THE SECOND STORY | December 11th, 2018

Another Type of Financing Concession

Price, condition and terms are factors that any owner must consider when marketing their home. Price is usually the easiest to adjust to compensate for shortcomings in location or condition of the home. Improving the condition of the property is more time consuming but updates to kitchens, baths and other things can appeal to a buyer.

One of the most overlooked marketing factors are terms which are also referred to as financing concessions.

Paying part or all a buyer’s closing costs is the most common financing concession. By doing so, the buyer doesn’t need as much cash to get into the home which can be attractive to more buyers.

There is another financing concession that is not used very often in today’s market but it is still allowed and can increase the marketability of a home. A temporary buy-down of the interest rate makes a lower payment for an initial period.

It is still a fixed-rate mortgage that the buyer must qualify for at the note rate and there is no negative amortization. The seller pre-pays the interest in advance at closing so the buyer has lower payments in the initial period.

Instead of lowering the price of the home, let’s say the seller has decided to offer $6,875 worth of financing concessions that the buyer can apply any way they want. One way might be to get a 2/1 buy-down which means that the first year, the payment would be based on 2% less than the note rate of the mortgage and the second year, it would be 1% less than the note rate. The third through thirtieth years, the payment would be the actual note rate.

On a $275,000 home with a 3.5% down payment at 5% for 30 years, the first year’s mortgage payment would be figured at 3% which would be $305.76 less than normal. The second year’s payment would be figured at 4% and would be $157.65 less than normal. The third through thirtieth years, the payment would be the normal payment of $1,424.59.

Financing Concessions.png

It would save the buyer $5,560.90 in interest in the first two years and there would still be $1,314 of the financing concession to apply toward the buyer’s closing costs.

The financing concessions paid by the seller give the buyer lower payments for the first two years and less money needed for the closing cost. An added bonus for the buyer is that the buyer can deduct the pre-paid interest the seller paid as qualified mortgage interest.

Some lenders may tell you that temporary buy downs cannot be done. They’ve been around for over thirty years and can still be done today on FHA, VA and conventional loans. Call (510) 908-9021 if you need a recommendation of a trusted mortgage professional or check out a 2/1 Buydown with your own numbers.

THE SECOND STORY | December 4th, 2018

44 Times More Than a Renter

The Federal Reserve Board’s Triennial Survey of Consumer Finances recently revealed the net worth of a homeowner was $231,400 compared to $5,200 for a renter. The net worth of homeowners increased 15% from 2013 to 2016 while renters’ decreased by 5%.

Appreciation and principal reduction are the two dynamics that affect a homeowner’s equity. Each payment is applied to the interest for the previous month and the principal reduction to retire the mortgage.

A $300,000 home purchased with a $294,566 FHA mortgage at 5% for 30 years has an average monthly principal reduction $362 in the first year. Two percent appreciation would benefit the buyer by $500 a month. In this example, the equity grows by $860 a month for the homeowner. A tenant would have to invest $660 a month over and above the rent they’re paying.

Based on the assumptions listed above, the $10,500 down payment would become approximately $85,000 of equity in seven years. Leverage and forced savings contribute to the difference in addition to the appreciation and principal reduction.

The rent paid by tenants help the landlord recoup their investment in the home and a return on their investment. Some people say, regardless if a person rents or buys, they pay for the house they occupy. The choice is whether to buy it for themselves or their landlord.

Check out some of the benefits using your own numbers with this fill-in-the blank Rent vs. Own.

THE SECOND STORY | December 1st, 2018

HIBERNATION!

My blogs…
 
 
 
 
….go into hibernation from Thanksgiving until the first Thursday eve/night of 2019!
 
 
If all goes as planned, and if I get some brilliant ideas (or not),  I’ll start typing then!
 
I hope you have wonderful holidays…
whatever you may celebrate!

THE SECOND STORY | November 27th, 2018

Gift of Equity

There is a little-known mortgage program that could provide the vehicle for the right person to get into a home. If a person sells their home to another for less than the fair market value, the difference in the appraised value and the sales price is considered a gift of equity for the buyer.

FHA requires that borrowers receive gifts of equity only from family members transferring title to the borrower.

An appraisal is required to determine the value of the home. The sales price is subtracted from the appraised value to determine the equity to be gifted. If a home appraises for $300,000 when the owner will sell it for $250,000, the gift is $50,000.

The gift is applied to the down payment. In this example, the borrower would have to qualify for a $250,000 mortgage which would require private mortgage insurance because a 20% down payment on a $300,000 home would be $60,000. If the buyer had an additional $10,000 in cash to put down, the PMI would not be required, and the monthly payments would be lower.

The seller would need to provide a gift letter stating the amount of the gift, the date the gift, and that no repayment is expected or required. It also needs to have the donor’s name, address, phone, email and relationship to the buyer. In addition, the settlement statement will need to show the gift being credited from the seller to the buyer. The lender may require additional documentation.

Beginning in 2018, the annual gift tax exemption is increased to $15,000 per person per year and lifetime exemption to $5.6 million. The fact that the $50,000 exceeds the individual amount doesn’t mean there will necessarily be any gift tax due now. The seller should consult their tax professional.

THE SECOND STORY | November 20th, 2018

Do You Know the Way?

It may be natural for first-time buyers to be unsure of the process of buying a home because they haven’t been through it before but even repeat buyers need to know changes that have taken place since the financial housing crisis.

The steps in the home buying process are predictable and generally follow the same pattern. It certainly makes the move stay on schedule when you know all the different things that must be done to get to the closing.

  • In the initial interview with your real estate professional, you share the things you want and need in a home, discuss available financing and learn how your agent can represent you in the transaction.
  • The pre-approval step is essential for anyone using a mortgage to purchase a home to assure that they’re looking at the right price of homes and so they’ll know what they can qualify for and what the interest will be.
  • Even with lower than normal inventory, it is difficult to stay up-to-date with the homes currently for sale and the new one just coming on the market. Technology has simplified this process, but the buyer needs to implement them.
  • Showings can be accommodated online through virtual tours, drive-bys and finally, a personal tour through the home. Your real estate professional can work with you to see all the homes in the market through REALTORS®, builders or for sale by owners.
  • When a home has been identified, an offer is written and negotiation over price, condition and terms takes place.
  • A contract is a fully negotiated, written agreement.
  • Escrow is opened to deposit the earnest money from the buyer as a sign they’re acting in good faith. The title search is also started so that clear title can be conveyed from the seller to the buyer and that the lender will have a valid lien on the property.
  • 88% of home sales involve a mortgage. The lender will require an appraisal to be sure that the home can serve as partial collateral for the loan. If the buyer has been pre-approved, the verifications will be updated to be certain that they’re still valid. The entire loan package when completed, is sent to underwriting for final approval.
  • When the contract is completed, at the same time the title search and mortgage approval is being worked on, the buyer will arrange for any inspections that were called for in the contract.
  • After all contingencies have been completed, the transaction goes to settlement where all of the necessary papers are signed, and the balance of the buyer’s money is paid. This is where title transfers from the seller to the buyer.
  • Possession occurs according to the sales contract.

One of the responsibilities of your real estate professional is to make sure that things are done in a timely manner so that the transaction will close according to the agreement on time and without unforeseen or unnecessary problems.

Even if you’re not ready to buy or start looking yet, you need to be assembling your team of professionals. Let us know and we’ll send you our recommendations, so you can read about them on their websites.

If you have any questions, call us at (510) 908-9021; we’re happy to help. Informed buyers lead to satisfied homeowners and that is better for everyone involved.

THE SECOND STORY | November 15th, 2018

Perspective and Happy Thanksgiving

Talking about real estate and having clients who want to sell, and having clients who want to buy…..seems rather tame and trivial compared to all who have lost their lives, lost their homes (rentals or owned), lost everything in the most recent fires all over CA. I hope many of you have or will be donating to the fire victims through such agencies as the Red Cross.

Newport Beach Oct 2018

Thanksgiving is upon us, and not only do I need to express my gratitude for everything I have physically, verbally, and mentally, I hope you have a good Thanksgiving, no matter if you have peanut butter sandwiches, a full turkey dinner, or take out from McDonald’s.

Even just a few moments of silence can give me a more well-rounded outlook and attitude. I wish that for those of you who read this blog.

Alameda Real Estate this Week

Broker Tour Tues 13

New 10 

Total Active 72

incl 2 Active Contingent, 1 Back on Market, 6 Price Changes

Total Pending 52

Sold 9

That’s a wrap! I’ll write another post 2 weeks from today!

Happy, happy Thanksgiving! best, m

 

my ‘for fun’ blog…Boomer-chick-musings.com

 

THE SECOND STORY | November 13th, 2018

Roll the Repairs into the Mortgage

It’s been said that if you can find a home that has most of what you want, you should go ahead and purchase it. Many first-time buyers are using everything they have for a down payment and closing costs and would have to “live” with the less than perfect home until they can save the money to make the changes.

The FHA 203(k) mortgage allows a borrower to purchase a home and provides additional funds for improvements to be made. These types of renovations can include kitchen and bathroom remodels, flooring, plumbing, heating and air conditioning systems, additions and other things.

The benefit to the buyer is that they have the opportunity to consider a home that needs repairs and might have been unacceptable without a program like this. Being a FHA loan, a minimal down payment is required, fair interest rates and generous qualifying requirements.

The 203(k) Streamline can be used for cosmetic improvements, appliances and minor remodeling up to $35,000 in cost.

As you can imagine, this is a specialized program and not all lenders choose to make 203(k) loans. They usually take longer to process and getting firm bids on the work to be done will be required. It is important to find out how much experience a lender has with this particular type of loan.

It will also be required that you work with a 203(k) consultant in addition to the mortgage officer.

For more information, go to Hud.gov. FNMA has a similar conventional loan program called HomeStyle Mortgage. Your real estate professional will be able to help with recommendations. Call me at (510) 908-9021.

THE SECOND STORY | November 9th, 2018

Don’t breathe deeply! Too much smoke!

IMHO I think Alameda pushes all of my buttons considering the above. Access to transportation, to me, means not using a car as solo driver (and yes, I do drive solo). And I’ve ridden my bike to the Alameda ferry (to SF). But I love most of the transformations that our town has made since 1973 when Carl and I showed up here, renting our first house (a studio apartment) at 2105 Central Ave. It seemed like we were in heaven! But not much has changed on the exterior, other than it got a new foundation years ago..and it was sitting on bricks when he rented it!

Alameda Real Estate this Week

Broker Tour Tues 15

New 12

Pending 9

Sold 12

Total active 73

(incl 3 active/contingent, and 1 price change)

Total pending 48

Have a fun weekend…but maybe play games inside, or stream some movies, or go to our magnificent theatre and watch a movie. And then head over to Tuckers for some ice cream treats!

But the smoke is awful. As I was driving to our BayEast Association of Realtors’ chapter (near Mariner Square) I saw folks that were walking and wearing masks, and some people driving cars were wearing masks! Not good.

And give please pause to think good thoughts for and about those who lost everything in Paradise, CA.

best, marilyn

Boomer-Chick-Musings.com my for fun blog!

THE SECOND STORY | November 6th, 2018

Getting the “Right” Home

Finding the right home is still the biggest challenge buyers are faced with in today’s market as is shown in the latest Confidence Index Survey. Assuming the buyers find the “right” home with determination, perseverance and the help of a real estate professional, 88% of all transactions last year required financing to get the buyer’s address on the home. 93% of first-time buyers needed financing.

Pre-approval is an essential step that needs to be handled before buyers begin searching for a home. The benefits to the buyer fall into the category of confidence.

PRE-APPROVAL GIVES YOU CONFIDENCE

  • Knowing the amount you can borrow
    the mortgage amount decreases as interest rates rise
  • Looking at the right priced homes
    price, size, amenities, location
  • Comparing and identifying the best loan
    rate, term, type
  • Uncover issues early that could affect the most favorable loan terms
    time to cure possible problems
  • Bargaining power to negotiate with the seller and possibly, competing buyers
    price, terms, & timing
  • Settlement can occur sooner after contact is accepted
    verifications have already been made

Items Needed for Pre-Approval

  • Photo ID
  • Two months current pay stubs
  • Last two year’s W2s
  • Complete copies of checking and savings statements for last three months
  • Copies of statements for IRAs, 401k, savings, CDs, money market funds, etc.
  • Employment history for last two years with addresses and contacts
  • Proof of commissioned or bonus income
  • Residency history for last two years with addresses and contacts
  • Assets for down payment, closing costs, and reserves; must provide paper trail
  • If self-employed, last two years tax returns, current profit and loss statement and balance sheet; copy of partnership/corporate tax returns for last two years if owning more than 25% of company
  • FHA requires driver’s license and social security card
  • VA requires original certificate of eligibility and DD214
  • Other things may be required such as previous bankruptcy, divorce decree

Contact us at (510) 908-9021 or marilynschu if you’d like a recommendation of a trusted mortgage professional.

THE SECOND STORY | November 1st, 2018

Seller’s market? prices are comin’ down….

If you live in the Bay Area, you should have some inkling that the Seller‘s Market is not as good as it has been the past 3-4 years. However, there can be loads of reasons for selling:

-Making the big bucks’ as long as you don’t buy something that costs ‘big bucks.’

-You can’t wait until the neighbors make the big bucks…you need to stay ahead of them. Be a leader, not a follower, but make wise decisions.

-Outgrown the house? Sure… but it may be worthwhile to think ahead a few years…will you grow back into it? Would putting an addition help to add space? How about an ADU (accessory dwelling unit) that you can rent out?

-Feeling financially stressed? Maybe talk to your accountant or financial advisor BEFORE you sign on the dotted line to list that property. There are numerous things to consider…and speak to a Realtor that knows what’s going on in the ‘hood, and hopefully you can trust.

-Outta there due to deferred maintenance? Maybe take it one step at a time…get a pest and property inspection done…and prioritize those findings.

Alameda Real Estate this Week

Tues tour 15

(I’ve kinda regrouped and minimized the categories)

New 12

Active 70

(active incl 3 active/contingent, 1 bom (back on market), 7 price changes)

Pending 50 (total)

Sold 14

And that’s a wrap…contact me if you have ??? about this market and wha’s goin’ on in A-TOWN!

Best, marilyn