ll be scraping or sanding off may contain lead, be sure and have it checked prior to working on it. Your local paint store can give you additional information on how and when to test for lead paint, and what to do if you find it. |
| Homebuyer Checklist Important questions you should be asking what you should ask the seller or the listing agent when you're interested in a home? If you know why a seller wants to sell, it can help you negotiate a better offer. The more motivated the seller, the more you can negotiate. It may take some finesse, but see if you can work these questions into conversation with the seller or the listing agent. Which of these reasons apply to the seller? These can go either way. You will have to get a sense from your conversation how quickly they want to sell the house if they: ___ Need more space ___ Need less space ___ Want to relocate ___ Are unhappy with neighbors or the neighborhood You may be able to negotiate to have the seller finance part of your purchase. Explore this possibility if they: ___ Have lived there a long time ___ Owe little or nothing on the house ___ Are retiring You may have some leverage when negotiating if the seller needs to sell the house quickly because of: ___ Relocating involuntarily (for example, a job transfer) ___ Changing marital status ___ Financial reasons ___ Health reasons ___ A death in family ___ Is the seller highly motivated to sell? A highly motivated seller MUST sell soon. Job transfer, divorce and financial difficulties put pressure on the seller, which can benefit you when you make an offer. ___ Has the seller bought another house that has yet to close? The seller will be more anxious to facilitate your purchase if the seller needs to complete the purchase of another house soon. ___ Is the seller trying to cash in on this investment? If so, you will have trouble negotiating too many concessions. ___ Has the seller lived there a long time? If a seller has been in a home a long time and accumulated a lot of equity, you may be able to negotiate to have the seller finance part of your purchase. |
| Points or no points? If you've been shopping for a mortgage, you've probably found that rates often depend on how many "points" you're willing to pay. The more points you pay, the lower the interest rate. Points is a term used by the lending industry to refer to the loan origination fee. One point is equal to one percent of the loan amount. On a $200,000 mortgage with a one point fee, you'll pay a $2,000 loan origination fee at closing. No-point mortgages are available but at a higher interest rate. The interest rate on a no-point mortgage will be about 1/2 to 5/8 percent higher than it would be on a mortgage where the borrower pays one point. No-point mortgages are popular with buyers who are short of cash. In addition to a cash down payment, buyers must come up with enough extra cash to cover their closing costs. Closing costs are usually set by local custom and they vary from one location to the next. Buyers often pay for such things as lender's title insurance, the fees associated with their new mortgage including points, inspection fees, transfer taxes (if there are any, and these are sometimes shared between the buyer and seller), and homeowner's insurance for the first year of ownership, to name a few. Points can add significantly to the amount of your closing costs, particularly if your mortgage amount is high. One point on a $300,000 mortgage is $3,000; its $4000 on a $400,000 mortgage. A sure way to reduce your closing costs is to take a no-point mortgage. Buyers who have the cash, however, might prefer to pay points and take a tax write-off. Homebuyers who itemize deductions are entitled to deduct points paid for a purchase mortgage in the year the points are paid. This can amount to a sizable one-time write-off if the mortgage amount is large. Other benefits are a lower interest rate and lower overall financing costs. A buyer who pays points can end up saving money if the property isn't sold too quickly. FIRST-TIME TIP: Whether or not it makes sense to pay points, even if you have the cash, depends on how long you plan to keep the mortgage. The longer you plan to stay in the home, the more it makes sense to pay points. Ask your loan agent how long you'd have to keep the loan in order to recoup the cost of paying points. Or you can easily do this calculation on your own. Let's say you're trying to decide between two 30-year, $200,000 mortgages: one with one point and an interest rate of 7 percent and another with no-points and a 7 1/2 percent interest rate. You plan to stay in your home for at least five years. The monthly payment is $1398 on the 7 1/2 percent loan and $1330 on the 7 percent loan-a difference of $68 per month. Multiply $68 by 12 to determine the annual cost difference between the two loans ($816). Then divide the points ($2000) by $816. The result (2.45) is the number of years you'd need to keep the one point mortgage in order to recoup the cost of paying one point (not including tax benefits). If you were to move or refinance within 2.45 years, you'd be better off with the no-point loan. THE CLOSING: Some borrowers go for a no-point mortgage if they think interest rates are going to drop. They'll pay points later to refinance at a rate they feel they'll want to keep long term. |
|
| Your Newsletter is Powered by: |
 |
|
 |
