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| Reducing the stress of buying or selling a home Buying or selling a home ranks high on the list of stress-provoking situations. Here's some advice for making things a little easier. It's disrupting, uncertain, unsettling and time-consuming, not to mention expensive. Sellers whose homes sell quickly worry that they sold too low. Sellers whose homes take months to sell wonder if they'll ever sell. Buyers agonize over paying too much. And both buyers and sellers complain that the process takes too long. People move for a variety of reasons, sometimes by choice but often not. Frequently a move is forced on a family because of a death, a divorce, a job loss or an unanticipated transfer. So the reason for the move can be stress-provoking. And since most people dislike change, the very act of moving is bound to be stressful. What can you do to ease the pain? Pick your real estate agent carefully. A good agent will go out of his or her way to make the move easier for you. Make sure that your agent will communicate with you regularly, and will be available to consult with you on short notice. The unpredictability of the real estate experience can be unnerving. Your agent should review the buying and selling process with you so that you know what to expect. Buyers moving to a new area should find an agent who has experience working with buyers who are relocating. Your employer can probably provide you with a good recommendation or ask the agent who is helping you sell your home to refer an agent to you. Be sure to ask for a relocation package. It should include information about your new community as well as sample listings of homes for sale. The Internet is a great source of information. For example, Realtor.com (www.realtor.com) lists 1.3 million properties across the country that are for sale. It includes maps, photos and community facts. So it's possible to preview listings long distance. Buyers who are buying locally can also cut down the time they spend looking at new listings by viewing homes on the Internet. Getting your home ready to sell can be a huge task. If you're short on time, consider hiring help if you don't have family or friends who can help you out. Showing your home to prospective buyers is an invasion of your privacy. Furthermore, it's best to leave your house when it's shown. It may make life easier if you plan to eat out when the home is new on the market and is getting a lot of showing activity. FIRST-TIME TIP: If you're buying or selling a home with a partner, divide the workload so that you don't duplicate efforts. Perhaps one of you can preview new listings and the other can arrange the financing. Make good use of modern technology to lighten your load. Use email, voice mail and facsimile rather than lengthy telephone communications to exchange messages. Moving always seems to come at an inconvenient time. But even though you feel pressed for time, don't eliminate stress-reducing activities like jogging or cycling from your schedule. Staying involved in your favorite hobbies and sports will add some semblance of order to your chaotic life, as well as provide needed relaxation. Plan time outs for you and your family. Take day trips or go away for a weekend. If you've been looking for a home for months with no luck, take a break and enjoy yourself. THE CLOSING: There will undoubtedly be times when you feel stressed out or depressed. Understand that these feelings are normal and they will pass. |
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| Should I wait until spring to sell my home? Some sellers are averse to having their home on the market over the holidays. However, depending on market conditions in your area, this winter could be an opportune time to sell. The price you receive for your home is in large part a function of supply and demand. The more homes like yours there are on the market, the more competition you have from other home sellers. When buyers have a good selection of homes to choose from, they tend to be more selective. It can take longer to sell and prices may be discounted. When there is a scarcity of homes for sale -- called a low inventory market -- your chances of a quick sale at a high price are better. Buyers have less to choose from so they're more willing to make compromises. Prices tend to rise as buyers compete with one another for the limited supply of homes available. There is a seasonal aspect to the residential real estate market. Spring is usually the period of most intense sales activity. Unless there is a pressing need to sell, most sellers wait until April or May to list their homes for sale. The inventory of homes for sale usually drops off starting in November and doesn't pick up again until spring. This period of low inventory can be a prime time for sellers who break with convention and list their homes during the winter months. This year could provide an excellent opportunity for sellers who choose to list their homes when most sellers are thinking of taking their homes off the market for the holidays. Interest rates have increased over 1/2 percent on home mortgages over the last two months. Rates could move higher before they stabilize. Buyers may continue to look through the holidays this year in order to get into a home before interest rates move higher. FIRST-TIME TIP: One of the primary reasons sellers don't like to market their homes over the holidays is that it's inconvenient. Discuss your concerns with your real estate agent and work out a showing arrangement that you can live with. Insist that showings be by appointment only. This way you won't have agents arriving with their buyers to see your home when you're involved in holiday activities. Lock boxes are often used to facilitate showings. A lock box is a metal box that is secured to a doorknob or handrail. It contains your house key and is used by agents to show your home. To avoid being inconvenienced during the holidays, ask your agent to remove the lock box and leave it with you. When agents call you for an appointment to show your home you can put the lock box on the front porch for them to use. Moving over the holidays may inconvenient. You can control when you deliver possession of your home to the buyer by negotiating a mutually satisfactory closing date. If the buyer wants to close early in order to hold an interest rate, negotiate a rent-back provision that allows you to rent your home back from the buyer for awhile after the closing. THE CLOSING: The first few months of the year can also be a great time to sell because inventories are almost always at their low point for the year then. During January and February of 1999, buyers were out in force in the San Francisco bay area. Most of the relatively few sellers who did brave the winter market had a profitable selling experience. |
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| Solutions for wine lovers By Paul Bianchina If you're someone who loves a good glass of wine, having your own wine storage at home ranges anywhere from a convenience to a necessity. Depending on your needs and your budget, you have lots to choose from. Bottle storage Whether you have a couple of bottles in your kitchen or a couple of hundred in your wine cellar, options abound for the storing of wine bottles. Your choice comes down to one of price and aesthetics. Metal racks are typically the least expensive. These typically are found in the form of an open grid of black metal wire, and you can combine two or more grid racks to increase the storage. A rack approximately 30" wide by 65" high will hold about 150 bottles, and is priced around $100. Wood racks offer another alternative. They can be found in the form of interlocking grids that hold one bottle per opening, or as solid-sided or open-slatted "crates" that are divided by diagonal slats to form a series of large triangles. This is similar to what you might see in a wine shop or other retailer, with several bottles being stored together in each triangle. You'll find wood storage shelves and crates in pine, oak, redwood, and a variety of other woods, or you can have a wood shop custom make whatever you need. A typical wood rack that holds around 125 bottles will start at about $100 and go up from there. Refrigerated storage cabinets Refrigerated cabinets provide a more stable environment for fine wines. The typical refrigerated cabinet will have a well insulated outer case to prevent temperature fluctuations and excessive vibrations, a solid or glass-fronted door that provides a tight seal and reduces light inside the cabinet, interior racks that hold the wine at the proper inclination to keep the cork moist, and a specially designed refrigeration unit that keeps the interior environment at precisely the correct temperature and humidity. Refrigerated wine cabinets are different from standard refrigerators, and they're available in a variety of sizes for either stand-alone and under-cabinet installation. Common sizes will hold anywhere from 25 to 100 bottles or more, and prices range from $1,000 to over $3,000. Prefabricated wine rooms As your collection grows, you might want to step up to a wine room for extra storage. The easiest way to accomplish that is to purchase a prefabricated, fully insulated wine room, which comes complete with everything you need in one package. Wine rooms are available in a wide variety of sizes and finishes, including oak, mahogany, and even stainless steel. There are several different finishes available, and doors that range from solid wood to stained glass. Sizes range from around 4' x 7', which will store about 750 to 800 bottles, to 7' x 10' or larger, which will handle more than 2,100 bottles. Each one has a refrigeration unit that is specifically sized to accommodate the dimensions of that particular unit, and most sizes are shipped unassembled for easier installation. Prices range from $3,000 to $6,000 or more. Site-built wine cellars Now you've reached the ultimate in wine storage – the site-built wine cellar. This is typically an existing room (or rooms) that is converted for this specific use, and the size, layout, and storage capacity is virtually unlimited. If you're considering converting an existing room, there are a few things to keep in mind. The walls and ceiling need to be insulated to at least R-19 for good stability and energy efficiency – more if possible – and raised floors should be insulated to R-19 or higher as well. Concrete slab floor should clean, free of cracks and seepage, and protected with a good grade of concrete sealer. To prevent possible condensation, a vapor barrier of 6-mil plastic sheeting needs to be placed on the warm side of the insulation – in this case, that would be the side facing away from the inside of the wine cellar. Interior surfaces need to be capable of withstanding cold temperatures and humidity. Waterproof drywall is one option, and most wine experts recommend sealing it with latex paint to prevent possible paint odors from getting to the wine. Naturally rot-resistant woods such as cedar, redwood, and teak are another option, as are plastic panels. The door needs to be solid core wood or insulated metal, and very well weatherstripped. Finally, you need a refrigeration unit, of which there are two basic types. In-room systems have all of the components inside a single cabinet located inside the room, and while they take up a little more room, they have the advantage of lower cost and easier installation. The other choice is a split system, which utilizes an outdoor condensing coil and an inside evaporator connected by insulated pipes – similar to a standard home air conditioning system. Either system needs to be carefully sized to the size and energy efficiency of the room, and prices start at around $900. |
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| Relocation is manageable, really! You'll save time and money if you know about all the relocation benefits you're entitled to. Then, get organized and plan your move. Here are some tips: Find a good agent. Most successful relocations hinge on a good agent. The best choice is an agent who is patient, well organized, knowledgeable about the area, and has had some experience dealing with transferees. If your company moves you, ask for recommendations from the relocation department. Call each agent to request copies of their resumes to find out more about their background. When you decide, set up a schedule and method for your agent to transmit listings for you to review. You can also scroll through listings online. You may work with more than one agent if you look in more than one area. Let each agent know you're working with others in other areas. Schedule your move immediately. You may not know whether you'll be moving to your own home or to a rental, but contact a moving company and get on their schedule as soon as possible. During heavy moving periods (spring and summer, in most parts of the country), it can be difficult to get the time slot you want, so don't wait. Schedule more than one shopping trip, if possible. The more time you have to look, the less pressure you will feel to buy. If you work with an agent, be clear about what you want, so they understand your priorities and won't waste your time showing you homes that don't fit. If you've been looking at listings online, give them the listing numbers of homes you want to see. Bring an instant camera and take pictures of homes you like, so you can attach the photo to your notes. Review notes and photos each night to pick out your favorites. Take advantage of available resources. Relocation companies generally offer packages that include moving help, real estate agents on either end of the move (if you have a home to sell) and help getting a loan. If you're a first-time buyer in the new location, this can be very reassuring. Even more valuable are buy-back or interest-paying programs for relocating homeowners who can't sell their homes in the previous location (see below). Be sure you know what relocation benefits you're entitled to, and don't hesitate to negotiate for more--just as if you were making a purchase offer. Talk to your new colleagues. Get recommendations about desirable neighborhoods, good schools, available child care and your other priorities. Ask about commute times, and if you have time, test drive the commute between your new workplace and the areas where you want to live. Use online resources. Online property listings are a useful tool, because they're available to you no matter where you are. You can even search for properties by neighborhood. If you take advantage of online information to learn more about the areas that interest you, you can work more effectively with your agent. Remain calm. It's hard to be objective, especially if you're trying to adapt to a new job and find a new place to live. Try to remain calm and collected. The last thing you want to do is buy the wrong house or pay too much for it. -------------------------------------------------------------------------------- TIP: Don't rely on the relocation company to do your thinking for you. If you're dealing with the relocation division of a major real estate company, they may steer you just to their listings or neighborhoods where they have substantial listings. Ask to see other companies' listings or ask your employer to put you in touch with an independent relocation company that can give you a more balanced perspective. Look into buy-back and interest-paying programs. A buy-back program offers the best relocation benefits. In a buy-back program, your employer buys your house, usually at market value. Some companies will pay you a bonus if you can sell the house yourself before they're scheduled to buy it. Under an interest-paying program, the employer agrees to cover the interest payments on your existing mortgage until you sell your house. A buy-back may not be as good as it sounds if current prices are lower than what you paid, and you'll take a loss when you sell the house. Some companies offer limited reimbursement for losses. You may also want to hold on to the house and rent it until it's a better time to sell. Make sure you understand these benefits and their implications before you sign up. Do the math on your move Most employers will cover (or help cover) the costs of moving, but you may lose on the difference in housing prices between your new area and the old one. If you find that housing prices--and the cost of living in general--are high relative to where you live now, try to negotiate a better relocation package with your company. For example, ask for a relocation bonus to cover incidental moving expenses and closing costs in the new location. Request a more substantial raise to cover the disparity. And remember to ask your tax advisor if you can deduct some of your moving expenses. |
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| Spruce it up to sell Some sellers wonder if it's worth the effort to fix their homes up for sale, particularly in a hot market where almost every listing that comes on the market sells. Most real estate agents will tell you that the listings that sell the fastest and for the most money are the ones that are in the best condition. Even in a hot market, buyers pay a premium for homes they can move right into. In most cases, however, it's not recommended that you do a major renovation of a home simply for the purpose of making it more salable. The reason for this is that, in most cases, you can't immediately recoup a major renovation investment. Your money should be spent on giving your home an economical cosmetic facelift For example, let's say you have an older kitchen. Rather than gut the kitchen and spend $40,000 to $50,000 on a completely new kitchen, it makes more sense economically to paint, replace the floor covering and change the countertops. This, and a general cleanup, is usually all it takes to give a tired-looking kitchen a fresh new look. First impressions are very important in the home sale process, so you should pay attention to how your home looks from the street. If you are on a limited budget, concentrate your efforts on sprucing up the front and entry of your home first. Your home should look inviting and well maintained, so clean up the yard, plant new sod if the lawn is dead, fix leaning fence posts and paint the front door. FIRST-TIME SELLER TIP: Most homes are packed with too much furniture and too many personal possessions after years of ownership. Get rid of anything you no longer want or need before you put your home on the market. Your home will appear bigger and tidier, which will make it more appealing to buyers. And it doesn't make sense to pay to move things you no longer want. Sellers who have outgrown their homes are wise to rent storage space for possessions they want to keep that don't fit comfortably in the home. Avoid the temptation to simply stuff things in closets or the garage. This will defeat your purpose. Your aim is to present your home as a desirable place to live. If every inch of storage space is stuffed with your possessions, your home will appear to be too small and without adequate storage space. Buyers appreciate a clean, tidy interior, so remove clutter from the countertops in the kitchen and bathrooms. A home office is an attractive feature, but not if the desk is covered with papers. Clean up your home office so that buyers get the impression that it's a comfortable place in which to work. Every room in your home should look like it serves its intended purpose well. Make the most of all the available living space in and around your home. Many people cannot visualize how a space will look, so you're wise to leave nothing to the imagination. For example, if you have a deck, set up outdoor furniture to show buyers that you have an area suitable for outdoor entertaining. A room in the basement might be made into an exercise or hobby room with minimal effort. THE CLOSING: Have your home, including the windows, professionally cleaned. Be sure to keep your home clean and tidy during the marketing period. Bright interiors are appealing, so leave the lights on during showings, even though it may seem like a waste of money. |
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| Are you ready to be a do-it-yourself-er? By Paul Bianchina While relaxing in the yard, sipping a cold one, your mind may start to visualize that big new deck you've been wanting, or an addition to the family room... Do-it-yourself projects, large and small, can indeed save you money and bring you a lot of pleasure. They are a wonderful way of adding both value and a deep sense of personal pride to your home. But before you grab your tool belt, it pays to ask yourself some honest questions about your ability to undertake the project. This is not designed to intimidate you or dissuade you from undertaking the work – it's just a little honest assessment to guide you toward those things you can comfortably do, and those things that are best left to others. Do you have the knowledge? First and foremost, you need to ask yourself if you know how – or can learn how – to do the tasks involved in project. You need to break down the steps -- to build a deck, for example, you will typically need to design and lay out the deck structure, pour some concrete, cut and fasten a lot of lumber, apply paint or stain, and perhaps do some electrical wiring – and then decide what is involved with each step, which of them you can and want to do, what additional knowledge you might have to acquire, and how you would acquire it. Do you have the skills? Theoretical knowledge is one thing, and practical application is something else – otherwise everyone who studies golf magazines could be Tiger Woods. Once you've started doing your homework about what's involved in a project of the type you're considering – studying plans, looking at books and magazines, viewing similar completed projects, or visiting home shows or home tours – then take the time to understand the techniques involved and decide if you have those skills or are interested in learning them. Do you have the time? This is definitely one of the most often overlooked – or miscalculated – areas of any home improvement project. Building takes time, and even the most experienced carpenter can underestimate just how long something may take. That deck, for example, may chew up a good part of your summer weekends or all of your vacation time, so be sure that's how you want to spend your hard-earned leisure hours. Also, ask yourself how the time frame for the project – and try and be realistic with yourself about how long it will take -- will affect the rest of the family. You may, for example, be perfectly willing to undertake that bathroom remodel, but living for three months with a portable toilet and a garden hose for a shower may lead to a serious mutiny in the house. Do you have the interest? Another often-overlooked element of home improvement projects is whether or not you have the interest. Perhaps you've done some painting in the past and are very comfortable with both your knowledge and your ability in that area. That doesn't necessarily mean you have the desire to spend the next two months painting the outside of your house. Lack of interest or desire for a particular task can lead to a lot of frustration, and a job that is rushed or done poorly can actually detract from the value of your home. Do you have the physical ability? Many building tasks involve a lot of physical labor, so you should also be honest with yourself about your physical capability to undertake the work. Other questions to consider might include whether you're afraid of heights, or uncomfortable on a roof; can you climb and work on a ladder; are you willing to crawl under the house or into the attic if necessary; even whether or not you mind getting dirty. These may seem like silly concerns, but for your own safety you really need to be comfortable with your own abilities and limitations. Do you have the necessary help? Here again, the physical reality of building is that many tasks require more than one person. From simple tasks like stretching a string over a 35-foot foundation to physical labor such as wrestling a 250-pound beam into place, do you have access to assistance if – and when – you need it? Do you have the tools? Finally – tools and equipment. Construction projects often require a wide variety of quality tools, many of which you may not have. As part of your planning, you should consider what tools will be needed to do the work, then look at what you already have, what you might be willing to acquire, and what you could rent or borrow if necessary. |
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| Questions every buyer should ask Take this checklist along when you visit a home and talk to the listing agent. Make note of your own observations, watch for defects, and ask about anything you may not see on your own. § What is the visible condition of the property? Poor exterior condition may spell problems inside. § Does the house require major repairs or replacements? Major repairs, such as a new roof, can be costly. Consider these costs if you decide to make an offer. § How old are the mechanical systems? Consider the cost of replacing older systems if you decide to make an offer. § Has the house been well maintained? Ask if the sellers have kept any maintenance records. § Where is the house located on the block? Corner lots can be spacious, but exposed to more traffic and noise. Interior lots can be quieter but too close to neighbors. § How is the house sited on the lot? Be sure the area around the house is graded properly to provide good drainage. § Are there noteworthy architectural features? Front porches, gables or other details add value to the property. § Are there noteworthy landscaping features? Established trees, shrubbery and perennials add value to the property. § What is the condition of the houses on either side and across the street? If neighboring properties are too run-down, they may affect your resale value. § What is the surrounding neighborhood like? Look for evidence of a sense of identity, and pride of ownership in the other homes. § How close is it to shopping and schools? Nearby services can also add value. § Are there community amenities nearby? Parks or recreation centers can add value to the property. § How long has the house been on the market? A long time on the market may indicate problems with the house or neighborhood that you need to know. § Why does the seller want to sell? If there's a problem with the house or the neighborhood, assess the situation carefully. |
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| A purchase contract primer It's important to ask questions when you're drafting the terms and conditions of your offer in the purchase contract, whether you do it yourself or with an agent or attorney. Not sure about contingencies? Wondering about fixtures? Just ask. You don't have to become a real estate expert to craft a good contract, but the more you know about how a contract works, the more effectively you can tailor it to your specifications. You'll also be a much savvier negotiator when the seller comes back with a counteroffer. Read the Fine (Pre)print Many residential purchase contracts include standard real estate boilerplate text. Many firms, in fact, use preprinted forms. While preprinted or computerized forms have improved efficiency, they sometimes do so at the expense of the buyer. It pays to get a copy early on of the contract you're likely to use. Read it and don't hesitate to rewrite or delete anything you don't like. If you plan to work with a preprint, get a copy when you start looking for a house and highlight terms or conditions you like or may want to modify when you make an offer. Circle what you dislike, too. This is a good way to catch buyer-unfriendly fine print. After that, you're ready to sit down and write an offer. Elements Every Contract Should Have Whether you write your own contract or using a preprinted form, you should always include between 10 and 20 basic elements, such as the address of the property, contingencies, financing terms, purchase price, closing date and others. Also include: ü Time to respond. Specify how much time the seller has to answer your offer. Contingencies should also include time limits. ü Seller's responsibilities. Include passing clear title to the property, maintaining the property in its present condition until closing, making any agreed-upon repairs and delivering the property clean and free of personal possessions and debris. ü Disposition of deposit. Specify who gets your good-faith deposit if the contract is terminated. This can vary. In cases such as failure to get loan approval, the seller should get the deposit. In the case of an unsatisfactory home inspection, the buyer should get the deposit. ü What stays. Specify fixtures and personal property to be included in the sale. Make a detailed list. Verbal agreements aren't binding. ü Terms of withdrawal. Spell out conditions that allow you or the seller to withdraw from the agreement. You may not think you'll need them, but it's good protection. ü Final walk-through. This is your chance to make sure the house is in order just before you close. Your contract should specify the seller's responsibility if the walk-through is unsatisfactory. ü Problem solving. As much as possible, your purchase contract should help you and the seller resolve any issues that crop up. For example, if your lender only guarantees your locked-in interest rate for 60 days and the seller isn't able to close in that time, one solution is to include a provision in your contract that sets a firm closing date and allows the seller to rent back to you at a cost equal to your monthly payment. ü Sellers' Contingencies Occasionally, sellers make the sale of their house contingent on their purchase of another house. If the sellers fail to complete the purchase of the other house, they can cancel the sale. It's much less risky for you to enter into contract with sellers who are already in contract to buy another home. Be sure to include a kick-out clause in your purchase contract that allows you to withdraw from the contract at some point. A kick-out clause can be structured in several ways. You may give the sellers a time limit to find another home, after which you can void the contract at your option. You may also structure the kick-out clause to let you withdraw from the contract any time until the sellers notify you that they have found another house and will remove their contingency for finding a replacement home. If the sellers' house has been on the market a long time with no offers, you may be able to convince them to waive their contingency. |
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| Is a condo a good investment? Not too many years ago, buying a condo was considered a compromise move. Condos are more affordable, particularly for first-time buyers who have a tough time breaking into the housing market. Until recently the cheap entry fee entitled you to apartment-style living, no yard to call your own and lackluster appreciation-not an attractive package to most home buyers. This may be changing. According to the National Association of Realtors (NAR), condo appreciation outpaced single-family home price appreciation in the first half of 2002. During the second quarter, the median price of single-family homes rose 7.4 percent compared to the second quarter, 2001. The median price of condos rose an impressive 14.7 percent. NAR expects condos to set a sales volume record in 2002. Statistically, condos are looking like a better investment in some areas and for some home buyers. But, not all condos appreciate at the same rate. To ensure that you make a good investment, consider the following before you buy. CONDO HUNTING TIP: Look for a condo that's in a development that has a high ratio of owner-occupants to renters. Some lenders won't lend on condos that have a high rate of absentee ownership. Also, owner occupants tend to be more concerned about keeping things going well in the development. When you purchase a condo or townhouse, you obtain exclusive ownership rights to the interior space of your particular unit. But, you also own common areas-grounds, fences, shared walls and facilities-with the other homeowners. You automatically become a part of a homeowner's association to which you pay dues. The dues cover the cost of maintaining and insuring the common areas. Precisely what the homeowner's dues cover will vary from one complex to the next, so find out exactly what's covered before you buy. The homeowner's dues may help fund a reserve account to cover major expenses, like refurbishing common areas or replacing an elevator. Make sure to check a current financial statement for the association. If the reserve account isn't flush enough to cover unanticipated expenses, the individual homeowner's could be accessed an additional amount to cover the expense. This will add to your cost of ownership. Find out if the dues have increased over time and by how much. Also find out if additional assessments have been levied against the homeowner's in the past. Be aware that with new projects, the dues may be subject to change in the future. Condos are governed by CC&Rs (Covenants, Conditions and Restrictions), which restrict your ownership rights. For instance, the CC&Rs might include remodeling restrictions. If you only want to buy the condo if you can modify it in a way that's not permitted, you should consider buying elsewhere. Some condos prohibit pets. And some have parking, storage and renting restrictions. Read and understand the CC&Rs and any other pertinent governing documents before you complete a purchase. Some CC&Rs are hard to read. If you feel overwhelmed by them, hire an attorney with condo expertise to review and interpret the regulations for you. It's usually best to avoid buying into a condo complex where the homeowner's association is involved in litigation. To find out if there are any other association issues that you might want to avoid, read copies of the minutes from recent homeowner's association meetings. THE CLOSING: One of the best ways to get the straight scoop on a condo project is to talk with some of the current residents. Find out what they like and what they don't like about living there before you decide to buy. |
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| Do I need an insurance contingency? Today, getting preapproved for a loan may not be enough to prepare you to be a bona fide buyer. You also need to know that you're insurable. Years ago, lining up homeowner's insurance was one of the last things you did before closing a sale. Now, buyers are finding that it's wise to make it one of their first priorities. Homeowner's insurance is required to close any home purchase where a new mortgage is involved. A mortgage lender won't give you a loan unless you have hazard insurance on the property with the lender named as an additionally insured. If you can't get insurance, you can't have the loan. Very few purchase contracts presently include insurance contingencies that make the purchase contingent on the buyer's ability to obtain acceptable homeowner's insurance. But, that situation could change, given current conditions in the insurance industry. Homeowner's insurance carriers have recently been hit with skyrocketing costs due to an increased number of mold and water-related damage claims. In an effort to control costs, carriers have become hyper-diligent about who they will insure, and what properties they will insure. For years, insurers have scrutinized applicants to make sure they were a good financial risk-checking credit reports and scores. Now, they also look at your claims record to see if you're a good insurance risk. HOUSE HUNTING TIP: Insurance carriers are also checking out the property to make sure its claim record is clean before they'll agree to write a policy. This means that you could have a squeaky-clean record, but you could be denied insurance if a claim or two has been filed on the property you're attempting to buy within the last 5 years. Most insurers participate in a claims-sharing database, the Comprehensive Loss Underwriting Exchange (CLUE). CLUE reports detail every claim made on a property during the last 5 years. A homeowner can obtain a copy of the Clue report on his home online at www.choicetrust.com for less than $15. A buyer cannot directly access the Clue report on a property unless the seller provides a copy. However, an insurance agent who has access to Clue can, and will, check the claims record. Insurers are also tightening up with already insured homeowners. Long-time insured customers may not be renewed if they have submitted a claim in the last year. To make matters worse, what you think is a casual inquiry, the insurer may interpret as a claim. A woman who had been with an insurer for over 10 years, called to ask if damage caused by a leaky roof would be covered by her policy. The insurer said that it would. The insured never made a formal claim. She replaced the roof and repaired the damage herself. The insurer dropped her at the next renewal date. Her benign inquiry qualified as an unpaid claim. If you call your insurer for general information, be sure to begin the conversation by saying: "This is hypothetical." Before you go house hunting, talk to an insurance agent to see if you're insurable. First-time buyers should consider taking out a renter's insurance policy. Insurers will often write homeowner's insurance for their existing customers. THE CLOSING: If your purchase contract doesn't include an insurance contingency, find out if the house is insurable at a price you can live with before you remove your inspection contingency. You can probably find insurance to cover a home with a bad CLUE report, but the cost may be prohibitive. |
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| Should I use a mortgage broker or lender? With the myriad of mortgage alternatives available, it simplifies matters to think in terms of two options. You can either use the services of a mortgage broker. Or, you can bypass the broker and go directly to a lender. Banks, mortgage bankers and lenders make loans to consumers. They have the money to lend. If you go to one of these institutions to get a mortgage, you will be dealing directly with the money source. In this case, a loan agent, who is employed by the lender, takes your mortgage application and helps process your loan. The lender's underwriters evaluate your financial documents to determine your credit-worthiness. Lenders either have their own appraisers, or they hire outside appraisers. But, your mortgage is processed in-house. The lender usually collects fees at closing to cover the cost of originating and processing your mortgage. A mortgage broker, on the other hand, usually does not have money to lend. A broker acts as an intermediary between the borrower and the lender. You submit a loan application and all of your supporting financial documentation to your broker, rather than directly to a lender. The broker hires a lender-approved appraiser to appraise the property for you. Brokers shop the mortgage market for their customers to find the best interest rate and terms possible. When the borrower decides on a mortgage product, the broker assembles the loan package, which consists of the borrower's application, financial documents and the appraisal, and submits it to the lender for approval. The lender's underwriters grant final approval. Mortgage brokers work on commission. They charge borrowers a fee (called points) for their loan brokering services. (One point is equal to one percent of the loan amount.) The broker's fees may be in addition to fees charged by the lender. HOUSE HUNTING TIP: Why would you want to pay two loan origination fees when you can pay one if you go directly to the lender? One reason is that mortgage brokers can arrange financing that wouldn't otherwise be available to you. Some lenders work only with mortgage brokers. They do not accept loan applications directly from individual borrowers. These lenders are called wholesale lenders. Some of these loans have the best rates and terms available. A lender that deals directly with borrowers is called a retail lender. Some lenders have both retail and wholesale divisions, which often charge different fees. For example, if you go directly to Bank X for a mortgage, you'll be charged one point. If you use a mortgage broker who brokers your loan through the wholesale division of Bank X, the mortgage broker will charge you one-half point and Bank X will charge one-half point for a total of one point. Make sure that you don't use a mortgage broker who charges excessive fees for his or her services. You shouldn't pay more for a mortgage through a broker than you would if you went directly to the same lender. As in any profession, there are people who do an outstanding job. They value your repeat business and referrals. Unfortunately, there are a few less-than-scrupulous people who take unfair advantage of any situation. So you should ask for referrals from acquaintances you trust. And check rates and fees with competitors before choosing a broker. THE CLOSING: A big benefit in using a broker is that he or she can quickly move you from one lender to another if for some reason you have difficulty qualifying. Also a broker may have access to a larger array of mortgage products than might be available from an individual lender. |
| ARM Twists Consumers shopping for adjustable rate mortgages tend to focus on the initial interest rate and the package of "origination fee" and discount points related to the rate. Next up on the shopping list are questions about how high the interest rate could go, and lenders then recite the typical ARM jargon involving "caps" governing periodic adjustments and the maximum rate over the life of the loan. The borrower-lender conversation then turns to sorting through hundreds of ARM types, looking for the one which best suits the borrower's likely ownership interval; or in defensive use during a high-rate episode, the one most likely to bridge the time until a rate drop and a refinance. To cover this ground often requires most of an hour on the phone with the first lender, and not a lot less with the next ones. ARMs can be a salesperson's dream of Christmas, as it's possible for each succeeding lender to present an alternate ARM to counter the ARM recommendations of other lenders. The subject most often lost -- lost because of information overload and exhaustion -- is the ultimate object of the exercise: the behavior of the index, which will define the adjustments in the mortgage rate. Despite widespread interest in "hybrid" ARMs, fixed for three-to-ten year intervals before adjustment, and equally widespread faith that the house or the loan will be disposed of before adjustment can begin... if you're going to take an adjustable rate mortgage, it's wise to be prepared for a common consequence. Adjustment. Discussion of indexes and their behavior is usually limited to a glance at a chart with several different-colored or dashed lines twisting across a graph, always reassuringly declining over time. For clear thinking about ARMs -- what taking one really means -- time is the place to start. ARMs are a recent innovation: the first ones were closed only twenty years ago. Lenders invented them in 1980 for the same reason they persist today: ARMs protect the lender/investor against the Federal Reserve. The Fed has absolute control over short-term interest rates, and all indexes used in ARMs are short term. The longest-term indexes are rolling averages with an average life never longer than a year. Consumer-confounding index-problem number one: all of the charts of indexes are misleading. 1980 marked the height of the worst American inflation in this century, the most violent response from the Fed in its history, and the highest interest rates this century. Since 1980, interest rates have fallen in all but five years. Alan Greenspan took office in 1987, and the Greenspan Miracle -- the longest recession-free epoch in American history -- is going to be a tough act to follow. I make no brief for a repeat of the 1970s, nor any other catastrophic future nearby, merely a return to a balanced likelihood, an equal probability of higher or lower interest rates. Consumer-confounding index-problem number two: all ARM indexes are prone to unpredictable behavior. There is no perfect index, just as there is no perfect hedge, perfect insurance, or perfect investment portfolio. "Unpredictable" defined here as departing from historical relationships with the Fed and the economy. The leading example: the 11th District Cost of Funds Index ("COFI"), recited as "safe" and "slow-moving" by some lender somewhere every hour of every day. Cost-of-funds indexes in general are weighted averages of the interest rates banks must pay to attract deposits. COFI has been rock-steady for the last five years, holding within a half-percent of 5.00% since 1995. However, the last five years have been an easy time for the Fed and for banks. When times are not so easy, the Fed not only jacks up interest rates, but can also make deposits scarce, which causes rate competition among banks. For the first time since 1991 there are signs that deposits are scarce, and that new, high-rate certificate of deposit costs are in the process of driving COFI out of its pleasant band. Another example is the MTA, a twelve-month moving average of one-year T-bills. In all moving average indexes (COFI is one, too), the effect of a tight Fed is delayed, as year-old, low values are replaced by brand-new, high ones. Today's reasonable 5.708% MTA will be replaced by 6.313% in December -- even if the Fed stops raising interest rates today. One more example: the old, reliable, ubiquitous one-year U.S. Treasury bill, the benchmark for the ARM industry. The Treasury is using the budget surplus to retire large chunks of the national debt. One of the objects of retirement is the one-year T-bill, which under pressure from scarcity has declined in yield to 6.13% this week, roughly a quarter percent lower than it "should" be. Good news: borrowers tied to this index by a typical 2.75% margin are adjusting to 8.875% this month instead of 9.125%. Not so good news: these ARMs are doing just what they are supposed to, protecting lenders from a tight Fed, generating rates a half percent higher than current 30-year fixed rates. The marginal savings gained by choosing an ARM in today's rate structure do not compensate for the uncertainty taken in the bargain. |
| Coping with credit For many people, exposing their credit records is one of the most difficult parts of buying a house. Perhaps you let a department-store credit card lapse with a $5 balance due. This kind of glitch is usually easy to fix and won't stand in the way of your loan. Bankruptcy, on the other hand, stays on your record for up to 10 years. Understand how lenders look at credit and take steps to clear your credit before you actually apply for a loan. You'll make the loan process a lot easier. Your Credit Score: The Magic Number Lenders are streamlining and even automating at least part of the home loan business. Many lenders—as well as the big players in the secondary mortgage market, Fannie Mae and Freddie Mac—now use credit scoring as one way to speed up the loan process. People with higher credit scores usually obtain lower interest rates, so it can benefit you if your credit is good. Most consumers never see their credit score when they apply for a loan. Your credit score is a statistical analysis of the likelihood that you'll pay back a loan on time. It draws from approximately 100 variables in your credit report, including delinquent bills, outstanding debts, the number and amount of balances you owe your creditors, and your credit history. Your credit score is a number between 400 and 900. The magic number is anything over 620. If you score above 680, lenders will usually consider you a premium borrower, which makes you eligible for lower rates and better terms. If your number is below 620, however, you are likely to be rejected. Red Flags Lenders don't want to see these on your credit report: Late payments Recent credit inquiries Overextended credit Liens Paycheck garnishments Bankruptcy Reversing Rejection If a lender turns you down for credit reasons, find out exactly what those reasons were and take steps to remedy the situation: 1. Ask your lender for a copy of your Residential Mortgage Credit Report. This report is from a compilation of your personal credit profile for the past seven years drawn from the three major credit reporting agencies: Equifax, Experian, and Trans Union. It is more detailed than the report you will get from one credit bureau. 2. Review your report and ask the credit bureau to re-investigate any marks you find questionable. The credit bureau should provide a form for you to make this request in writing. After you submit the form, the credit bureau has 30 days to investigate your claim and change your record. If you are correct, or if the creditor who gave you the bad mark can no longer verify the information, the credit bureau must remove those marks from your report. Incidentally, a credit bureau may remove an item summarily if checking the item is more trouble than it's worth. 3. If the information in the report is correct, check the date of the bad mark. With few exceptions (such as bankruptcies) the credit bureau should remove credit information on file for more than seven years. Bankruptcy Bankruptcy significantly lowers your credit rating and may stay on your record for up to 10 years. If you declared bankruptcy recently, though, you may still be able to borrow money to buy a house. In addition to credit scoring, lenders rate borrowers from A to E (A-rated borrowers are the best credit risks). If you filed bankruptcy more than a year ago (but less than 10), a lender will probably give you a C rating. As a C-rated borrower, you can expect to pay a higher down payment (20 to 35 percent of the price of the home) and between 1 to 3 percentage points more in interest than an A-rated borrower. If your credit rating is lower than an A, you may also have to bypass commercial banks altogether and go to a mortgage broker that specializes in difficult loans. |
| The lure of the fixer-upper One persistent myth in real estate is that anyone can make money by buying a fixer-upper or foreclosure property at low cost, doing the renovation work themselves, and then reselling at a profit. Many experienced contractors and career renovators do just that, but first-time buyers can get caught in a web of cost overruns, contractor disputes, and resale problems. For many first-time buyers, a fixer is the only option, and sometimes the best option. Follow these basic rules of thumb when you consider buying fixer-uppers, foreclosure properties or other real estate "bargains": ü Look for fixer-uppers with only cosmetic problems. Exterior additions or major defect repairs can be costly, and the expense of correcting major structural defects may not add a penny to the market value of the house. Fixers that have only cosmetic problems, such as ancient shag carpeting or bad wallpaper, are ideal for first-time buyers. Cosmetic repairs can be relatively inexpensive, and some fixer-uppers will pay back double their cost. Always have a fixer-upper carefully inspected before you buy. ü Don't pay too much, especially if you want to resell quickly. If you overpay, you may suffer a loss when you sell. In terms of investment potential, the best time to buy a fixer is when the market has bottomed out and is turning around. The worst time to buy is when the market has peaked and is starting to decline. Estimate the value of the property you want to buy. Research the potential market for the restored fixer-upper, and make sure that your plans for the house don't result in an over-improvement for the neighborhood. ü Estimate renovation costs accurately before you buy. If you miscalculate, your profit will dwindle. Ask your contractor for a detailed bid or do your own calculation. Have the property inspected as a condition of the purchase, particularly if you buy it in "as is" condition. You'll reduce the chance of having to fix unanticipated defects. ü Evaluate the floor plan. With a good basic layout even the most hideously decorated house is an ideal fixer-upper. On the other hand, a house that seems a maze of rooms may have a defective floor plan that no amount of paint and paper will remedy. ü Renovate wisely. In planning your remodel, keep resale value in mind--even if you plan to live in the house for some time. Kitchens, bathrooms and storage spaces are important to today's buyers. Curb appeal sells houses, so concentrate on improving the landscaping and front entry. Also, stick to neutral color schemes. TIP:You may be able to get a seller to pick up all or part of the cost of home improvements if you negotiate for them as repairs required after a home inspection. Many sellers prefer to lower their asking price and sell the property "as is" instead of financing the repairs. This presents fewer problems for the seller and the buyer can close the deal easily. Other Bargains: A Short Course Some real estate investors make a career out of buying and selling foreclosure, probate and short-sale properties, but it's a dangerous business for the inexperienced. If you're a first-time buyer, consider working with an agent or lawyer who has experience in such properties. Foreclosures If a buyer can't keep up with loan payments, their lender will foreclose on the mortgage and put the property up for auction. If the auction fails to produce a buyer, the property reverts to the lender, which then offers it for sale. You can purchase other foreclosure properties through the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). Check local legal ads and, in the case of FHA and VA properties, the Internet. CAUTION If you buy a foreclosure property, you may have to agree to an all-cash deal with no contingencies and buy the property "as is." Always get an inspection to avoid buying a house with major defects. You may also have to deal with eviction proceedings if the current owner hasn't vacated the property. Probate sales Probate property is sold to settle the estate of a deceased owner. These properties may be listed with an agent, though some sales take place at a court hearing. Because the estate's executor or a court administrator coordinate the sale, you may or may not get a bargain price. Their interest is to get the best price they can. If the heirs dispute each other over who has the legal right to the property, it may not be saleable until estate matters are settled. Always get an inspection to avoid buying a house with major defects. Short sales A short sale occurs when a lender reduces the amount of the loan payoff on a home, which it may do for a seller who can't cover the mortgage due and closing costs in order to sell. Many lenders prefer to clear such a loan from their books, even at a loss, to avoid the cost of foreclosure or having the house in their inventory. This can make for an attractive deal for a bargain-hunting buyer. Make sure your purchase contract includes a time frame (30 days) for the seller to obtain written permission from the lender to conduct a short sale. Prepare for a tough negotiation. As always, get an inspection to avoid buying a house with major defects. |
| How do I get preapproved for a mortgage? Years ago buyers didn't worry about financing their home purchase until after they found the home they wanted to buy. Not so now. Once they had an accepted offer, they'd shop around for a week or so and then submit a loan application. The recent low inventory of homes for sale has made home buying highly competitive in some areas. In order to compete, many buyers are now getting preapproved for the mortgage they need to complete the purchase-often before they even start looking at homes to buy. There are two parts to a mortgage approval: approval of the borrower and approval of the property. Mortgage preapproval is a process whereby the borrower is approved for a mortgage of a certain amount. The approval is usually good for a period of time and is subject only to the borrower finding an acceptable property. An acceptable property is one with a satisfactory appraisal and a title report that indicates that the seller is able to transfer clear title to the property to the buyer. Final mortgage approval also requires a purchase agreement that is signed by the buyer and seller. To get preapproved, talk to a lender or mortgage broker and fill out a loan application. You will need to provide verifications of your employment and the source of your cash for the down payment and closing costs. Employment can be verified with copies of paycheck stubs, W-2's or tax returns if you're self-employed. You'll also need to give authorization to have your credit checked. One of the benefits of being preapproval is that you know exactly how much you can afford to pay for a home before you enter into a purchase agreement. Another benefit is that you'll be in a better position to negotiate with a home seller. A solid preapproval letter from a lender should remove any concerns the seller has about your financial capabilities. FIRST TIME TIP: Before you make an offer, make sure that your preapproval letter isn't simply a glorified prequalification letter. A prequalification letter simply states that the lender is likely to give you a loan of a certain amount if the financial data you've disclosed to the lender is satisfactorily verified. With prequalifiction, the lender doesn't have to give you a loan if your financial and credit documentation doesn't pass the scrutiny of the lender's underwriter. Recently buyers received a letter from their lender that had the word preapproval typed at the top. Without first reading the letter, they included it with their purchase offer in the hopes of strengthening their offer. The seller's agent read the letter and discovered that the preapproval was conditioned upon the lender verifying the buyer's credit report, source of down payment funds and employment history. The letter was far from being a firm commitment from the lender to give the buyers the mortgage they needed to complete the purchase. Be aware that mortgage brokers aren't lenders. They are middlemen who broker loans to lenders. A mortgage broker with years of experience may be willing to write a preapproval letter for you without first receiving lender underwriting approval. But, if there is anything unusual about your loan application like bad credit history, borrowed down payment money or short-term employment, make sure your mortgage broker has a lender's underwriter review your package before issuing a preapproval letter. THE CLOSING: You may not need to include a financing contingency in your purchase offer if you have unconditional lender preapproval. However, you may want to include a contingency for the property to appraise for the purchase price. |
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