Removing or Adding a Person to a Loan

In divorce situations, it is common, for the spouse who keeps the home to refinance to remove the other spouse from the loan.  Equally as common, first-time buyers who don't have enough income to qualify may ask a parent to co-sign and must add their name to the mortgage.

Another situation that requires removing or adding a person to a loan could be to qualify for a better interest rate.  The difference in a minimally acceptable credit score and something that might be considered "good" could be as much as a 0.5% higher rate for the term of the mortgage.

Consider that a couple is buying a home on a conventional loan, and they have individual credit scores of 760 and 670.  The underwriters will price the loan based on the lower of the two scores.  A half percent interest on a $400,000 30-year mortgage could have close to $110 a month difference.

A possible solution to this dilemma could be available, assuming the borrower with the higher credit score had enough income to qualify for the mortgage separately.  If so, that person would be eligible for the lower rate.

The property could still be titled in both names and if so, that person would be liable for the mortgage should the named borrower default on the loan.

Another scenario that may arise is that a couple has enough income to qualify for a mortgage but because one of the parties has a lower credit score, it will be priced higher.  Having a parent or relative added to the mortgage as a non-occupying borrower to help with the credit score.  Interest rates are determined on the lowest middle of three scores for the borrowers applying for the loan.

Assuming the parent's score was higher than the lower score of the couple, it could improve the rate applied to the mortgage loan.

The value of a trusted mortgage professional is very important.  They can offer alternatives to situations that could be worth tens of thousands of dollars over the life of the mortgage and in some cases, can make the difference in being approved at all.

Your real estate professional would be more than willing to make a recommendation and can support the need to assemble a strong team to help with your transaction.

Keep Your Current Home as a Rental

Let's assume that you have owned your home for several years.  It has increased in value and the unpaid balance considerably less than you originally borrowed.  In short, you have equity in the home.  You're thinking about buying another home and one of the questions going through your mind is "should we find a replacement property before we put our home on the market?

It is a good question but maybe there is another one you should be asking.  "Should we keep our current home and convert it to a rental when we buy another home?  The answer to the question may have a great deal to do with your finances but if you can afford it, it may end up being one of the better investments you have made.

Do you have enough discretionary funds for a down payment and closing costs for your new home?  Is it enough to put 20% down payment so you can avoid paying mortgage insurance?  Can you qualify for the mortgage on the new home with the additional liability of your current home?

You don't even need "yes" answers to all of these to be considering the possibility of converting your home to a rental.  If you have sufficient equity, you may be able to pull part of it out for your down payment and closing costs and still have equity available for other needs.  Lenders will usually make cash out refinances up to 80% of the value of the home.

Another possibility may be to borrow against your qualified retirement program.  The advantages include speed and convenience (it is your money), repayment flexibility, and cost advantage.  If you believe the stock market is moving toward a down position, this could be additional incentive to earn more in the rental.

What makes rental properties so attractive right now is that rents are rising and expected to continue because the factors that make a shortage of homes for sale are the same that make the shortage of homes for rent.  The rent collected, less the mortgage payments and expenses will probably result in a positive cash flow before tax.  The other major factor is that homes are appreciating at a very high rate. 

Using borrowed funds to control an appreciating asset is leverage and it can dramatically affect the rate of return an investor enjoys.  The dynamics of income, appreciation and favorable tax benefits makes rental real estate very appealing.

Your real estate professional can provide information on the value of your current home, estimates for rental income and expenses and in finding your replacement home.  Talk with your tax advisor to see how this alternative would work for you. 

The good news if you choose this opportunity is you will not have to put your home on the market and timing of your new purchase became greatly simplified.  It may even be to your advantage to be flexible with the seller's occupancy which could be a big advantage if you are negotiating against multiple offers.

For more information, download the Rental Income Properties and talk to your real estate professional.

Cash-Out Refinance

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.

There are no restrictions on how the owner can use the money.  It can be used for home improvements, consolidating debt, other consumer needs or for investment.

Eligibility Requirements as found in FNMA Selling Guide B2-1.3-03 Cash-Out Refinance Transactions

"Cash-out refinance transactions must meet the following requirements:

• The transaction must be used to pay off existing mortgages by obtaining a new first mortgage secured by the same property or be a new mortgage on a property that does not have a mortgage lien against it.
• Properties that were listed for sale must have been taken off the market on or before the disbursement date of the new mortgage loan.
• The property must have been purchased (or acquired) by the borrower at least six months prior to the disbursement date of the new mortgage loan except for the following:
  • There is no waiting period if the lender documents that the borrower acquired the property through an inheritance or was legally awarded the property (divorce, separation, or dissolution of a domestic partnership).
  • The delayed financing requirements are met. See Delayed Financing Exception below.
  • If the property was owned prior to closing by a limited liability corporation (LLC) that is majority-owned or controlled by the borrower(s), the time it was held by the LLC may be counted towards meeting the borrower's six-month ownership requirement. (In order to close the refinance transaction, ownership must be transferred out of the LLC and into the name of the individual borrower(s). See B 2-2-01, General Borrower Eligibility Requirements (07/28/2015) for additional details.)
  • If the property was owned prior to closing by an inter-vivos revocable trust, the time held by the trust may be counted towards meeting the borrower's six-month ownership requirement if the borrower is the primary beneficiary of the trust.
• For DU loan case files, if the DTI ratio exceeds 45%, six months reserves is required."

Encouraging Multiple Offers

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 allowed until a publicized date, usually, a few days, at which time, the goal is to have prospective buyers standing in line to see the home.

This might even be combined with an open house scheduled for the initial showings.  Agents using this method have sometimes found lines of people waiting outside the home to see it first.

When multiple offers are made, invariably, there will be some disappointed people and for that reason, it is essential to follow a strict procedure to see that no one is given an advantage over other buyers.  Discuss the following suggestions with your professional:

• All offers are countered by asking the buyer to make their "best and final" offer which will include not only price but terms also.
• The seller may authorize the listing agent to disclose that there are multiple offers.  (Article 1, Standard of Practice 15 of the National Association of REALTORS® code of ethics.
• Discuss with your professional their thoughts on revealing information, like price and terms, on other offers you are considering.  In most cases, they are allowed to do so with your permission, and it may make a difference in the negotiations.
• If one offer is substantially better than the other offers, the seller can accept or counter-offer.
• Have your real estate professional advise you of countering more than one offer which could result in contracting to sell your home to more than one person.  They can advise you alternative ways to do this.

Keep this in mind.  Sometimes, the highest offer is not the best offer.  Even though the buyer is willing to pay a high price for your home and possibly, willing to remove the financing condition, if they are going to get financing and it doesn't appraise, it can cause issues. 

Have your real estate professional tell you about asking for proof of funds from a cash buyer or confirming their ability to pay above appraised value.

Your real estate professional can help you realize the most out of your home.

Homeowners Need to Know

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 conditioning working again.

The basic items every homeowner should be able to do the following:

• Turn off the water in case of an emergency.
• Reset a circuit breaker.
• Change the HVAC filters and clean the outside coils.
• Clean a dryer vent.
• Reset a garbage disposer and dislodge a jam by spinning the flywheel
• Unclog a sink or drain.
• How to plunge a toilet and when to use an auger.
• Re-caulk a bathtub or sink
• Light a pilot light on a water heater or furnace
• Change the batteries on a smoke alarm

YouTube can be a great resource for searching the millions of videos that have been uploaded to help homeowners with all sorts of do-it-yourself projects.  You should be able to find one that addresses your particular situation, and you can determine if you have the skills and tools to handle it.  If not, check our list of Service Providers or just ask for a recommendation.

No Need to Make Common Mistakes

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, will rush out to see the home.  They are familiar with what homes are selling for and possibly, have even lost bids on one or more.

These savvy buyers expect certain amenities based on the price of the home.  They can tell if a home is priced right or not.

Failure to do Market Preparation

There are people who will buy a home that is not pristine and does not have everything in good working order, but they usually will not pay top dollar for the home.  They recognize the money that needs to be spent and will adjust the price accordingly.

To command the highest price, the home needs to be spotlessly clean with everything working as it should be.  The home needs to be depersonalized to appeal to the broadest group of people.  The clutter needs to be removed so it isn't distracting or give the impression that the rooms, counters, or closets are small.

It is important to evaluate if painting is necessary along with replacing floor covering, appliances and/or light fixtures.

Thinking the agent doesn't matter

Market time is down to 17 days and 89% of homes are sold within a month.  These statistics might be used to rationalize that an agent is not currently playing an important role in the home but that would be a mistake.

Nine out of ten homeowners use an agent, and the four most important reasons were to help sell the home within a specific timeframe, help price the home competitively, help seller market the home to potential buyers and help the seller find ways to fix up home to sell it for more money.

Being present during showings

It may not be convenient, but sellers should try to leave the home when it is being shown.  Buyers like to look at the home freely and ask questions or point out things to their agent.  Sellers may have the best of intentions, but they have not established rapport with the buyer and don't really know what is causing the questions.

Not letting your agent negotiate for you

The role the agent plays as third-party negotiator is one of the most important things an agent does for a seller.  It begins long before buyers even make an offer.  The protocol is for the buyer's agent to go to the listing agent with the question and if necessary, they can ask you and get back to the buyer's agent.

Buyers and sellers have inherently different objectives.  Sellers want the highest price and buyers want to pay the least.  Sellers want the terms of the contract in their favor and the buyers want them to favor them.  Buyers want lots of contingencies to let them out of the contract and sellers want the fewest possible contingencies.  Sellers want the most earnest money and buyers want to put up the least possible.

Agents are skilled at negotiation not only because of training but also experience.  Sellers' experience is usually limited to personal transactions separated by years in frequency.   Agents see multiple transactions in their daily business and can guide people through difficult areas.

Not responding to offers in a timely manner

Normally, an offer can be withdrawn, at any time, up until the point that it is accepted.   The expression a bird in the hand is worth two in the bush reminds us that the offer you have is real and the ones in the bush, may never come to fruition.

A common situation occurs when there is large amount of activity on the home and an offer comes in quickly.  Instead of negotiating on that offer, the sellers wait to see if any better ones are received.  By waiting, the seller runs the risk of the buyer changing their mind.

Alternatively, in the same situation described, the seller may decide to put the home on the market on Saturday morning and let prospective buyers know that they will be deciding on all offers received over the weekend on Sunday evening.

Your agent is a valuable part of selling a home who can offer advice, bring perspective to the transaction, and suggest different ways to help you achieve your goals.  Once you have the right agent, everything else will start to fall into place.

A Lesson from a Pro

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 market, it sold in five days, above list price, with multiple offers, and for a considerably higher sales price than previous comparable sales had indicated it would.

The lesson to be learned is that even if a home is in good condition, taking the time to go through the steps to make it look its best will generate the kind of results that every seller hopes for when selling their home: the highest possible price, in the shortest time with the least amount of inconvenience.

Equity, Price and the Agent You Select

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 business, the goal is to maximize revenue and minimize expenses, the same is true in selling a home.  The goal is to achieve the highest possible sales price while keeping the expenses as low as possible.

Setting the price of a home is ultimately, the seller's decision.  It is critical because not only will it impact the amount of proceeds the seller realizes, but it can also affect the length of time it takes to sell, how much activity it will generate from buyers, and eventually, whether it sells at all.

The cost of a home is what the seller paid for it and the improvements made.  Cost has no relationship to value.  Market value is the most probable price willing and informed buyers and sellers can agree upon in a competitive market in a reasonable period.

Price the home too low and the seller has unrealized proceeds.  Price it too high and it eliminates interested buyers.

Preparing the home to go on the market has expenses involved.  Things like painting the front door or adding landscaping to increase the initial appeal is an investment to attract the buyer's attention. While it may not add value to the home, it is an important element.

Decluttering the home takes time and may even involve temporarily renting a storage facility for things that may make your home feel smaller or detract from making your home as visually appealing as possible.

There are obviously selling expenses involved in the sale of a home which can vary based on the price of the home, what is customary in your area and negotiations in the sales contract.  Your agent can advise you on these so that you don't pay anything out of the ordinary and can provide you an estimate of what is to be expected.

Your real estate professional can provide you the information necessary to decide on price.  However, do not confuse your decision on whom to market your home by the price indicated by the market and reported by the agent. 

The market determines the value, and the seller sets the price.  Your decision in selecting an agent should be based on trust, reputation, integrity, and the ability to execute a successful marketing plan.

In today's market, on average, homes, are selling in 17 days and sellers are seeing an average of five offers.  It is not uncommon for homes to sell for more than the list price, assuming they are not priced dramatically over the market initially.

Discuss with your real estate professional pricing your home slightly below market value and using a "coming soon" promotion to encourage increased buyer interest and possibly, encourage multiple offers.

Rising Rents - Music to Your Ears?

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 investment; depreciation contributing to annual cash flows with a non-cash deduction; equity build-up because a portion of each payment is applied to principal reduction; appreciation with increases in value; and, leverage that increases the overall yield through the use of borrowed funds.

Most homeowners are very aware of the housing inventory shortage that has caused homes to rise over 12% in the past year.  The increased demand for homes coupled with the shortage of supply has contributed to the rapid appreciation.  The trend is expected to continue for years.

While appreciation is a large component to the rate of return, cash flows are bolstered by the increasing rents.  This combination makes investments in single-family rentals very attractive.

An added appeal is the familiarity and understanding of this type of investment because it requires the same aspects as homeownership.  The same service providers a person uses for their home can be used for the rentals.  For the investors who don't want to manage the property themselves, professional management is available for placing and qualifying a tenant only or the entire process including collecting the rent and maintenance.

For more information, download the Rental Income Properties.  Contact me if you'd like to have a more in-depth conversation and address any personal questions you might have.

Homeownership Cycle and Inventory

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 alternative, many homeowners are electing is to move in with their children or other family members.  Some homeowners are even retro-fitting their homes with equipment and safety devices that will allow them to continue to live in their homes in old age.

According to the American Community Survey, a person in the United States can expect to move 11.7 times in their lifetime.  When that person is 18 years old, they can expect to move another 9.1 times and by age 45, they can expect another 2.7 moves in their lifetime.

One of the suspected reasons affecting the low housing inventory in America at this time is the group of homeowners who would move but are reluctant because the home will sell and with the shortage of homes, they may not be able to replace it with what they want.

The fact that builders have not kept up with the demand in the past twenty years has been a major contributor to the low inventory that housing is currently experiencing.  It is estimated that it will take two million new homes a year for the next decade to get caught up, assuming demand doesn't increase.

There are also other factors involved like the fact that since 2007, the owner's tenure in their home has more than doubled from five years to 10.6 years.  People are staying in their homes longer which means the homes are not coming on the market for sale.

Another consideration is that sellers with extremely low mortgage rates are reluctant to buy another house which would have to be financed at a higher rate than they are currently paying.

Regardless of where you are in the homeownership cycle, your agent can provide important information and experience that is essential to making a smooth move.  Having the facts reduces the risk of unexpected outcomes.

Mortgage Forbearance

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 forgive the money that is owed.  The borrower must repay any missed or reduced payments in the future.  If forbearance was issued under the CARES Act, the lender cannot require payment in full at the end of the forbearance.  Additionally, Fannie Mae has declared "following forbearance, you are not required to repay missed payments all at once, but you have that option."

The forbearance agreement issued by the lender allows a borrower to avoid foreclosure for a period until, hopefully, the borrower's financial situation improves.  If at the end of the stated period, the borrower's hardship still exists, the lender may be able to extend the time frame.

The provisions of the forbearance vary based on the type of mortgage.  The lender can tell you the specific provisions and options.

Loans made by Fannie Mae and Freddie Mac require lenders to suspend reports to credit bureaus of past due payments for borrowers in a forbearance plan and no penalties or late fees will be assessed.  Furthermore, the lender is mandated to "work with the borrower on a permanent plan to help maintain or reduce monthly payment amounts as necessary, including a loan modification."

At the end of the forbearance, there can be several options available to repay the suspended or paused amounts.  You can resume your normal payment and repayment plan can be established.  If you can start making the payment but can't afford additional payments, the missed payments could be added to the end of the loan or possibly, a secondary lien that is due and payable when you refinance, sell or terminate your mortgage.

In cases where the borrower can't afford to make the regular payments, a loan modification may be available with lower payments, but the term would be extended.  While the CARES Act does not require borrowers at the end of the forbearance period to repay skipped payments in a lump sum, if a borrower is able, they may do so. 

The purpose of this is to re-establish a payment plan that the borrower can repay the money owed.  To be eligible for a loan modification, borrowers must show they cannot make the current mortgage payments because of financial hardship while demonstrating they can meet their obligations with the proposed restructured terms.

Under the CARES Act, borrowers with a GSE-backed mortgage are entitled to an additional 180-day extension which would be a total of 360 days.  It is necessary to contact the servicer/lender for the extension.

There can be both legal and tax issues concerning in forbearance and professional advice is recommended.  A list of U.S. Department of Housing and Urban Development approved Counseling agencies are available.

Selecting the Right Agent in a Seller's Market

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, owners know more than one agent and the dilemma becomes picking the right person for the job.

To get the answers that will lead to selecting the right agent, an owner needs to ask the right questions.  Open-ended questions will give you a more descriptive answer that can bring clarity to your decision.  Questions that begin with who, what, when, where, why and how will elicit a much more robust answer.

The following suggestions should be helpful for homeowners considering selling:

• How long have you been selling homes and is this your full-time job?
• What designations or other credentials do you have?
• How many homes did you and your company sell last year?
• What is your average market time compared to MLS and your top competitors?
• What is your sales price to list price ratio?
• When will you report to me on the progress of my transaction?
• Who can you recommend for service providers like mortgage, inspections, repairs, and maintenance?
• Why do you want to work with me?
• Where are the opportunities to expose my home to the largest market?
• What is your marketing plan for my home?

In today's market, homes, on average, are selling in 17 days and sellers are seeing an average of five offers.  It is not uncommon for homes to sell for more than the list price, assuming they are not priced dramatically over the market in the first place.

Specific to today's market, additional questions to help you identify the best agent for the job could include:

• With the shortage of homes on the market, is it necessary to update in advance?
• In this competitive market, is staging the home important?
• What are your thoughts on professional photography and video?
• Is there a way to stimulate competition among to buyers?
• Explain to me range of pricing and how it applies to home search on the Internet.
• Can you profile the most likely buyer for my property?

Don't think of these things as being an interrogation but more like an interview.  That is exactly what it is; you are trying to find out how this prospective agent is going to handle some of the intricacies in the selling process that can affect the successful sale of your home.

After evaluating the answers you receive, you will either move forward to have this agent represent you or you move in a different direction.  A third option, from our perspective, that occasionally develops is that we determine that we may not be able to manage the outcome that you are expecting.

Selecting the right agent to represent you, even in a Seller's market, is an important decision and you need to have all the help you can get making the right one.  We're happy to provide the answers you want and need and will disqualify ourselves if we believe that it is not in your best interest. Our reputation depends on satisfactory results from every transaction we handle.

Download our Sellers Guide.

A Sad Story Relived Over and Over

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 and, in this case, the seller makes the buyer a counteroffer; the buyer can accept it, make a counteroffer, or walk away.  Even if afterwards, the seller reconsiders and says that he will accept the terms of the original offer, the buyer is under no obligation to accept it.

Alternatively, if the seller accepts the buyer's original offer, a contract has been agreed upon based on the terms within.  The house is sold and closed once any contingencies such as financing and/or inspections have been satisfied.

Think of an example where a seller countered for an additional $5,000.  If he had accepted the original offer, the home would have been sold.  In essence, he bought the home back from himself in hopes of making an extra $5,000. 

To put it in perspective, on a $350,000 home, the additional $5,000 would have been 1.4% of the value.  As an investor, the risk involved in having to continue to own the property may not be justified by such a low rate of return.  Having the property sold may actually provide peace of mind and convenience that far exceeds the $5,000.

When a seller receives an offer, they are faced with three options. 

1. They can accept the offer and the house is sold considering the contingencies can be met.
2. The seller can reject the buyer's offer outright and wait for an acceptable offer.
3. The seller can counteroffer the buyer with terms that are agreeable to the seller.

Many agents feel that if the offer is not acceptable, the counteroffer alternative presents a greater likelihood of negotiating to an acceptable agreement between the parties.  Every situation is unique, but compromise has brought buyers and sellers to agreement in many situations.

One of the valuable advantages sellers have is their agent's experience and lack of emotional connection to the property.  Your agent can provide objectivity and alternatives for you to consider in making you decisions.

The Dynamics of Home Equity

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 price² for all housing types in June was $363,300, up 23.4% from June 2020 ($294,400), as every region recorded price jumps. This marks 112 straight months of year-over-year gains."

The low inventory being experienced nationwide has caused some significant appreciation that has increased homeowners' equity.  According to Black Knight, a mortgage technology and research firm, at the end of 2020, roughly 46 million homeowners held a total of $7.3 trillion in equity.

If a homeowner has a mortgage on their home, while the home is appreciating, the unpaid balance is declining.  An increasing portion of each payment is applied, when the payment is made, to the principal balance to retire the debt based on the term of the loan.

Each month the equity in the home becomes larger because the home is worth more due to appreciation and the unpaid balance is less due to amortization.

Once a homeowner has sufficient equity in their home, they can borrow against it and take cash out of their home.  Most lenders require that the homeowner maintain at least 20% equity position.  This means that owners can borrow up to 80% of the appraised value less the amount that is currently owed on the property.

The options include a cash-out refinance mortgage or a home equity line of credit, HELOC.  While some institutions have stopped offering HELOCs, they are still available.

 The HELOC is a line of credit that is established for usually ten years.  The owner is approved, and the money is available to draw out as needed.  The interest is calculated daily.  Like a credit card, when the balance is paid down, the unused portion of the available credit is available again.

Your real estate agent may be able to offer some lender suggestions.

Doing Nothing is Costing Something

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 from enjoying the benefit of that appreciation.  If your down payment is in the bank, your expected earning will be less than 2%.  In a home, the owner has the benefit of leverage when a mortgage is used to finance the home.

Buyers are borrowing a large portion of the purchase price at around 3% interest but the entire value of the home is appreciating at a higher rate and the profit builds equity for the homeowner.

Another major component for the owner is that the amortizing mortgage is being reduced with each payment that is made.  As the home goes up in value due to appreciation, the unpaid balance goes down with principal reduction creating equity from two directions.

If you waited one year to buy a $350,000 home today, the price could easily be $378,000.  A 5% down payment on this home at today's price is $17,500.  If you could earn 2% on a certificate of deposit, it would be worth $17,850 in one year.  If it used as a down payment on a $350,000 home that appreciates at 8%, the equity in one year would be $52,442. Use the Your Best Investment calculator to make your own projection.

Mortgage experts anticipate rates to rise by 0.75% in the next year which means that you'll pay more interest on a larger mortgage by waiting.  The monthly payment could easily be $200 more by waiting a year.  Based on how long you intend to be in the home, it could make the overall housing cost much more.

To run some examples of projections based on your own expectations and at the price you are considering, go to Cost of Waiting to Buy and Rent vs. Own.

If you have some specific concerns that is keeping you from deciding today, let's get together on the phone, an online meeting or somewhere face-to-face so that you can get the facts about what it takes to buy a home now.

Property Inheritance

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 broker's opinion of value in writing.  It may be reasonable to get three opinions to see if they are similar.  They should rely on comparable sales to justify their position.  Either method is acceptable to IRS.

There is discussion from the current President about the possibility of eliminating the step-up in basis that allows families to leave assets to their heirs without having to pay capital gains tax.  Some people consider it to be a tax loophole for the ultra-rich but it can impact ordinary people who inherit property and do not want to have to sell it. 

An example would be a family farm that when inherited by the heirs may not be able to afford to pay the capital gains tax due at time of transfer and they could be forced to sell the property or borrow the money to pay the tax, assuming that was possible.

Federal estate tax is paid from the deceased's remaining estate, not by the heir.  If the decedent's estate is approaching the limit before estate taxes are due, currently $11.7 million, professional tax advice should be considered because there could be additional provisions in play.  More information on this can be found on IRS.gov.

Less to Own than to Rent

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 investment and they are principal reduction due to normal amortization of the mortgage and appreciation of the property.  While the property goes up in value and the unpaid balance decreases, the owner's equity grows, increasing their net worth.

Renters do not benefit from either of these, but their landlords do.  That is the reason for the saying "whether you rent or buy, you pay for the house you occupy."  Tenants pay for the home for their landlord.

Rent		Own
$2,500	Rent/Payment	$2,232
-0-	Principal Reduction	$504
-0-	Appreciation	$875
-0-	Estimated Monthly Maintenance	$300
-0-	Estimated Homeowners Association Fee	$25
$2,500	Net Monthly Cost of Housing	$1,178

*Projections based on 3% appreciation; $350,000 sales price with 10% down payment and a 3.5%, 30-year mortgage.

With each payment made on a fully amortized loan, the principal balance is reduced.  While appreciation is generally expressed in an annual rate, homes go up in value incrementally throughout the year so considering the monthly appreciation is appropriate in this comparison.

In this example, the payment is less than the rent proving the initial idea that it costs less to own a home.  After factoring in the effect of the principal reduction and the appreciation, even when you consider the maintenance and HOA fees, the net monthly cost of housing is considerably less than renting.

The largest part of the savings inures to the equity of the home which directly impacts a homeowner's net worth.  While the money may not be easily accessed, it has real value and available in a cash-out refinance or when the home is sold.

If you curious about how your numbers would be reflected in a similar comparison, go to the Rent vs. Own.  Please let me know if you have any questions.

Are You Covered?

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 may also be some named items that are not covered that could include sprinkler systems, window air conditioning units or other specific items.

Contracts usually are for a one-year period, may have a waiting period and usually will not include pre-existing conditions.  The premium or fee is paid in advance.

Many homeowners learned about this type of service when they bought a home.  It was provided by the seller and probably gave some element of peace of mind.  Home warranties can be purchased even when the home is not being sold and by the current owner.  Even rental property owners are using this type of coverage to manage the repairs and replacement expenses.

American Home Shield, Choice Home Warranty, Select Home Warranty, First American Home Warranty.

Thoughts on Credit and Getting a Mortgage

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 would save $96.04 a month. 

Over the life of the mortgage, that would save $34,575 in interest.  Improving your credit score to shave 0.25% off the rate would make it worthwhile.

Credit utilization is the percentage of total credit used compared to the total credit available.  If you have a $2,500 balance on a credit card with $10,000 available credit, your utilization rate is 25%.  Ideally, it should be 10% or below.  This ratio accounts for 30% of a person's FICO score. 

Credit utilization is calculated using the balance on the monthly statement so paying it off in full every month could still result in a high CU score.  Some credit counselors suggest paying down the balance before the end of month statement comes out.  A trusted mortgage professional can make specific recommendations like how to improve your credit utilization. 

Your credit score can be adversely affected if your credit limits are lowered.  You may have the same monthly outstanding balance you have had for years but it now becomes a larger percentage of your available credit and your score goes down.  In the example used earlier, if the available credit was lowered to $5,000 and your balance is $2,500, the credit utilization is now 50%.

Payment history is the largest contributor and counts for 35% of an individual's FICO score.  It is an indication of your likelihood of paying on time and as agreed for your debt, especially mortgages, credit cards, student and car loans, among others.

A big shock to some borrowers is to find out that while they may have never actually incurred a late fee because of a grace period, their score could be dinged because it was not paid on time of the actual due date.

Foreclosures, deeds in lieu of foreclosure and bankruptcies will affect a borrowers payment history as long as they appear on the credit report.

Americans are entitled to a free annual credit report by law from the major credit companies: Experian, TransUnion and Equifax.  AnnualCreditReport.com is the source for these federally authorized reports.   During the Covid-19 pandemic, they are offering free weekly reports.

Even if you are not buying a home or getting a mortgage currently, it is a good routine to check your credit report periodically to discover signs of identity theft early.

First Love, Second Wife or Third REALTOR

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 with seven while Arizona, Georgia, New Hampshire, and Washington had six.  California, Colorado, Tennessee, and Texas each had five offers per home sold.

To make their offers appear more attractive, more buyers are making cash offers to eliminate financing contingencies and reduce the chance of rejection.  Cash offers represented 25% of offers in April and 21% in the first quarter of 2021 compared to 18% in 2020.

Buyers who are not able to make cash offers are increasing their down payment.  Nearly half of homebuyers are putting 20% or more down during the first quarter of 2021.  Even first-time buyers are using an 80% mortgage to make their offers more attractive to sellers.

The median days on the market for listings was 17, down from 21 days a year ago.  31% of residential sales were made to first-time homebuyers which is down from 32% in March 2021 and down from 36% one year ago.

While nearly ¾ of homes closed on time, 5% were terminated and 22% were delayed but eventually went into settlement.  Appraisal and financing issues were the major contributors to the delayed transactions.  The two major factors for the terminated transactions were also appraisals and inspections issues.

Today's environment requires a strong, sensitive agent who understands your goals as well as the intricacies of the market to be able to devise a plan to make it happen.  Your agent and their recommendations for the other professionals involved are the boots on the ground necessary whether you are a buyer or a seller.

Simple Rates of Return

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 amount is referred to as Cash Flow Before Tax.

In this example , the initial investment of the down payment and closing costs, $66,000 was divided into the Cash Flow Before Taxes of $5,468 to get an 8.28% Cash-on-Cash rate of return.

The second yield to be considered is called Equity Build-up.  Each payment made on an amortizing mortgage pays a portion toward the principal balance to retire the loan.  It is calculated by dividing the initial investment into the principal contribution for the year.

Continuing with the example, $66,000 is divided into the principal reduction for year one of $4,606 to get a 6.98% Equity Build-up rate of return.

This approach is easy to understand because you are not considering depreciation, anticipated appreciation, holding period, recapture of depreciation or long-term capital gains. Simply rent the property, pay the bills and if there is money left over, it pays a return on the initial investment.

The same goes for the Equity Build-up.  When you make the payment on the mortgage, the loan is reduced and while you don't have access to the money like cash flow, it is definitely your equity and tangible.

To determine whether an ROI on a rental is good, compare it to what your initial investment is earning currently.  Ten-year treasuries are earning less than 2%.  Certificates of deposit are earning less than 1%.

For more information, download the Rental Income Properties  guide and schedule an appointment with your real estate professional.

Is a Home Inventory Necessary?

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.  It could be substantial.

Remember, you are entitled to claim them regardless of how long it has been since you used them or if you do not intend on replacing them again.

When filing a claim, the more "proof" you have to substantiate it, the better off you are.  Receipts are great but chances are, you may only have them for the big-ticket items.  Photographs or video of the different rooms are great records that the items were in your home.

An itemized list of each room with a description of the content, cost and date of purchase, supported by pictures would be ideal.  This type of documentation will make filing and settling a claim much easier.   The more documentation you have, the more likely you are to have a favorable settlement.

The more expensive the item, the better it would be for you to have receipts, serial numbers and photographs.  A simple count of some items like clothing will suffice like four pairs of jeans, 24 dress shirts, etc.  More valuable items of clothing like a cashmere jacket or a silk dress should be listed individually. 

Depending on the frequency that you purchase new items for the home or possessions, you'll need to consider updating the list and photographs.  Moving creates opportunities to get rid of things that haven't been used for years and to acquire things for the new home.  It is always a good idea to complete a home inventory after you've moved and settled into your new space.

If you would like to have more tips and a form to itemize your possessions, download the Home Inventory.  This will even allow you to include pictures and store it in digital format for safe keeping.

Deciding on Whether to Move

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 quarter 2021 Zillow Home Price Expectations survey believe home inventory will begin to grow in the second half of this year or the first half of 2022.

Mortgage rates are near record lows which will keep payments at a minimum.  With the inflation rate in the United States expected to be between 2-3%, many borrowers consider that it balances with the mortgage rate to be an effective zero percent.

"Consumers are facing much higher home prices, rising mortgage rates, and falling affordability, however, buyers are still actively in the market," said Lawrence Yun, NAR's chief economist.  "At least half of the adult population has received a COVID-19 vaccination, according to reports, and recent housing starts and job creation data show encouraging dynamics of more supply and strong demand in the housing sector."

The pandemic has allowed many buyers have the flexibility to work from home for now and in some situations, permanently.  That opens new location possibilities options that would not have existed if they had to commute to work daily.  Economists believe that the increased preference to work remotely will be a permanent shift even if it is only a part of the work week.

This provides opportunities for homeowners to relocate in an area that doesn't have the high demand that their current area does and could benefit from more affordable housing for the replacement while possibly, maximizing the sales price of their current home.

Good information specific to your needs is essential to making good decisions.  Explore the possibilities with your real estate agent.  They can provide facts about the sale and purchase of another home.  Once you have the facts, you may use the Ben Franklin Balance Sheet to help you with your decision.

"Mise en Place" for Homebuying

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 income and immediate living expenses will give you a feel for what you can afford but you also need to know what big-ticket expenses are in the future and how much you should be saving for them.  Lenders use debt to income ratios to qualify borrowers, but it may be more than the buyers feel comfortable with.  This is good information to discuss with your mortgage professional.

Meet with a mortgage banker ... their job is to get borrowers approved and instead of using calculators on a website, a trusted, experienced mortgage professional can look at your credit, make suggestions if it can be improved, run verifications on income, assets and liabilities and suggest loan programs to benefit your specific situation.  They can even provide a pre-approval letter and phone verification that may be the tipping point to negotiating a successful contract with a seller.

Initial investment ... The down payment and closing costs are related to the type of mortgage, which is generally, dependent of how much of the buyer's savings is available.  The down payment can range between zero and 20%.  Mortgage insurance is necessary on most loans if the down payment is less than 20%.  Buyer's normal closing costs range between two to five percent of the mortgage.

Costs of homeownership - Most mortgage payments include the principal and interest plus 1/12 the annual property taxes and insurance plus mortgage insurance if required.  Other expenses that will be incurred by the homeowner include maintenance, HOA dues, utilities, upkeep and replacement of equipment and appliances.

Process and timeline ... people tend to feel more comfortable when they understand the process of buying a home and the length of time it takes for the different steps.  Your real estate agent will be able to provide this information to you based on the type of mortgage and local market conditions.

Know the numbers ... being familiar with the basic statistics makes planning and even, negotiation easier to predict.  Important data, relative to the type of property you are buying, includes the current supply of homes for sale, days on market, sales price to list price ratio, and percent of cash sales in your price range.  This is another area that your real estate professional can be very helpful.

Must-have features ... the concept of a "dream home" is more myth than reality.  People rarely get everything they want even when they are building a home.  Especially, in a highly competitive market with rapidly increasing prices, buyers should create a list of their "must have" and "nice to have" features and amenities.  This can be helpful when you are determining whether to write a contract on a home.

Build your team ... buying a home is like an athletic team.  By selecting the best "players" for each position, you will have a much better chance for a successful sale and a satisfactory transaction.  Your real estate agent is in a unique position to guide you through the entire process and recommend trusted professionals for each job that needs to be done. 

An excellent meal includes fresh, good food, the right ingredients, superb preparation, and execution.  Whether you are following a recipe or doing it from memory, each step is important and affects the outcome.  The same is true for buying a home.  Get everything together before you start looking at homes.

For more information on buying a home, download our Buyers Guide.

It's Not too Late to Refinance

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 reasons include:

1. Lower the payment
2. Lower the rate to pay less interest
3. Shorten the term to pay off the loan sooner
4. Take cash out of equity to pay off higher cost debt
5. Take cash out of equity to improve their liquidity
6. To remove a person from the loan as in a divorce
7. To combine a first and second mortgage
8. To replace an adjustable-rate mortgage
9. To consolidate debt

There are some commonly held myths about refinancing among homeowners such as:

• You can only refinance your home once.
• You must refinance through your current lender.
• There should be two-percent difference in the rate to justify it
• You need 20% equity to refinance
• Applications require a lot of documents
• You need cash to cover closing costs
• You won't save that much by refinancing
• It's free to refinance

If your current mortgage is a FHA, there is limited borrower credit documentation and underwriting program.  The mortgage must be current and not delinquent, and the refinance must result in a net tangible benefit to the borrower such as a lower rate, lower payment or better terms.  For more information, see Streamline or contact an FHA approved lender.

VA has a similar program if your existing mortgage is a VA-backed home loan. The purpose is for a borrower to reduce their payments or make their payment more stable.  They must certify they are currently living in or did live in the home covered by the loan. The Interest Rate Reduction Refinance Loan, IRRRL, may be available.

USDA also has a program for current USDA direct and guaranteed rural homebuyers who have been current on their payments for 12 months prior to requesting the loan refinance.  No appraisal or credit review is required.  There must be a minimum of 40% net reduction to the PITI payment.  More information is available.

Before refinancing your home, determine how long you plan to keep the home.  If the reason for refinancing is to save interest by getting a lower rate, you may accomplish that immediately.  However, if you plan on selling soon, you may not be able to recapture the cost of refinancing.

There are costs associated with refinancing regardless of whether you pay for them in cash, or they are rolled into the cost of the mortgage.  These costs can range from two to five percent of the mortgage.

Check out the Refinance Analysis to determine your breakeven point and savings.  Call if you have questions or want the recommendation of a trusted mortgage professional.

Writing a Successful Offer in a Low Inventory Market

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, advise you on current market conditions and normal procedures.  Your agent will even help you assemble the rest of the team like mortgage officer, title, insurance, warranty, inspectors and can recommend service providers.

Your agent can advocate your cause personally to the listing agent by personally delivering the offer and expounding on your strong points to lobby your position.  Obviously, your agent will not share anything that you do not expressly give them permission to.

Even before you write the offer, your agent can inquire with the listing agent about any preferences of the seller not mentioned in the listing agreement as well as to use the proper contract forms and addendums.

The following list of suggestions are provided for your consideration realizing that some may not be appropriate for your individual financial situation or comfort level.

• Get pre-approved from a local lender and include documentation with offer to purchase.
• Have lender phone and email listing agent to expound on pre-approval.
• Increase the amount of earnest money.
• Acknowledge flexibility on closing and occupancy dates.
• Eliminate unnecessary contingencies.
• Waive the appraisal and have proof of funds to meet the difference in the purchase price.
• Avoid concessions like asking the seller to pay the buyer's closing costs or points.
• Avoid including personal property to go with the sale unless specified in listing agreement.
• Purchase "as is" with right of quick inspection to cancel contract if condition is unacceptable.
• Shorten time frames on necessary contingencies.
• Attach proof of funds for down payment or full purchase price if cash.
• Arrange bridge financing to be able to pay cash.
• Buyer should pay their own normal closing costs.
• Write a personal note to the seller explaining why you like and want their home.  Some listing agents are advising sellers to not accept them due to potential discrimination liability.
• Escalation clause ... offer to pay $X,000 more than highest acceptable offer up to a limit.
• If you physically sign the offer, use a contrasting color ink to add a personal touch.  If using a digital contract, change the font and color to distinguish the signature.
• Make your best offer first because they may not make a counteroffer.

When a new listing hits the market, it is commonplace for there to be a rush of interested buyers that result in multiple offers.  It is prudent for you to research and consider which of these ideas you can implement before you find the home; it is much better to have more time to make these decisions, especially, if it involves a mortgage officer or an attorney.

Your real estate professional will be able to tell you if these suggestions are viable and may be able to offer additional recommendations.  If you do not have an agent, contact me at (973) 251-0100 or Cheryl@thedarmaningroup.comto discuss a plan to craft your offer in the most favorable way possible.