Archive for the 'Buying' Category
Things You Need To Know When Buying A Home
October 13th, 2007 Categories: Buying
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The Basic Process Of Buying A Home
Well the first one seems to obvious but it starts here. The decision to buy a home.
There are many reasons to buy a home, the two most common.
Investment (read Homeownership As A Savings Plan).
Security Knowing you have a place that is yours and can be passed down.
Once you have made a decision to buy a home, usually (especially first time buyers) people start looking at houses and start dreaming. Which is OK as long as you don’t get your expectations higher than your ability. It is difficult to have seen homes and visualized yourself living there and then have to scale it down. That is why it is so important to get to the money part first.
There are two ways to buy Real Estate, One with Cash, two other peoples Cash or the bank. So if you do not have a couple hundred thousand stashed under the mattress then you need to talk to other people Da bank.
Banks, Mortgage Brokers, Credit Unions… when getting qualified as a buyer (Da banks call you a borrower) they look at a few things. All there digging, prodding, turn your head and cough is to determine the likelihood of you paying them back. Let’s look at some of the things they look at. Da bank qualifies two things in a home purchase, the borrower and the property.
First the borrower
1. Credit-How well do you pay your obligations
a. Typically it Is based on credit bureau rating system known as a FICO Score Except FHA. They like to see at least a 620, 690 is real good 720 and above is great.
2. Income
a. Employment-Where do you work and What do you do
b. Quantity-How much do you make
c. Quality-What’s the likelihood you will make the same amount again. How long have you been at your job?
3. Debt To Income Ratio (DTI)
a. How much will your house payment be Divided by your income (front end ratio)
b. How much, do you have any other debts, combined with a house payment Divided by your income. House+Car+Student Loan+Credit Cards (back end ratio)
4. Loan to Value Ratio (LTV)- How much money do you have
a. $20,000 of your cash on a $200,000 home= 10% down your LTV is 90%
b. The more you have the less questions they ask. If you are borrowing 100% or less than five percent, they start asking a lot of questions. Any Down Payment needs to be verified that it is your money and it is not owed.
All the information needs to be documented. The Two Most Recent Tax Returns, Bank Statements, Pay Stubs, Verification of Employment VOE, The down payment is not borrowed Verification of Deposit VOD, Verification of Rent VOR. If you have been renting from a private owner, you may need to produce twelve canceled checks or some other proof.
Look for qualifying the property
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Home Ownership As A Savings Plan
October 13th, 2007 Categories: Buying
Home Ownership As A Savings Plan
Home ownership is one of the things that make this country great. There are not many places on the planet you can with little or no money own land and then resell it for a profit and through proper planning not pay taxes.
It serves as a savings plan and has tax advantages to go along with it. If you bought a house in 1975 for $27,000, financed at 7% interest, your principal and interest payment would be $179.00 per month. This would make the total payments of the house $64,440.00 (not including taxes and insurance). It is safe to say that that property would be worth at least $150,000.00 today. If you factored in $2,400 per year for taxes insurance and maintenance for 30 years that comes to another $72,000.00 totaling $136,440.00 with a yield of $13,560.00 plus a place to live for 30 years.
The federal government believes that homeownership is important enough to the American economy that HUD (Housing and Urban Development) a cabinet level position. The tax code encourages home ownership. Currently the tax code allows a homeowner to deduct the interest on mortgage and the property tax from their income tax. Based on the above example the interest that was paid over the 30 years $37,667.40. Let us assume that the tax bracket was 20% that is another $7,533.48 in savings. Now the total cash realized is up to $21,093.48 plus a place to live for 30 years. If you had managed to maintain the property for $6,000 less or if it were worth $6,000 more than the above example that would be the price you paid plus a place to live for 30 years.
As of October 1997 the Capital Gains tax reform of allows you to sell your primary residence every two years and not pay taxes on the gains, $250,000 gain per individual and $500,000 per married couple. Before the 1997 reform you were allowed to buy a replacement property of equal or greater value.
Based on the above example a family can by a property and sell it and exempt the profit or gain from tax up to $250,000per individual and $500,000per couple.
My advice to empty nesters sitting on a large equity position is to convert to a lower maintenance lifestyle and invest the balance of equity back in real estate.
This is not to serve as tax advice, seek help from a CPA.
If you need a referral contact me.
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What is a Home Inspection?
October 12th, 2007 Categories: Buying
What is a Home Inspection?
A home inspection is an objective visual examination of the physical structure and systems of the house. It should be performed by a professional Home Inspector trained and dedicated to the profession. The purpose of the home inspection is to assist the buyers in making an informed decision concerning the property they plan to purchase. It will bring the buyers dreams face to face with the reality that no house is perfect and all homes require regular maintenance. It should also be understood that the inspection is visual (if a problem is hidden in the walls the inspector can’t see it) and it is not technically exhaustive. It is kind of like going to your family doctor, if he sees something of concern he is likely to send you to a specialist for further evaluation.
So how do you know what will be checked on a typical home inspection? Many years ago the American Society of Home Inspectors, ASHI, developed the standards for a home inspection. These standards can be viewed at www.ashi.org. Other home inspector organizations have also developed standards but all are very close to the ASHI standards. Briefly, the standards dictate that the inspector inspect the Structure, Exterior, Roofing, Plumbing, Electrical, Heating, Air Conditioning, Interiors, Insulation & Ventilation and Fireplaces and solid fuel burning appliances. The standards require that the inspector report on systems that are not functioning properly, are significantly deficient, unsafe or near the end of their service lives.
Buyers may want to consider additional tests or inspections that are not generally covered in a standard home inspection. Environmental concerns such as Radon Gas, Lead Paint, Asbestos and Mold can be assessed by having samples evaluated by a qualified laboratory or special equipment. Many home inspectors can offer these services but almost always at an additional cost. Other inspections to consider are Wood Destroying Organisms (termite), Sprinkler systems, Stucco intrusive moisture inspections, and energy audits. It is also a good idea to have all the gas/oil burning appliances inspected and adjusted for safe and efficient operation.
The Home Inspection is a major part of the buyers due diligence to assess the condition of the house. The buyer should select a reputable inspector and expect a professional report to assist them with their decisions concerning the purchase of the house. Many unpleasant surprises can be avoided with a good Home Inspection.
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Why It Is Time To Buy Rental Properties In Salt Lake
September 23rd, 2007 Categories: Buying, Investing
Things are looking good for buying rental units in and around Salt Lake. Rental rates are on the rise and vacancies are low. We can expect rates to go a little higher, but the real key is low vacancies. Vacancies can be one of the highest expenses to a property owner.
With the tightening of the lending climate and home prices that sky rocketed. Over 25% of the population is under 18 years old, there is a steady stream of renters entering the market.
This makes for an interesting situation. Properties being harder to finance (especially non-owner occupied) means there are less buyers, yet rents are attractive.
Rental Market Outlook From Commerce CRG Real Estate
Over the next 12 months the rental market conditions in Salt Lake County will continue to improve for existing rental property owners, but little change is expected in the difficult conditions for developers of rental properties. Strong demand will drive rental rates higher over the next year with possible double digit increases. On the supply side, there are not a large number of new units under construction that will ease the tight market conditions, and vacancy rates will remain in the 3.0 to 4.0 percent range over the next 12 months.
I recommend the classic three bedroom starter home for the same reasons rents are steady and vacancies are low. It has a built in steady flow of people entering the housing market. The starter homes are a the easiest to rent, easiest to liquidate if necessary.
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How Much Earnest Money Should I Put Down?
September 23rd, 2007 Categories: Buying
This is a really great question. I think the more you put the better.
When you are making an offer I am assuming you want to negotiate the best deal possible.
So with that said let’s look at why more EM can help you. For starters, the EM goes towards your down payment or towards your closing cost if you are doing 100% financing.
It shows how serious you are and shows you have some money. This along with good deadlines can help you get a better price as a buyer. The reality is, if you are putting down 3% or more in a total down payment, than there really is no reason, for you not to put a large EM.
Your EM is protected with the basic contingencies of the Standard Board Of Realtors Real Estate Purchase Contract-REPC (pronounced rep-see).
Those basic contingencies are Appraisal, Inspection and Loan. They all have deadlines and you can cancel the contract within those guidelines with WRITTEN NOTICE. If the contract is canceled within the parameters of the contract then the EM is returned to the buyer.
Another reason is called liquidated damages. The default clause of the REPC Paragraph #16
DEFAULT. If Buyer defaults, Seller may elect either to retain the Earnest Money Deposit as liquidated damages, or to return it and sue Buyer to specifically enforce this Contract or pursue other remedies available at law. If Seller defaults, in addition to return of the Earnest Money Deposit, Buyer may elect either to accept from Seller a sum equal to the Earnest Money Deposit as liquidated damages, or may sue Seller to specifically enforce this Contract or pursue other remedies available at law. If Buyer elects to accept liquidated damages, Seller agrees to pay the liquidated damages to Buyer upon demand. It is agreed that denial of a Loan Application made by the Buyer is not a default and is governed by Section 2.3(b).
So a large EM benefits you as a buyer all the way through, as long as you monitor your dates and everyone in the transaction stays on task and on time, your money is not at risk.
In summary, a larger EM along with good deadlines can help you negotiate a better price and in the event the seller defaults you awarded a larger damage settlement.
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Things To Know When Buying A HUD Home In Salt Lake
September 21st, 2007 Categories: Buying
Things To Know When Buying A HUD Home In Salt Lake
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1. What is a HUD Home?
Actually a great question. A HUD Home is a home that had a Loan that was insured by the Federal Housing Authority (FHA) and has foreclosed. It is a bank repo but had a certain type of loan. So pretty much owned by the tax payers.
2. I am an investor can I buy a HUD Home?
During the first 10 days a property is listed it is available for Owner Occupant Purchasers only. All bids placed by Owner Occupants that are submitted from Day 1 through Day 10 are opened on the 11th day and are considered as though they were received simultaneously. If there are no acceptable owner-occupant bids on day 11, then bidding becomes available to all purchasers on a daily basis.
3. I am a First Time Buyer (FTB), do I get any special deals on a HUD Home?
The answer is no because you are a FTB, however there are sometimes deals that are offered in an “Officer/Teacher Next Door ” program. That will be discussed in a future post
4. How do you buy a HUD Home?
All HUD Homes that are available for sale are listed on our www.MCBREO.com and on the MLS. If a property has an accepted bid or is under contract it is removed from the web listings. Only HUD-registered real estate agents can place bids on behalf of their buyers. For a bid to be awarded it must meet the threshold for the property (lowest acceptable amount) and have the highest net to HUD (not purchase price). A sales package should be completed at the time of bid submission. Once a bid is accepted the purchaser and real estate agent have only 48 hours to submit the Sales Contract Package to MCB. If the sales package is not received within the deadline then the bid acceptance may be cancelled. If there are no acceptable bids placed on a property then it remains on the market until an acceptable bid is received.
5. Will HUD Pay closing cost?
HUD will allow some of the closing cost to be paid. However know that some cost are not allowed to be paid by HUD, you do not get a rebate. So make sure your Loan Officer and Realtor have HUD Experience.
6. If we are bidding online do we have to Earnest Money?
Yes. An earnest money deposit is required for all HUD property purchases with the exception of some HUD Special Programs. The amount required for the earnest money deposit depends on the purchase price of the property:
7. Can I buy a HUD Home with an FHA loan?
Yes, but please know that purchase amount is over the list price, that amount must be paid in cash. FHA will not loan any amount over their list price.
8. How does HUD determine their List Price?
Fair Market Value is determined by a licensed FHA appraiser. Copies of the FHA appraisal are available to the lender by request after a property is under contract. If a property is exposed to the market without any acceptable offers then a reduction of the listed price may occur.
9. Can you bid lower than the asking price on a HUD Home?
Yes you can. However typically HUD Homes that are in decent shape and depending on the area usually go for more than list price. The list price is usually aggressive enough to cause multiple offers and therefore drive up the price to full market value. This is also market driven. (because FHA will not loan an amount more than the asking price, I believe this is HUD’s way of not getting the house back).
10. How do you find HUD Homes?
You can go to the site that has the Utah HUD Homes it is www.MCBREO.com look for the Utah link and click in.
11. How Can I arrange to look at a HUD Home?
Owner Occupant and Investor purchasers MUST be accompanied by a broker or agent when viewing any HUD home listed for sale. Buyers may not enter a house without their broker/agent for any reason prior to closing. Brokers and/or agents must accompany any individual performing services such as home inspections, appraisals, or certifications. Brokers and agents may only use their keys for their own legitimate use. Keys are not permitted to be lent to any other individuals associated with any sales transactions.
12. Can I get a home inspection?
All HUD Properties are sold in their “AS-IS” condition, HUD does not make any repairs to the property. As such, it is extremely important that the purchaser performs a home inspection with the utilities activated. The home inspection will provide the most current condition of the property and inform you of any repairs that may be necessary. The gas, water, and electricity should be activated at the time of the home inspection. To activate the utilities a permission form can be found under HUD Forms on our website, this should be completed by the purchaser and agent then faxed in for approval. Utilities may be activated for a period of 72 hours so the home inspector should be scheduled to complete the inspection during that timeframe.
13. Does HUD make any Repairs to the property?
No. All HUD properties are sold in their “AS-IS” condition. There are no representations or warranties, expressed or implied, on any HUD property. HUD does not guarantee the condition of any property, FHA-insurable or not, nor whether it meets local codes or zoning requirements. Purchasers are advised that there may be code and/or zoning violations on these properties and that it is the responsibility of the purchaser to identify these violations. Buyers are very strongly encouraged to have homes inspected by a qualified home inspection company to satisfy themselves as to the condition of the property at the time of sale.
14. What does HUD stand for?
The United States Department of Housing and Urban Development, it is a Cabinet department of the United States government. Although its beginning… more about HUD
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How Your Deadlines Can Help or Hurt You When Making an Offer In The Salt Lake Market
September 17th, 2007 Categories: Buying
The buyer typically will have the contingencies of an inspection, appraisal and to finish their loan. All of these items come with deadlines that are set when the buyer makes an offer to purchase the property. It is then accepted, countered or rejected by the seller.
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It has been argued that a Buyer’s agent should seek to get the longest possible dates they can. Therefore, protecting their client; makes sense to me. For example: if the inspection deadline is for 28 days past the acceptance of the contract, then the buyer can cancel the contract on the 28th day “Just Cause”. However, a listing agent that is protecting their seller will look at that and say, “We will give you the time you need BUT we are not going to give you that much time.” Sometimes when the deadlines only favor the buyer, the seller will consider it a bad offer and may flat reject it. If another buyer were to come along and make an offer and the home was sold out from under the buyer, there was no service to the buyer.
To make a really strong offer a buyer should take the time needed to do their diligence but be aggressive and do it quickly. A seller will notice that you are serious buyer and this can help when negotiating the price. I believe that an inspection deadline should be around seven days and no more then ten. Personally, I like to do the inspection immediately. If the Buyer gets the inspection done on the property and decides that they no longer want to purchase the house; that is perfectly fine and is well within their rights to cancel the contract or make an objection, if so, let’s do it quickly and move on.
Once it is determined that the inspection is Okay, then I order the appraisal. I do not like to order the appraisal and have my buyer liable for the payment if we do not get past the inspection. The appraisal deadline should be about fourteen days, followed by the loan denial which should be about twenty one to twenty eight days, depending on the type of loan and the underwriting time.
Summary:
- Inspect the property
- Appraise the property
- Finish the loan (an approved buyer must have the property approved before the loan can be completed)
- Close
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“Why Would I Want To Pay A Home Owners Fee For A Salt Lake Condo?”
September 16th, 2007 Categories: Buying
“Why Would I Want To Pay A Home Owners Fee For A Salt Lake Condo?”
In my career I hear this a lot about condominiums. People often object to Home Owner Association Dues known as HOA fees. I found that most people don’t really know what they really are and why you pay them. Typically, an HOA fee will cover, Water, Sewer, Trash, Exterior Maintenance (such as: lawn Service, snow removal.) It also covers hazard and liability insurance for the building. THE MASTER INSURANCE DOES NOT COVER YOUR PERSONAL PROPERTY. It will take care of all the common areas, such as: swimming pools, workout rooms, club houses, playgrounds and equipment. Obviously, the more the amenities the higher the cost.
So then the question is, “is it a waste or a simple trade off?” Well it really depends on the management of 
the community. Remember it is a Home Owners Association, meaning all of the owners are the managers and make the decisions. If the board of directors elected by the Owners is aggressive and runs a tight ship it can be an awesome thing. There is an economy of scales when purchasing things like satellite, cable, Internet services. You will find it is pretty much a wash providing that you would not cut your own grass, shovel your own sidewalks and take care of some minor upkeep on the exterior. For those that have busy schedules or value their spare time too much to do those things a Condo and the HOA fee are a perfect match. If enjoying a good book or relaxing in the great outdoors appeals to you more.
So then the question is, “is it a waste or a simple trade off?” Well it really depends on the management of the community. Remember it is a Home Owners Association, meaning all of the owners are the managers and make the decisions. If the board of directors elected by the Owners is aggressive and runs a tight ship it can be an awesome thing. There is an economy of scales when purchasing things like satellite, cable, Internet services. You will find it is pretty much a wash providing that you would not cut your own grass, shovel your own sidewalks and take care of some minor upkeep on the exterior. For those that have busy schedules or value their spare time too much to do those things a Condo and the HOA fee are a perfect match. If enjoying a good book or relaxing in the great outdoors appeals to you more.Let’s face it when you buy a home you have a homeowner’s fee. You pay your own water, sewer and trash. You have a hazard insurance and the joys of cutting the grass or paying someone. The real difference is you pay it out in multiple checks.
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