real estate | Inside Real Estate

April 21, 2015April 13, 2015

Boilerplate Real Estate Contracts are Not One-Property-Fits-All

Whether you’re buying, selling or renting a home, all real estate transactions begin with the signing of a contract. This legal document is necessary for outlining the essential terms of the agreement as well as the rights and obligations of the parties involved. Unfortunately, generic forms in real estate deals are all too common these days—and not just when selling or purchasing For Sale by Owner properties. These boilerplate contracts can lead to massive headaches should your real estate arrangement go awry.

Most sources of generic real estate contracts do not tailor them to your state. Every state has its own real estate contract and disclosure laws. Use a boilerplate contract template that does not take your state’s particular rules into account and a judge could declare it null and void, or your buyer’s lawyer find it full of exploitable loopholes, should the deal eventually land you in court.

Most boilerplate real estate contracts only cover the most basic issues. Because a lawyer did not compose it to address your transaction, it’s likely a generic contract will fail to cover some of the details essential in your situation. For example, a purchase offer template may not include a mortgage contingency—a must have in a tight financing environment—that would allow you to back out of the deal and reclaim your earnest money deposit should you be unable to secure an affordable loan within a set period.

Generic real estate contracts rarely cover all the appropriate elements of a specific deal. When dealing with legal documents, even small differences in wording can have big consequences in the outcome of an agreement. For example, a contract for a lease with an option to buy is very different from that of a lease with the right of first refusal. In the first, the renter may purchase the property for an agreed upon price within a set period. In the second, the seller must offer the renter an opportunity to purchase the property under the same terms suggested by a third-party buyer.

Boilerplate real estate contracts are not one-property-fits-all. Different property types—like apartments, condominiums and townhouses—may require different contracts. For example, when buying or selling a condo, an agreement that includes the specific rules and policies of the building, as well as how its association operates and governs it, is necessary.

Anyone can easily find generic real estate contracts online. However, they were not written to protect your interests, were most likely not drafted by real estate specialists, and they won’t include the essentials necessary to prevent costly legal problems. It’s better to find a trusted advisor—such as a lawyer, real estate agent or both—who can help you review your options and craft a contract that properly protects you from potential pitfalls. Upfront legal costs are a small price to pay for the protection a solid contract offers.

April 7, 2015April 5, 2015

Five Ways to Find Your Down Payment

What’s the hardest part of the process for anyone preparing to buy a home? According to many in the real estate industry, it’s saving up a down payment. In fact, the National Association of Realtors and RealtyTrac have reported that at the rate Americans generally save, first-time homebuyers have to spend an average of 12.5 years amassing their 20 percent upfront investment. While you can buy a home with less—such as 3.5 percent down through the FHA, for example—you’ll pay a penalty in private mortgage insurance and, often, higher interest rates.

Fortunately, there are ways to save up faster and even find alternative sources of cash. Give these a try and 20 percent down may no longer seem like that large of an obstacle.

1. Find a Down Payment Assistance Program

According to RealtyTrac, 87 percent of U.S. homes qualify for down payment help, and there are more than 2,290 down payment assistance programs across the nation. You can start your search at Down Payment Resource, a website that connects homebuyers with down payment assistance opportunities. Use their online program finder to explore your eligibility. You can also check out your state’s housing authority website for a list of programs and participating lenders. Not all lenders participate in down payment assistance programs.

2. Make Saving for a Down Payment Automatic

Instead of waiting until the end of the month to see what you have left over to save for a down payment, schedule automated contributions to your designated savings account. It’s a lot easier—and less painful—to save when you budget accordingly and pull contributions from your checking account weekly, bimonthly or monthly. You can schedule transfers through your bank or ask your employer about your direct deposit options. Some give you the ability to divide and deposit your paychecks into multiple accounts.

3. Stash Extra Cash

Did you just win $50 on a lottery scratch ticket? Put it in your down payment savings account. Did your employer give you a 5 percent raise this year? Schedule an additional 5 percent of each paycheck for transfer into your down payment savings account. You get the idea; any extra cash that comes your way—from tax refunds and work bonuses to yard sale profits and inheritances—goes into your down payment savings account before you’re tempted to spend it on anything else.

4. Ask Your Family for Help

Most lenders will allow you to use cash gifts from family to cover at least a portion of your down payment. As of 2014, conventional mortgages generally allow you to use gift funds for your entire down payment as long as you’re putting down 20 percent or more of the purchase price. If you’re putting down less than 20 percent, part of the money can be from gifts, but part must come from your own earnings as well. The exact contribution limits vary by loan type. FHA and VA loans allow for gift assistance on the entire down payment provided your credit score is 620 or above.

5. Talk to Your Employer

Some employers offer mortgage assistance programs to their workers. Talk to your human resources department about the options—from down payment assistance to low-interest mortgages—that may be available to you. If you’re in the market for a new job, you might even be able to request down payment assistance as a signing or relocation bonus.

Anything worth doing is worth doing right, and for many, that means buying a home with 20 percent down. Whatever your real estate plans, please don’t hesitate to give us a call for further insight. We look forward to assisting you soon.

March 5, 2015March 3, 2015

Want to Survive as a Landlord? Five Must-Dos

According to RealtyTrac, a housing data and analytics company, U.S. homeownership rates are still at their lowest level in 20 years. Combine this fact with relatively low home prices in many parts of the nation, and investors will find numerous opportunities to profit while buying and renting single-family properties. You might even be thinking about joining them and becoming a landlord yourself. However, consider these must-dos before you make the leap.

1. Research your rental rate carefully.

Unless you bought the property with cash, you probably have a mortgage payment. However, you shouldn’t just set the rent at that amount. You’ll need to factor in homeowners association fees, property taxes and the cost of upkeep as well. Then take a look at what similar properties are renting for in your area. If you want to find a tenant, your asking rent must be comparable.

2. Write a comprehensive lease.

Constructing a good lease takes time, so put one together before you start advertising for tenants. While you can find hundreds of templates online, you’ll need to make sure that your final document complies with the laws in your city, county and state. Details required within the lease include the term, security and pet deposit, due date for rent, penalties for late payment, pet and visitor policies, routine upkeep and maintenance responsibilities, rules of behavior, rental renewal and property damage terms, inspection and showing policies, and actions that can lead to eviction.

3. Thoroughly evaluate rental applicants.

There are many ways to find potential tenants, from on-site “For Rent” signs to free Craigslist ads and paid listings on real estate rental websites. While you may want to get someone into the property quickly—you can’t start making money until someone is paying rent, after all—don’t cut corners when evaluating your applicants. You should require everyone to fill out a rental application that includes his or her current employer, monthly/annual income, and previous landlords and references.

You’ll need written permission to run a background check including criminal history and credit report. Many pros suggest using a vendor for this portion of the screening process, and you’ll find many—at various prices—online. You can verify employment and speak with previous landlords on your own or outsource that as well.

4. Take care of insurance.

Talk to your insurance agent about rental property insurance. In addition to covering the structure itself, rental property insurance policies cover personal liability and medical expenses as well as loss of rental income in the event of a property-damaging event. If you plan to leave personal belongs in the property (say, you’re renting it out furnished or storing things in the basement), you’ll need additional coverage.

You should encourage your tenants to purchase renters insurance of their own as well. Your insurance policies do not cover their belongings, and renters are less likely to file lawsuits against landlords in the event of break-ins, fires and other disasters if they have their own insurance to fall back on.

5. Determine how you will handle property management.

Prepping a property for rental, screening tenants, collecting rent and dealing with lease violations can be frustrating and time consuming. If you’re not comfortable tackling these tasks yourself, you might want to consider hiring a management company. You’ll have to pay fees for their service (such as one month’s rent for filling the vacancy and a percentage of the monthly rent for ongoing management), but your time just might be worth it.

Whether you think becoming a landlord is the right choice for you or have decided you’d prefer to sell your home outright, we’re here to help. Give us a call or send us an email any time to discuss your situation.

February 17, 2015February 8, 2015

When Buying or Refinancing, Consider More than Interest Rates

When people think about buying a home or refinancing their current mortgage, interest rates are often top of mind. After all, the news has been full of speculation—for more than two years—on when the Federal Reserve Bank would taper its bond buying (which it has done) and raise its prime rate (which is still a question that remains to be answered). However, while a percentage point—or even fraction of one—will make a difference in the amount of interest you’ll pay on home loan, it isn’t the only factor you need to consider.

Determine how long you’ll stay in the home.

Every mortgage comes at a price (all those fees and closing costs) and you need to live in the home long enough to recoup what you’ve spent to secure the loan. While costs vary based on situation and locality, experts advise it generally takes four to seven years to break even. If you’re not going to stick around that long, renting (or maintaining your current mortgage) could be the better option.

Evaluate your job security.

Is there any chance your employer might downsize you, cut your hours, or ask you to move across the country for a new position? If so, it’s probably not the right time to buy. However, if you can refinance and lower your monthly payments (and are confident you can find a new job quickly and in the same area), it still may make sense to do so. Your mortgage advisor is the best one to help you evaluate the situation.

Take stock of your down payment.

While there are now loans available with down payments as low as 3 percent, putting less than 20 percent down will result in private mortgage insurance. This will increase your monthly mortgage payment and may even lead to a higher interest rate. Can you weather that financial burden? Would it be better to buy once you’ve amassed a larger down payment, or refinance once your home equity is at 20 percent? Again, your mortgage advisor can provide insight.

Closely examine your finances.

You can bet any mortgage lender is going to go through your financial affairs with a fine-toothed comb before giving you a new loan. Do this on your own ahead of time, and you’ll be better prepared to address whatever he or she might find. Things you’ll want to consider include your credit score, income, savings and debts.

Learn about the local market.

Housing affordability varies by city. In some, buying a home is decidedly cheaper than renting. In others, the opposite is true. You’ll also find cost variations among similar homes in different neighborhoods. The more you learn about the area and factors driving those costs, the better decision you can make on where (and where not) to buy. Most real estate agents will be happy to help you find this information.

January 22, 2015January 21, 2015

Understanding the Escrow Process

If you’ve ever purchased a home, you’ve encountered escrow: the period between the acceptance of your offer and deposit of your earnest money and the final closing of the buyer-seller-lender transaction. The escrow period can range from weeks to months—depending on the lender’s timetable and the desires of the seller and buyer—and can be a bit confusing if you don’t understand what’s going on. While you can always ask your real estate agent to keep you informed on your escrow’s progress, the following details may also help alleviate uncertainty.

The Parties Involved

Multiple parties are involved in the escrow process and include your real estate agent, the sellers’ real estate agent, your lender, a title agent and an escrow agent.

Your real estate agent is there to guide you through the process, much as the sellers’ real estate agent will do for them.
Your lender takes your mortgage application and verifies all the important details before putting it through underwriting.
The title company makes sure the title to the property you are buying is free of liens and judgments. It also issues title insurance to protect you and your lender from any future property claims or disputes.
The escrow agent serves as a neutral third-party officer. He or she coordinates the escrow process, ensures it follows the terms of the purchase contract, and handles all of the paperwork.

Basic Escrow Timeline

While the actual timeline of any escrow may change due to a variety of factors, the basic steps involved in the process are as follows:

A realtor submits the purchase and sale agreement to the escrow agent.
The escrow agent sends instructions to the buying and selling parties, requesting more information about the transaction if necessary.
The escrow agent contacts the title agent and asks for a title search on the property.
The title agent conducts a title search and notifies the escrow agent of any issues.
If there are title issues, the escrow agent will work to clear them from the title.
The lender sends the completed loan document to the escrow agent.
The escrow agent prepares a settlement statement that reflects the costs of the transaction including loan fees, escrow fees and title fees.
The escrow agent prepares other documents the parties will need at closing.
The escrow agent coordinates a closing date.
The buyer, seller, escrow agent (and sometimes the buyer/seller real estate agents) meet to sign the closing documents.
The buyer gives the escrow agent a money order for any transaction costs that are not included in the loan amount.
The escrow agent sends copies of the signed loan documents to the lender.
The escrow agent sends the deed or deed of trust to the title agent.
The lender reviews the documents and approves them.
The escrow agent communicates this approval to the title agent.
The title agent records the documents (this is when the transaction is officially closed).
The lender wires the funds for the property purchase to the escrow agent.
The title agent sends the escrow agent a recording number indicating he/she has recorded the documents.
The escrow agent disburses the purchase funds to the appropriate parties.
The escrow agent sends a final settlement statement to the involved parties.

The escrow process is best navigated by a licensed real estate professional who works with lenders, title and escrow agents on a regular basis. Few experts would advise that a homebuyer tackle it alone. Fortunately, I’m here to help! Give me a call if you have additional escrow questions or have been thinking about buying, selling or investing in real estate.

January 14, 2015January 13, 2015

Getting a Mortgage is About to Get Easier

Since the advent of the subprime mortgage crisis in late 2007, mortgage companies, banks and government-backed mortgage guarantors have tightened their lending standards. Many potential homebuyers and refinancers without the near-perfect credit and substantial 20 percent down payment (or equivalent equity) required, have had to kiss their dreams of home ownership or lower interest rates goodbye as a result. Fortunately, all of that is about to change.

Fannie Mae and Freddie Mac are lowering their down payment requirements.

These two government sponsored enterprises buy mortgages from the banks, credit unions and other financial institutions that make them. Doing so is a sizable investment, and to minimize their risk they require that the loans they purchase “conform” to specific guidelines. In an effort to make home purchases more affordable for first time and low-income homebuyers, they recently adjusted these rules to allow for the backing of mortgages with 3 percent down payments.

In order for the entities to consider the mortgages conforming, these loans must require private mortgage insurance, a minimum 620 credit score, and complete income, asset and job documentation. Additionally, borrowers receiving these loans must attend homeownership counseling.

Fannie Mae started backing loans that met the loosened requirements in December. Freddie Mac will begin purchasing them from lenders in March. They will include 15-, 20- and 30-year fixed rate options with a borrowing limit of $417,000.

Lenders are already responding favorably to the changes.

In a recent article by CNN Money, an official at Fannie Mae noted that the average credit score seen on approved loan applications has dropped slightly. He is seeing lenders making mortgage loans to borrowers with lower down payments as well. And according to a survey conducted by the Federal Reserve, 14 percent of senior loan officers report that their banks began loosening lending standards in the fall.

What does this mean for you? If you’ve been dreaming about buying your first home, moving up into a bigger home, or refinancing your current mortgage, it’s unlikely there will ever be a better time to do so—even if lenders have turned you down before. Contact your real estate and mortgage professionals today to explore your options and learn more about next steps.

December 2, 2014December 1, 2014

Avoiding Homebuyer Remorse

Look up “remorse” in the dictionary and you’ll learn it means “deep and painful regret for wrongdoing; compunction.” That sounds like something no one should ever experience. Unfortunately, remorse is an all too common feeling among homebuyers. In fact, according to one recent CNN Money article, 80 percent of homebuyers report regretting at least one thing about their new home. If you don’t want to be among them, consider these ways to avoid remorse the next time you make a real estate purchase.

Don’t abandon your must-haves.

While four bedrooms might be nice (defined as a “want”), a family of three must have (or “needs”) at least two bedrooms. When shopping for a home you can look at properties that don’t have all your wants. But if you want to avoid homebuyer remorse, don’t bother with those that lack essential must-haves. There’s no sense in falling in love with something that will make you unhappy in the long run.

Stand up for your feelings.

It’s possible your spouse or partner will pressure you to purchase a property you don’t like. If it’s lacking a few of your wants but has everything you need, you might agree to compromise. However, if you are certain you will be unhappy in the new home—for whatever reason—make sure your feelings are known. You don’t want the purchase to cause resentment down the line.

Don’t act impulsively.

Have you ever bought a handbag you didn’t absolutely love just because all of your friends wanted it? Chances are that impulse buy didn’t make you happy—and an even larger impulsive purchase is even less likely to do so. One of the biggest sources of homebuyer remorse is overpaying on a property because of a bidding war. If you don’t really want the home, or can’t get it for a price within your budget, move on.

Don’t make dangerous concessions.

If your dream house has dry rot, termites or a sinking foundation, pull out of the deal or ask the seller to lower the price to account for the cost of repairs. It’s unlikely your mortgage lender will approve the loan otherwise. Even if they do, turning a blind eye to costly flaws will only reduce your love for the property later on.

Consider the big picture.

Even a “perfect” home might not be the right home for you. Sure, it might have everything you need and even most of the things you want, but if it’s too far from your office, in a crime-ridden area, a little out of your budget, or near a loud highway, it might not be the best choice. Make sure you consider the big picture—from the school system and neighbors to the distance from your favorite restaurants and movie theaters—before you make an offer.