20% of homeowners don’t refinance when they should

About 20% of U.S. homeowners fail to refinance their mortgage when interest rates drop enough to make it worthwhile, according to the National Bureau of Economic Research.

This is a huge mistake. The median total of lost savings for these families is currently about $11,500 in present-value terms, the Bureau found

What is a ‘turnkey’ home?

About one out of every 150 real estate listings now uses the word “turnkey” to describe a home. But what does the word mean?

Unfortunately, there’s no clear answer. In many cases, a “turnkey” property means that the house comes with everything in it – furniture, rugs, art, window treatments, even the dishes and silverware. This type of listing is most popular with houses in resort areas that are being sold as vacation properties, since the buyer may already have a primary home and not want to bother having to outfit a second one.

But some sellers use the word “turnkey” simply to mean that the property has recently been renovated and doesn’t require any major repairs. So be sure to clarify what the seller has in mind when you see this term in a listing.

Hot now: Solar panels, in-law apartments

The biggest trends in new homes right now are built-in solar panels and separate apartments for aging relatives.

It typically costs $10,000 to $20,000 to retrofit an existing house with solar panels, but builders are increasingly putting them into new homes. Buyers can then choose to purchase the system or lease electricity from the builder.

Buying the system costs more upfront, and the full cost might not be reflected in a mortgage appraisal. But doing so can save money in the long run, especially since homeowners who generate more power than they need can often sell it to an electric company for a credit. [Read more…]

Banks in battle over condo fees, homeowners association dues

Did you know that 63 million Americans now live in condominiums and communities subject to a homeowners association? That’s up from just 10 million as recently as 1980.

The surge in community living is creating thorny legal issues when homeowners default on both their mortgage and their community dues, fees and assessments. Specifically, who can foreclose on the property, and who gets the money first, the bank or the community association?

The answer depends on the state, and often leads to conflicts between state laws, federal regulations, and condo documents.

About half the states have laws that say that community associations have priority over a mortgage lender, so if the property is sold, the condo or homeowners association gets paid first. But these laws vary widely. [Read more…]

Veterans can save on mortgages with a VA home loan

Active and retired service members can often get a great deal on a mortgage with a loan guaranteed by the Department of Veterans Affairs.

The VA doesn’t make loans, but it guarantees them for lenders, and in return lenders offer better terms on the loans. Not all lenders offer VA-backed loans, so it’s worth looking around for one that does.

The biggest advantages for borrowers are (1) no down payment in most cases, (2) no private mortgage insurance, and (3) frequently, lower rates.

Loans without a down payment are available in most of the country for loan amounts up to $417,000. In certain high-cost areas, the limit can go up to $625,500 (or even more in a few places). [Read more…]

How lenders have tightened standards in the past decade

Percentage of new mortgages by credit score (rounded):

2004                2014

780+                11%                 30%

700-779           43%                 44%

640-699           26%                 24%

620-639           7%                 2%

Below 620       13%                 0%

 

Home buyers get more help

A number of recent changes in the law and in the way that lenders do business are making it easier for people to buy a home and get a mortgage. Taken together, these changes suggest that things are moving back in a direction favorable to purchasers – after a decade in which laws and lending policies have repeatedly tightened things up.

This is a big shift. According to the Urban Institute, a Washington, D.C. think tank, some 1.2 million additional home loans would be made each year if lending rules and practices returned to their historical norms. [Read more…]

U.S. announces plans to loosen mortgage lending

Federal regulators recently announced a number of initiatives to loosen mortgage lending. Their view is that the current standards, adopted years ago in response to the financial crisis, were an overreaction, and the current tighter rules are choking off a housing recovery.

Here’s the background: After the housing bust six years ago, the government wanted to prevent another round of risky loans that led to foreclosures. So it required that lenders insist on higher down payments if they want to have Fannie Mae or Freddie Mac buy or guarantee their loans. And if lender wants to sell a loan to someone other than Fannie or Freddie, it has to require a 20% down payment or else keep part of the risk itself. [Read more…]

More homeowners want to combine two units into one

What can you do if you live in a condo, townhouse or multifamily home, and you need more space but don’t want to move?

For a growing number of people, the solution is to buy the unit next door, tear down a wall, and create a single, larger unit. Recently there’s been an uptick in the number of people combining two small condos into one larger one, or converting a two- or three-family home into a single-family home.

If you’re considering such a move, there’s a lot to keep in mind.

First of all, you’ll need to make sure such a project is allowed. In a condo, you’ll probably need permission from the board or homeowners association. If you’re turning a multi-family home into a single-family home, you’ll need to make sure this is okay under the local zoning rules. [Read more…]

How to keep out competitors if you lease retail space

Most stores that lease space in a mall or other commercial area would like a guarantee of “exclusive use,” meaning that the landlord won’t also rent space to a competing business.

Here are some things to consider if you’re negotiating over such a right in a lease:

What’s the use? The “use” you have in mind should be described in detail, to avoid problems later. For instance, if an ice-cream-cone shop also sells some ice-cream cakes, does that mean that the landlord can’t also rent space to a bakery? If a coffee retailer has “exclusive use,” does that mean that a sandwich shop can’t also sell coffee? [Read more…]

New problem when getting a loan to remodel a home

Some homeowners are running into a big problem when the take out a mortgage (or refinance a mortgage) to pay for a remodeling project. The problem occurs if the remodeling is so extensive that the owners temporarily move out while the work is being done.

Generally, lenders give better terms and rates to homebuyers who plan to stay in a home as their primary residence, as opposed to investors who plan to quickly remodel a home and “flip” it to a new owner. Investor loans are riskier, so lenders typically require a larger down payment and a higher interest rate. To qualify for better terms, buyers who plan to stay put often have to prove that they’re actually living in the home – which they can’t do if they’ve moved out during remodeling. [Read more…]

New rules for credit scores may help many people get a better mortgage

The company behind the most widely-used credit score in America has announced three major changes to how it calculates consumers’ scores – and they could potentially help millions of people to get a better rate on a mortgage.

The so-called FICO score is used throughout the lending industry. A new version – called FICO 9 – has now been introduced, and it includes these changes:

(1) A limited credit history is less of a problem. Currently, if people don’t have much of a history of borrowing money – because they’re young and just starting out in life, or because they have simply chosen not to rely heavily on credit cards, auto loans, etc. – this is treated as a negative. Such people usually get lower credit scores because they haven’t established a track record of handling credit wisely. [Read more…]

One-third of existing home sales are now in cash

Some 33% of sales of existing homes (as opposed to brand-new homes) are now cash-only deals, according to a survey by the National Association of Realtors.

The number of sales in which the buyer doesn’t take out a mortgage began to increase a few years ago during the recession, because well-heeled investors were purchasing large numbers of distressed properties with the goal of rehabbing and flipping them.

But according to the survey, in the last few years investors have been joined by a new group of cash purchasers – retirees. These older folks are selling their homes and using the equity to downsize, or are flush from the stock-market boom and are buying vacation homes or condos as an investment. [Read more…]

Fannie Mae will continue to back larger mortgages

Fannie Mae and Freddie Mac, the quasi-government entities that insure or repurchase a high percentage of mortgages in the U.S., will continue to back mortgages as large as $417,000 – and as large as $625,500 in some high-value areas.

That’s the word from the new director of the Federal Housing Finance Agency, which oversees the two mortgage giants.

This is good news for buyers who want to take out larger mortgages. Mortgages of more than Fannie and Freddie’s maximum amounts are usually considered “jumbo” loans, and borrowers typically have to meet much higher standards and face many more restrictions. [Read more…]

FHA plans to reduce mortgage insurance for many borrowers

One of the simplest ways for a first-time homebuyer to obtain a mortgage is with a loan insured by the Federal Housing Administration.

The FHA doesn’t make loans, but it insures them for lenders. This makes lenders much more willing to offer a mortgage, because if the borrower defaults, the FHA will be on the hook.

FHA loans often require a down payment of as little as 3.5 percent, and can be obtained in many cases by people who have iffy credit or who have a bankruptcy or foreclosure in their past.

The catch is that borrowers have to pay mortgage insurance. Actually, they usually have to pay two types of insurance – an upfront payment of 1.75 percent of the loan amount (which can be rolled into the loan), and a monthly payment that depends on the length of the loan and the amount of the down payment, but can be as much as 1.35 percent annually. [Read more…]

How to buy a vacation home with friends or family

Sales of vacation homes have been rising sharply lately. Across the country, the number of vacation homes sold last year was up 30% from the year before, according to the National Association of Realtors.

Vacation homes now account for 13% of all home sales. The median price last year was $168,700. Interestingly, most vacation home buyers are under age 45.

Many people have long dreamed of owning a second home, but buying one can seem like a big stretch. One solution is to join forces with friends or family and purchase a home together.

This can be an ideal solution – you get to use the home for part of the year, just as you planned, but you can also share the cost, the maintenance work and the expenses with others. [Read more…]

Average monthly U.S. apartment rent hits $1,099

The average monthly apartment rent in the U.S. hit $1,099 in the second quarter of 2014, up 3.4% from a year ago.

This was the 18th consecutive quarter in which rents increased, according to research firm Reis, Inc. Over the past year, rents rose 4% or more in many cities across the country, including San Francisco, Seattle, Minneapolis, Houston, Nashville, and Denver.

What you need to know about easements on your property

An “easement” is a legal right of someone who doesn’t own a piece of property to use the property for a particular reason. Many properties have easements on them, so it’s important to know about them if you’re considering buying real estate.

An easement permits a third party (such as a neighbor) to use part or all of a property for a specific purpose. For instance, someone may have a right to walk or drive over part of the property to access their home, or to go hunting or fishing there.

The most common type of easement is a utility easement, which says that a utility company can access part of a property to maintain its services. This is generally no big deal – but if a utility truck shows up on your land one day and begins excavating a lot of dirt to upgrade a gas line, it can be very disruptive. [Read more…]

Real Estate Pulse

A look at recent trends affecting real estate and the law

Mortgages for ‘do-it-yourselfers’ are spiking

There’s been a big increase recently in a special type of mortgage for people who are buying land and then building their own home on it.

These “hybrid” loans function as construction financing during the building phase. Essentially, they act as a line of credit, which borrowers can tap each time they need to make a construction payment. During this phase, borrowers must pay interest on the loan, but they don’t have to make any payments toward the principal. [Read more…]

New rules for reverse mortgages

The federal government has tightened the rules for reverse mortgages, making it harder for some seniors to get these types of mortgages and reducing the amount of a home’s value that can be tapped.

Reverse mortgages allow elders who are house-rich but cash-poor to use their housing equity. Homeowners who are at least 62 years old can obtain a loan that doesn’t have to be repaid until the homeowner moves, sells, or dies. The homeowner receives a sum of money from the lender, usually a bank, based largely on the value of the house, the borrower’s age, and current interest rates.

Homeowners can get the money in one of three ways (or in any combination): a lump sum, a line of credit, or a series of regular payments, called a “reverse annuity mortgage.” Seniors sometimes use the loans to pay for home care while they remain in the home. [Read more…]

Flood insurance rates are reduced by Congress

Most homeowner’s insurance policies don’t protect owners against flooding. For this reason, many people in flood-prone areas obtain insurance through the federal government’s flood insurance program.

This year, flood insurance premiums had been scheduled to increase dramatically for many people. But Congress has just passed a law that will eliminate or delay many of these increases – a move that not only will save homeowners money, but will also make it easier to put many properties on the market.

Here’s the background: For decades, flood insurance rates were held artificially low for many homeowners. The government in effect subsidized premiums by “grandfathering” many homes that didn’t meet revised construction standards or that were included in a newly redrawn flood zone. [Read more…]

Does ‘staging’ a home really make it sell faster?

Many people spend a lot of money “staging” a home with nice furnishings and accessories in the belief that it will help sell the house. But there’s never been a scientific study to test this hypothesis … until now.

Recently, Professor Michael Seiler and researchers at the College of William and Mary in Virginia walked 820 homebuyers through six “virtual” homes on high-quality rendering software. The homes were identical, except that some had neutral beige walls and others had unattractive purple walls, while some had “ugly” furniture, some had attractive furniture and some had no furniture.

The result? When asked how much they would pay for the home, each group gave the same average price – roughly $204,000. The staging made no difference to them. [Read more…]

Condos’ attempts to limit unit rentals can create issues

Many condominium associations want to limit the owners’ ability to rent their unit to tenants. But doing so is often more complicated than it sounds.

There are lots of reasons why condo associations might want to restrict rentals. For instance, tenants generally aren’t as careful as owners to take care of the property and respect other residents’ right to peace and quiet. Owner-landlords who don’t live in the property might be less willing to help financially with needed improvements. And a high percentage of renters might make it more difficult for owners to sell their units, in particular by making it harder for potential buyers to qualify for certain types of home loans. [Read more…]

Divorce payments might count when applying for a mortgage

Many people wonder about how alimony and child support payments are treated when they’re applying for a mortgage.

Generally, if you’re legally obligated to pay alimony or child support, you have to tell the lender, and the lender will treat these as debts that reduce your available income.

So it would seem logical that if you’re receiving alimony or child support, these should be considered credits that increase your available income. However, it doesn’t always work that way.

Many lenders will treat alimony and child support as income, but they all have their own rules, and it varies from lender to lender. [Read more…]

Flood insurance rates could see a huge increase

Most homeowner’s insurance policies don’t protect owners against flooding. For this reason, many people in flood-prone areas obtain insurance through the federal government’s flood insurance program.

But thanks to a new law, flood insurance rates are set to go up, and in some cases they will see a dramatic increase.

Here’s why: In the past, many people who obtained flood insurance received lower rates due to government subsidies. In effect, they were “grandfathered” at older rates that didn’t reflect the true risk of flood damage to the property.

Back in 1968, the government adopted new minimum construction standards designed to minimize flood damage. But many pre-1968 buildings that didn’t meet the new standards were allowed to be “grandfathered” and pay lower rates as though they met the new requirements. [Read more…]

U.S. issues new, easier forms to help mortgage shoppers

One reason many potential homebuyers find mortgages to be intimidating is that lenders send them lengthy, complex “disclosure” forms that are confusing and hard to understand. This can make it more difficult to figure out exactly what you’re getting into, and whether one mortgage product is really better than another.

Now, the federal government is issuing new, simplified forms to make shopping for a mortgage easier.

The new forms will make it much less complicated to understand your costs and obligations, and to engage in comparison shopping. [Read more…]

Real estate briefs

Home buyers with bad credit get help from the FHA

The Federal Housing Administration is making it easier for people who have experienced a bankruptcy, foreclosure or short sale to once again qualify for a mortgage.

A new FHA program will help people who have such a blotch on their credit history, but who have recovered financially and repaired their credit. These people must now wait only one year to get an FHA-backed loan, rather than the three years they had to wait previously.

To qualify, borrowers must show that (1) the bankruptcy or foreclosure was caused by losing their job or by some other loss of income that was out of their control, (2) their incomes have recovered, and (3) they have gone through a mortgage counseling program. [Read more…]

One-third of first-time homebuyers get help from their parents

About a third of all first-time homebuyers get help from their parents or other relatives in coming up with a down payment.

In 2010, some 27% of first-time homebuyers received a gift of money, and another 9% received a family loan, according to a survey by the National Association of Realtors.

If you’re thinking of using money from relatives to buy a new house – or giving or lending money to relatives – there are a few things you should be aware of.

One is that, while lenders are usually okay with a gift being used as part of a down payment, most still want the buyers to use some of their own money as well. Many banks require that 5% or 10% of the purchase price come from resources other than a gift, just to make sure the buyers have a handle on managing their own finances. (This rule might not apply, though, if a loan is backed by the Federal Housing Administration.) [Read more…]

Take out a bigger mortgage, and pay less interest?

In a weird and unprecedented twist, “jumbo” mortgages – typically those above $417,000 – have carried a lower interest rate than standard mortgages in some recent cases.

A very large number of standard mortgages are purchased or backed by Fannie Mae and Freddie Mac. Those government-sponsored enterprises won’t touch a mortgage above a certain amount, which is $417,000 in most areas (but can go up to $625,000 in some high-priced markets). Any loan above that is considered a “jumbo” mortgage.

Typically, jumbo mortgages carry a higher interest rate. That’s because the lender can’t get Fannie or Freddie to buy or to guarantee the loan, so if anything goes wrong, the lender is completely on the hook. [Read more…]

Appraisal problems are causing home sales to fall through

The housing market has picked up steam lately, but one of the side effects of the sudden improvement is that home appraisals often take longer than they used to, and often come in with a much lower value than what everyone expected. This is causing a number of house sales to collapse.

Appraisals are taking longer because there’s suddenly more demand for them, at the same time that far fewer people are working as appraisers than during the boom years.

This is understandable, but the problem with a slow appraisal is that it can sometimes cause a purchaser to lose an interest-rate lock, which can be a big problem at a time when interest rates are rising. [Read more…]

Sue my brother for back taxes

ADDITIONAL INFORMATION:

House was bought by mom/dad/son in 1993 as joint tenants. dad past away 2002 and son/mom now are joint tenants. Paul quit claimed a deed to add his wife in 2003 without conscent of mom as he did use a lawyer and mom was told he did not need conscent of mom. 2011 mom did the same quit claimed a deed using a lawyer to add her daughter and me and mom with a life estate. city hall pulls up the latest deeds and my moms was the latest and instead of saying also conveyed by son and his wife it says by deed and page number so on the tax bill it does not show his name so he’s refusing to pay half the taxes on the property. Since I’m paying his share of taxes and have receipts can I sue him or should I wait and once house is sold I will get it back?

ATTORNEY ANSWER BY MARGARET L. CROSS-BELIVEAU:

When the real estate tax bills are spit out, the city takes the name of the person on the last deed whether or not he owns all the property, a life estate, or one-half. It doesn’t have the capability to do title run downs to determine who owns what if the interests are on more than one deed. Ask the clerk at the town hall to write a letter to your brother.
A letter from an attorney notifying your brother that he is still one-half owner and should pay his share would be helpful.
The problem you have is that joint owners are jointly and severally liable. That means that each owner is responsible for paying all of the bill and creditors can go after either or both owners.
Your mother could play hard ball with your brother. She could write him out of her Will. She could also threaten that she will only pay half of the real estate taxes and let the city go after your brother as a creditor. Not paying your bill comes with a different set of problems, but might be enough to get his attention and let him know that she is serious and the threat might be enough.

Legal Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on since each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship. A lawyer experienced in the subject area and licensed to practice in the jurisdiction should be consulted for legal advice. Circular 230 Disclaimer: Any information in this answer may not be used to eliminate or reduce penalties by the IRS or any other governmental agency.

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Before you buy a vacation home, do your homework

More and more people are buying vacation homes. In fact, vacation homes accounted for 11% of all residential real estate sales last year.

And most of these buyers plan to supplement their income by renting the home for part of the year. In a recent survey by the National Association of Realtors, 92% of vacation home buyers said they planned to rent the home within a year, and 76% said their purchase was motivated at least in part by the potential for rental income.

That’s great – as long as you do your homework and know what you’re getting into. Here are some things to keep in mind before you take the leap into becoming a part-time landlord:

  • If you plan to rent the home, you’ll need to tell your bank because the mortgage rules are different. You might have to put up a slightly larger down payment and/or pay a slightly higher interest rate. [Read more…]

Can condos and homeowner associations restrict medical marijuana?

A large number of states now permit medical marijuana, while other states have decriminalized the drug and two have voted to legalize it. But while medical marijuana might be helpful to the seriously ill, many condominiums and homeowner associations are worried about the effects of allowing pot-smoking on their property.

Apart from the fact that marijuana is still illegal under federal law, some residents are also concerned about an increased risk of crime (as the users’ “stash” might be a tempting target), the effects of second-hand smoke inhalation, and the exposure of small children to the drug.

But can the board of an association restrict the right to light up?

This is a brand-new question, and the law is largely unclear. [Read more…]

If you’re buying a fixer-upper, consider a special FHA loan

If you’re purchasing a “fixer-upper” or are otherwise planning to make major renovations to a home you’re buying, you might want to consider a special type of loan called a “203k” loan from the Federal Housing Administration.

These loans are specifically designed for homes that need major repairs, and they allow you to roll the cost of the repairs into the amount of your mortgage. They’re especially helpful for people who can’t afford an expensive home and are willing to buy a starter home that needs a lot of work. However, they can be used by anyone who wants to invest in a property that needs an upgrade.

The big advantages of 203k loans are that they usually allow a low down payment and they’re often available to people who don’t have great credit. [Read more…]

U.S. eliminates the most popular type of reverse mortgage

The most popular type of reverse mortgage for senior citizens has been done away with by the Federal Housing Administration.

In a traditional mortgage, you borrow money against your house and pay it back in monthly installments over time. With a reverse mortgage, you borrow money against your house, but you don’t have to pay it back until you die, sell the house, or move – which means you don’t owe anything as long as you stay in your home.

In most cases, to qualify you must be at least 62 years old.

In the past, borrowers could choose to receive a lump sum, monthly payments at an adjustable interest rate, or a line of credit. But the FHA has now eliminated the lump-sum option. [Read more…]

Supreme Court helps landowners to develop their property

A new decision from the U.S. Supreme Court will strengthen the hands of many landowners who are battling with local authorities over development of their property.

The decision makes it harder for municipalities to demand financial concessions from owners in return for land-use approvals.

The case involved Coy Koontz, who owned 15 acres of land near Orlando, Florida. Much of the property was wetlands, and as a result, in order to develop it, Coontz had to negotiate with the local water management district.

Coontz proposed what seemed like a reasonable deal: He would develop 3.7 acres along the northern edge of the property, and in return he would agree never to develop the remainder. He offered to give the district an “easement” allowing it to prevent any future development on the remaining acreage. [Read more…]

Demand for smaller homes is growing as baby boomers age

As the baby boomer generation hits retirement and starts to think about downsizing, it appears that demand for smaller homes is growing significantly.

For many years, the trend was always in the other direction – people wanted bigger and bigger houses. The average size of a new home in 1973 was 1,660 square feet. That number increased almost every year after that, hitting 2,521 square feet in 2007. Since then, however, there has been a decline, with the average size sliding to 2,392 square feet in 2010. Most homebuilders predict the average size will continue to decrease.

In a recent survey, some 43% of Americans age 50-64 said they planned to move in the next few years – a real surprise given that this is usually the most stable group of homeowners. And of those who planned to move, fully 50% said they planned to downsize to a smaller home. [Read more…]

Housing prices are spiking – and here’s why

House prices have been increasing sharply lately – in fact, prices for existing homes in February were up an astonishing 10% over the previous year. What’s behind the increase?

The main reason is simple – lack of inventory. Not many homes are on the market, which means buyers are bidding on a small number of houses, driving up the price.

Lack of inventory is caused by a number of factors, including:

  • Few new homes have been built since 2008;
  • Banks are no longer selling many foreclosed homes, due to red tape;
  • Investors have bought up a lot of homes recently and are using them as rentals; and [Read more…]

Banks must do more to help troubled homeowners

Banks and other companies that collect mortgage payments from homeowners will have to do more to help homeowners who are having financial problems to avoid foreclosure, under new rules issued by the U.S. Consumer Financial Protection Bureau.

Currently, there are no national standards for what financial institutions have to do if a borrower falls behind on payments.

The new rules, which take effect next year, say that banks and loan servicers must evaluate borrowers under all possible financial-help programs permitted by Fannie Mae, Freddie Mac, and private investors. They cannot simply steer borrowers to whatever program is most financially beneficial to the lender. [Read more…]

U.S. cracks down on ‘forced’ homeowner’s insurance

When people take out a mortgage, they’re often required to obtain homeowner’s insurance on the property. This policy protects the lender’s interest in the property as well as the owner’s.

But what happens if the owner later cancels the policy, or simply stops paying the premiums?

Since the housing crash a few years ago, millions of Americans have allowed their homeowner’s insurance policies to lapse. Sometimes this was inadvertent – they just forgot to pay the bill – but in other cases the owner was struggling and had trouble affording the payments.

Typically, in such cases the lender is allowed to obtain a new policy and “force” the homeowner to accept it. [Read more…]

Buying a condo? It’s now easier to get an FHA loan

One of the simplest ways to obtain a mortgage for a first-time homebuyer – or for anyone who might not have terrific credit and a big down payment – is a loan insured by the Federal Housing Administration.

The FHA doesn’t make loans, but it insures them for lenders. This makes lenders much more willing to offer a mortgage, because if the borrower defaults, the FHA will be on the hook.

FHA loans often require a down payment of as little as 3.5 percent, and can be obtained in many cases by people who have iffy credit or who have a bankruptcy or foreclosure in their past.

The catch is that borrowers have to pay mortgage insurance. Actually, they usually have to pay two types of insurance – an upfront payment of 1.75 percent of the loan amount (which can be rolled into the loan), and a monthly payment that depends on the length of the loan and the loan-to-value ratio. [Read more…]

What to know about future interests in a real estate deal

Many contracts involving real estate don’t involve an immediate sale or lease of a property. Instead, they contemplate a future sale or lease, and give the parties various rights involving the future transaction.

The most common of these future rights are an “option,” a “right of first refusal,” a “right of first offer,” and a “right of first negotiation.” These terms can be confusing, and it’s very important to understand the difference.

For example, suppose Alan owns some property, and Joan is interested in buying or leasing it at some point in the future. As part of a contract with Alan, Joan might acquire one of these future rights. [Read more…]

Apartment rents continue to increase

Apartment rents are continuing their steady climb, as the growing demand for residential rental space keeps pushing up prices.

The average monthly apartment rent in the U.S. was $1,048 in the last quarter of 2012. That’s an increase of 3.8% over a year earlier, according to research firm Reis, Inc.,

The year-over-year increase is the largest since 2007.

A number of large communities saw year-over-year increases of more than 5% last year, including Seattle, San Francisco, Houston, San Jose and Baltimore. [Read more…]

Short-term rentals can lead to long-term neighbor problems

The number of people who rent a home or condo while on vacation – instead of a hotel or motel room – is skyrocketing. This can be a great thing for a vacationer, who may get a lot more space and convenience at the same or lower cost.

But it’s not necessarily a great thing for neighbors, particularly if several homes in a neighborhood are rented on a frequent basis. On a quiet residential street, short-term rentals can create a variety of noise, parking, congestion and trash problems.

Increasingly, the issue is resulting in disputes and even court cases.

The explosion of vacation rentals is partly due to the weak economy. Owners of vacation homes often decide to rent them rather than try to sell them in a soft market. And struggling homeowners may rent their own homes to make ends meet, particularly if they live near a vacation area or the location of a local festival or event, such that for a few weeks a year a rental may be very profitable. [Read more…]

U.S. Government issues new rules for home mortgages

A federal government agency has issued new rules for home mortgages that will rewrite the way that banks decide who gets a home loan.

The rules are designed to prevent a replay of the housing crisis that resulted from a flood of easy-money loans a few years ago. However, the new rules could have the effect of tightening the availability of mortgages, at a time when banks are already being extremely strict about granting loans.

Under current law, if a homeowner defaults on a mortgage, the homeowner can potentially sue the lender for issuing a loan that the homeowner couldn’t reasonably be expected to pay off.

The way the new rules work is that they give banks and other lenders a “safe harbor” – that is, they say that if a bank issues a loan that meets certain criteria (called a “qualified” mortgage), then it can’t be sued if the borrower defaults. [Read more…]

Apartment, office and retail rents continue to rise…slowly

Average rents for apartments, offices and retail space are continuing their upswing, but the rate of increase is flat or slowing down.

The average apartment rent in the U.S. in the third quarter was $1,090, according to research firm Reis, Inc. That’s an increase of 0.8%, down from 1.1% in the previous quarter.

The apartment vacancy rate was 4.6%, down from 4.7% in the second quarter. That’s a big drop from the roughly 8% rate in late 2009.

The average rent for office space in the third quarter was $28.23 per square foot, an increase of 0.2%. The vacancy rate dropped from 17.2% to 17.1%.

The biggest jump in office rents was in San Francisco, which saw a 4.1% increase over three months. Increases of 2% or more were reported in New York, San Jose, Houston and Austin. The biggest drop (1%) was in Las Vegas. [Read more…]

New federal rules make ‘short sales’ easier

New federal rules will make it easier and quicker for homeowners to qualify for a “short sale” of their property.

A “short sale” occurs when a home is worth less than the amount owed on the mortgage. The lender agrees to accept less than the full amount of the loan, and the owner is able to escape the mortgage debt and avoid foreclosure.

In the past, short sales have often bogged down in delays and cumbersome regulations.

The new rules apply to mortgages held by Fannie Mae and Freddie Mac. Together, the two companies own mortgages on about 4.6 million homes that are “underwater” (worth less than the outstanding mortgage debt). Of those homes, about 80% of the owners are current on their payments. [Read more…]

New 3.8% tax on investment income will affect real estate in 2013

A new 3.8% tax on investment income will take effect in 2013, and will affect many people who have rental income or who sell real estate.

The tax was included as part of President Obama’s health care law. It applies to single filers with adjusted gross income over $200,000 and married filers with adjusted gross income over $250,000. (It also applies to trusts and estates with undistributed investment income of more than about $12,000.)

The IRS hasn’t issued detailed guidance on the law, so it’s not entirely clear how it will work. However, it appears that it will apply to:

Vacation homes. If you sell a vacation home and have a capital gain, the tax will apply. If you rent a vacation home to others for more than 14 days a year, the rent (minus expenses) will be subject to the tax. [Read more…]

Here’s the real reason many people have trouble getting a mortgage

Mortgage rates have been at historic lows, but a lot of people still have trouble getting a mortgage because the lender makes them jump through hoop after hoop after hoop.

What most people don’t know is that a big reason this is happening is something called “put-backs.”

About 90% of the home mortgage loans in the U.S. are sold by the lender to federal agencies or to government-sponsored companies, chiefly Fannie Mae and Freddie Mac. These purchasers buy loans that meet certain specific standards.

Increasingly, when a loan goes bad, Fannie and Freddie are combing through the original documentation looking for flaws and mistakes. When they find one, they demand that the sale be undone and that the bank take back the loan – which is known as a “put-back.” This results in a big loss for the lender. [Read more…]

Should you own or rent? Some advantages most people don’t consider

Before the financial crash, the conventional wisdom was that it was almost always better to own a home rather than rent. It seemed like home prices always went up, so there was no reason to pay a landlord if you could pay a mortgage lender instead and build up equity every month.

Since the crash, however, home price gains are more uncertain, and many people are crunching the numbers and concluding that they’re better off renting.

But are they really?

Everyone’s situation is different, of course, but when many people do the math, they don’t consider the many legal and tax advantages of home ownership. In some cases, these advantages could be enough to tip the scale.

One obvious example is the home mortgage interest deduction. In general, home mortgage interest is deductible on your federal income tax return on loan amounts up to $1 million. This alone could save you thousands of dollars a year in taxes, and make home ownership much more attractive. [Read more…]