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Showing posts from 2021

Cash-Out Refinance

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With the rapid appreciation that homes have had in the last two years, most homeowners have equity.   A common way to release part of the equity is to cash-out refinance but some homeowners may not be eligible currently. This type of loan replaces the current mortgage by paying it off and an additional amount of cash for the owner.   Generally, lenders will consider a new mortgage up to a total of 80% of the current value. Typically, the rate on a cash-out refinance will be slightly higher than a traditional purchase money mortgage.   As is in any lending situation, the rate depends on the borrower's credit and income.   The best interest rates are available to borrowers with higher credit scores, usually over 740. Loan-to-value can affect the rate a borrower pays also.   A 70% loan-to-value mortgage could be expected to have a lower interest rate than an 80% LTV because there is a larger amount of equity remaining in the property and therefore, less risk for the lender. Th

Encouraging Multiple Offers

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Based on the current competition due to lower than normal inventories, it is possible for a seller to find themselves on the beneficiary side of a multiple offers.   Two or more parties may be trying to buy your home at the same time and because of the competition, they increase the purchase price, possibly, remove unnecessary contingencies and try to make their offer as attractive as possible. This can pleasantly result in you realizing higher-than-expected sales price and proceeds of sale.   While it may not materialize, it is good to understand what could happen and the best way to handle it.   Your real estate professional is positioned to offer you specific advice but the following are some things to consider. One tactic is to delay showings for a short period of time.   Some agents will create this by putting a sign on the property with a rider that indicates "coming soon" and depending on the local MLS rules, it may even be put in the system.   No showings will be

Homeowners Need to Know

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In the Boy Scouts, a certification, called a Totin' Chip, is required for scouts to carry, and use woods tools like a knife, axe and a saw.   They must read and understand the use and safety rules from the scout handbooks and demonstrate the proper handling, care, and use of each. No such certification is required for homeowners but there are a lot of good reasons why it should be self-imposed.   Making minor repairs is part of the responsibility of owning a home that will save both time and money. A homeowner will certainly appreciate the need for such training the first time a call is made to a service company to fix their air conditioner that suddenly quit cooling.   When the repairman arrives, he has a checklist which includes verifying the unit is getting electricity.   If not, they go to the electrical panel to see if a breaker has been thrown. It can be very humbling and expensive to have to pay a service fee to have a repairman flip a breaker to get your air condition

No Need to Make Common Mistakes

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A successful home sale, considered by many owners, is to maximize their proceeds in the shortest time with the least inconveniences.   Just because it is a seller's market doesn't mean that homeowners can shortcut some of the steps that make it happen and they certainly need to avoid commonly made mistakes. Pricing too high Low inventory and high demand have contributed to the rising prices of homes.   NAR reports that the median sales price is up 17.8% in the past year and CoreLogic recently released data that July set new record growth of 18% year over year.   This might give sellers a false sense of security about overpricing their home Pricing a home too high initially can limit activity, attract the wrong buyers and ultimately, cause the home to realize a lower price than optimum.   There is an interesting dynamic that takes place when there is a shortage of homes to show, and a new home hits the market.   Buyers, who have been in the market but not purchased yet, wi

A Lesson from a Pro

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A well-known professional home stager, recently, decided to sell the 4,000+ square foot home which she lived in with her husband.   It was certainly well maintained and by most standards, could have gone on the market immediately.   However, she still went through a full staging effort before she listed the home. The work included painting inside and out especially, changing the kitchen cabinets from gray to white.   The carpet was replaced along with a few dated light fixtures.   They stained the fence and added minor landscaping to make it look fresh and inviting.   They removed personal items from the home that might be distracting and replaced some furniture that was too large and might have limited a buyer's imagination. The home looked, smelled, and was clean.   It had great drive-up appeal.   Each room looked like it belonged in a magazine and the professional photos let potential buyers see the home before they visited it in person.   When the home did come on the marke

Equity, Price and the Agent You Select

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A Seller's equity in their home is the difference between what the home is worth and what they owe.   At any point in time, it is an estimation because value is a very subjective term.   If the seller thinks the home is worth more than an actual buyer will pay for it, the estimated equity is too high.   If a buyer is willing to pay more than the seller believes the home is worth, the estimated equity is too low. A true determination of equity becomes more objective when the home is sold, and the value is solidified by the sales price.   This value is determined by negotiations between a seller and buyer and eliminate speculation and conjecture because money and title are being exchanged. The equity being defined above is more accurately referred to as Gross Equity.   After the ordinary and necessary expenses connected with the sale of a property are deducted from the sales price, along with any mortgage balance and/or liens, the proceeds are referred to as Net Equity. Like in

Rising Rents - Music to Your Ears?

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Rents going up may not be pleasant to hear for tenants, but it could be music to your ears if you are an investor. The recent CoreLogic Single-Family Rent Index, April 2021 , showed a 5.3% increase in national rent year over year which doubled the increase experienced in April 2020.   This is the largest annual rent price increase in nearly 15 years. Interestingly, detached rentals are experiencing an even higher growth rate of 7.9% year over year compared to the 2.2% annual rate for attached rentals.   This is supported by the CoreLogic report that half of millennials and 2/3 of baby boomers "strongly prefer to live in a single, stand-alone home." From an investor's point of view, single-family rentals offer large loan-to-value mortgages at fixed interest rated for long terms on appreciating assets with definite tax advantages and reasonable control.   Rentals are considered to be the IDEAL investment because if offers income to offset the carrying cost of the in

Homeownership Cycle and Inventory

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An interesting homeownership cycle begins with a starter home and progresses to larger and smaller homes throughout a person's lifetime.   Within a few years after purchasing their initial home, they might move up to a little larger house.   The reasons could be that they simply want a larger home and can afford it, or their increased family size may be motivating the move. While the children are small, they can probably get by with less space but as they grow and behave more like adults, even though they may not be, the need for more room becomes more pressing.   Depending on the size of the family, this will last some time and then, as they go off to college, enter the work force and find their own living space, the parents may find that they no longer need the larger home.   In the interest of saving money or possibly convenience, they migrate from a larger home to a smaller home until they consider an assisted living facility or possibly, a nursing home.   Another alternati

Mortgage Forbearance

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Some homeowners who could not afford to make their mortgage payments this past year have been relieved to find out that their mortgage servicer or lender allowed them to pause or possibly, reduce their payments for a limited period.   While it does relieve the financial pressure, it is a temporary remedy. About 2/3 of the people who entered forbearance during the pandemic have exited the program.   There are only a little over two million homeowners remaining in forbearance. It is important for owners who find that they cannot make the payments on their mortgage to contact their lender and request a forbearance.   If you stop making mortgage payments without a forbearance agreement, the servicer will report this information to the credit reporting companies, and it can have a lasting negative impact on your credit history.   Without going through that process, the lender assumes you are delinquent, and protections afforded under forbearance may not apply. Forbearance does not for

Selecting the Right Agent in a Seller's Market

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Even in the current, low inventory housing market, sellers are resisting the urge to sell it themselves and still seeking the help of a real estate professional.   It may be more important than ever and there is too much at stake to risk going it alone. The number of people attempting to sell on their own has been in steady decline since 2003 from 14% to 8% in the latest Profile of Home Buyers and Sellers produced by the National Association of REALTORS®. The most frequently mentioned difficulties that owners who decided to sell it without the benefit of an agent included preparing the home for sale, understanding, and performing the paperwork, getting the price right and selling it within the length of time planned.   Another commonly cited challenge was having enough time to devote to all aspects of the sale. The other nine out of ten homeowners who are selling are many times faced with the question: "How do I determine which agent to use?"   In some situations, owner

A Sad Story Relived Over and Over

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Ask any real estate agent and they will tell you a similar sad story.   The seller, whose home just hit the market, received an offer which was less than the list price, but felt secure their home would sell quickly and countered for more.   For whatever reason, the buyer did not continue to negotiate and moved on. After a week or two and no other offers, the seller instructed the listing agent to contact the buyer's agent and say that the seller had reconsidered and would now accept their original offer. However, the initial enthusiasm the buyer had was gone and they were looking elsewhere. This is a story that frequently happens across America, in all price ranges.   The lesson to be learned is that sometimes, the first offer is the best.   Consider the rationale, a home is fresh on the market and buyers, especially the ones who have lost bids on other homes, act quickly to hopefully avoid some of the competition. When an offer is not accepted, it voids the original offer a

The Dynamics of Home Equity

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For many people, their home is their largest asset and their best performing investment.   The equity in a home is the difference in what it is worth and what is owed.   Two dynamics, appreciation and unpaid balance, work in concert to make homeowner's equity grow. It can be said that you appreciate the fact that your home is your best financial investment.   It is also ironic that the appreciation, the increase in value, is what causes it to be your best financial investment. In a one-year period, the increase in value divided by the beginning value will determine the rate of appreciation for the year.   News stories and articles, frequently, report statistics on appreciation for the month, the year or longer. In many cases, a national appreciation is mentioned but the local appreciation is more reflective of an individual property. The National Association of REALTORS® reports " The median existing-home price 2  for all housing types in June was $363,300, up 23.4% from

Doing Nothing is Costing Something

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It has been said that more money has been lost due to indecisions than ever was due to making the wrong decisions.   Many times, the larger the decision, the more likely procrastination comes into play and doing nothing will cost something.   Buying a home is certainly one of the biggest decisions people make.   Careful consideration and planning are necessary steps leading to a prudent decision.   Considering today's market that includes a global pandemic, financial volatility, and rapidly rising home prices, it is understandable that many people thinking about a home purchase are in a wait and see posture. However, there is a cost connected to waiting and it may be a lot more than you think.   The recent Home Price Expectation Survey 2021 Quarter two estimated appreciation rates will average just under 5% annual for the next five years.   It expects prices to increase by 8% in the next one year.   Being a renter or even putting off moving to a larger home, could keep you fr

Property Inheritance

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Stepped-up basis is an incredible benefit to people who inherit property.   Not only do they receive the property itself, the basis or cost value of the property becomes the fair market value at the time of the decedent's death.   This avoids recognizing the gain between the decedent's cost and what it is worth when it is inherited. If a person had purchased a home for $100,000 and 20-years later when they died, it was worth $500,000, there would be a potential gain in the property of $400,000.   However, because of a tax provision called step-up tax basis, the person inheriting the property will have a basis of the fair market value at the time of death. The recipient could sell the property for $500,000 and have no taxable gain on the sale. A formal appraisal is the most reliable and defensible estimate of fair market value at the time of the decedent's death.   There will be a fee of several hundred dollars for the appraisal.   Another alternative is to get a broke

Less to Own than to Rent

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The question is "financially speaking, are you better off owning than renting in the long term?" Renting a home has advantages.   It is usually a short-term commitment from year to year and the landlord is responsible for the repairs. Owning a home with today's low mortgage rates, the total house payment could easily be less than what the rent would be on a comparable home.   Once you assume ownership, you will have the responsibility of the repairs and possibly, a homeowner's association fee. Many times, an initial benefit of owing a home includes the ability to deduct property taxes and qualified interest on the mortgage.   With the increase of the standard deduction and a limit of $10,000 on state and local taxes, it is estimated that 90% of homeowners do not itemize their deductions to consider property tax and mortgage interest.   This comparison will not consider them. There are two very significant benefits that contribute to a home being an excellent i

Are You Covered?

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A home warranty is a service contract that protects your home's appliances and some systems from repairs or possible replacements.   A convenient benefit of a home warranty is that when you report an item, they will assign a service provider to evaluate whether it should be repaired or replaced without the owner having to act like a middleman. Homeowner's insurance is required by most mortgage lenders when there is an outstanding loan.   This coverage protects the structure and the dwelling and the homeowner's personal property from named occurrences like theft, natural disaster, or accident.   Homeowner's insurance does not cover the systems and appliances for repairs or replacements due to normal wear. The fees for home warranties can vary based on deductibles and how much of the risk the homeowner is willing to accept. Additional items can be included to the standard coverage to include pool, spa, additional refrigerators, septic tanks, and other items.   There

Thoughts on Credit and Getting a Mortgage

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Credit plays a huge role in getting a mortgage because it is a variable that helps the lender determine the likelihood that the loan will be repaid on a timely basis.   Credit bureaus evaluate people's credit worthiness using a FICO score.   The higher the score the better the borrower's credit. The mortgage rate charged to a borrower depends on their credit score.    There is an inverse relationship between credit score and interest rate changed.   The higher the score the lower the rate and the lower the score, the higher the rate.   Two separate buyers with the same income, purchasing the same price home may both be approved by the lender, but they may be charged different interest rates based on their credit scores. You could save thousands of dollars over the life of a loan by improving your credit score by just a few points.   A $350,000 mortgage at 3.5% has a principal and interest payment of $1,571.66.   By improving your credit score to qualify for a 3% rate, it

First Love, Second Wife or Third REALTOR

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There is a story of a real estate agent's prayer: "Dear Lord, if I can't be someone's first love, or second wife, at least, please let me be their third REALTOR®."  In a normal market with a balanced supply of sellers and buyers, this describes the preference that it might be better to be the third listing agent to help the seller after they became more realistic about their list price. In today's market, it might have more to do with buyers because of the increased competition, their chance of having an accepted offer is greatly reduced and it is only after they have lost several that they become more aggressive in the negotiations. Competition for homes being sold has greatly increased over the previous two years, according to a recent REALTORS® Confidence Index Survey from NAR.   In April of 2021, there were nearly five offers for every home sold which increased from two offers in 2019 and 2020. Utah reported the highest number of offers per home sold

Simple Rates of Return

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Looking for a simple way to determine if a rental property will give you the rate of return you want?   This modified annual property operating data may be just what you've been looking for. There are many different rates of return that investor's consider to determine whether a property will generate the yield that they expect.   Sometimes the simplest of calculations can tell you whether you want it or not and if you get the other things like tax advantages and appreciation, it just makes it that much better. The first yield we will look at is commonly called the Cash-on-Cash rate of return.   It is calculated by dividing the initial investment, usually down payment and closing costs, into the Cash Flow Before Tax. To arrive at Net Operating Income, it is simply taking the gross scheduled income, less vacancy allowance and all operating expenses.   From that is deducted the annual debt service which is the principal and interest payment times twelve.   The remaining amo

Is a Home Inventory Necessary?

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Most homeowners have insurance on their home that additionally, gives them coverage on their personal property.   That is the first level of peace of mind to know that it is available to you if there is an unfortunate need for it from a burglary, fire, or some other insured circumstance. Personal property is handled slightly different than real property.   The claims adjustor could start by asking you for a list of the things lost.   You are allowed to reconstruct it but there is a distinct possibility that you'll forget things, sometimes for months or years after the claim was settled. An interesting exercise would be for you to visualize two rooms, possibly, the kitchen and main living area.   Without being in the room, create a list of all the personal items in plain sight and those in the closets and cabinets.   When you're through with the list, go into each room to check to see what kind of things were not on your list and what the value of those items amounted to.  

Deciding on Whether to Move

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Some homeowners feel like they may as well throw a dart against the wall to decide whether to move or not.   Other people might invoke a process attributed to Benjamin Franklin.   Supposedly, to evaluate the options and bring clarity to the choice, this American founding father would list all the reasons for and against the decision on a sheet of paper.   After reducing it to writing, the choice would appear either by obvious majority or practicality. Buying a home is an emotional decision but selling a home can be also.   Separating the rationale from the emotion can make decisions seem obvious but they may still not be crystal clear. There is an inventory shortage that caused prices to rise and market time to shorten.   In many active markets there is less than 30-days' supply of homes for sale which is half of what was available a year ago.   This will make it easier to sell and maximize the proceeds from your current home. 69% of economists who participated in the first q

"Mise en Place" for Homebuying

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In cooking, "mise en place" describes having all your ingredients measured, cut, peeled, sliced, grated, as well as bowls, utensils and pans ready to use before you begin cooking.   The advantage is to inventory the ingredients and recognize if you have everything you need.   You are less likely to leave out an ingredient or step because it is "set up" and ready to use. The same technique works well in the homebuying process, especially in today's highly competitive environment where multiple offers are normal and bidding wars are commonplace. Check your credit ... not only does credit determine if you will get a mortgage, but it will also determine the interest rate you'll pay.   The best rates are for the borrowers with the best credit; lower credit scores mean higher rates because of additional risk to the lender.   Free copies are available from all three major credit bureaus at www.AnnualCreditReport.com . Determine your budget ... knowing your

It's Not too Late to Refinance

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With mortgage rates below 4% since May 2019, you would think that most people would have already refinanced but according to a recent Lending Tree survey, 49% of homeowners say they are considering a mortgage refinance in the next year.  The report estimated that over a third of homeowners are have mortgages above 4% and 11% didn't know what their rate was. Slightly more than a third of the people surveyed regretted missing the opportunity to refinance in 2020 when rates did hit their historical low.   Homeowners should not beat themselves up on this issue because the only way to know to tell that it hit bottom is after it has started going up again.   The current rates are very favorable to borrowers and some economists believe that when inflation is factored in, the rates are close to zero effectively. While there are nine specific reasons people choose to refinance their homes, two are among the most prevalent: to lower the payment or take cash out of the equity.  Most r

Writing a Successful Offer in a Low Inventory Market

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With at least 40% less homes on the market currently than there were a year ago, serious buyers have probably experienced the disappointment of losing a home they wanted to buy from increased competition.   Today's buyers are looking for ways to improve their odds of being the best contract without having to use the purchase price as their only tool. Buyers should reconsider, rethink, and re-evaluate their "must have" features and amenities.   It is probably unrealistic in a normal market to think you can have the perfect home at the price you want but in today's market it is less possible.   List the things you must have and the things you would like to have and prioritize them.   Try to identify the critical from the convenient. The next step is to put together your "home" team.   You are the captain of this process, but it is essential to have a strong first officer and that is your real estate agent.   This professional will oversee the process, advi

How long do I have to keep this stuff?

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"How long do I have to keep this stuff?" is the usual question you ask yourself when feeling that you are running out of room for all this "paper" that may never be needed.   The paper receipt you get from your fast-food lunch may go directly into the trash.   The prudent consumer may keep it to reconcile it with their monthly statement and then, trash it.   The natural hierarchy with receipts and documents associated with purchases is that as the price or value goes up, the more important it is to keep them.   The question becomes "but for how long?" The following table will give you an indication on how long certain documents related to your home need to be kept according to best practices of tax professionals.   IRS recommends that records are kept for three years from the date the taxpayer files their original return or two years from the date the tax was paid, whichever is later.   There is no time limit in the case of fraud or failure to file a t