In California Proposition 13 prohibits property tax increases until property ownership is changed.
If either spouse is over age 55 (when the old home is sold), PROP 60 allows replacement of a primary residence with a new home of equal or lesser value (but see below) within the same county and transfer of the Prop 13 assessed valuation from the old home to the new property. This is allowed once in your lifetime, if a spouse has done it before then the other spouse is prohibited from transferring his or her base.
PROP 90 allows counties to elect to accept transfers of Prop 13 values for moves from other counties when a primary residence is replaced with a less expensive (but see below) home. If you are over 55 and move into a county which accepts Prop 90, you may take your old, lower Prop 13 value, regardless of from which county you move.
Using Prop 90, you can sell your $400,000 Alameda home [assessed value $80,000] and move to a new $300,000 home in Alameda and the new Alameda assessed value will be $80,000!
7 COUNTIES WHICH ACCEPT PROP 90 (Current as of 6/1/2005)
*Alameda, *Los Angeles, *Orange, *San Diego, *San Mateo, *Santa Clara, and *Ventura. accept Prop 90. Contra Costa, Inyo, Kern, Riverside, Modoc, Monterey, and Marin have dropped out of the Prop 90 program.
Props 60 and 90 apply if you purchase a home at an equal or lesser value than your old home.
If you purchase the New Home First then sell the Old Home, you must go down price.
If you sell the Old Home first then buy the New Home:
• In the first 365 days after the sale of Old Home, you may go up 5% in the purchase price of New Home.
• If you buy New Home more than 1 year from the sale of Old Home, but less than 2 years, you may go up 10%.
Some buyers can pay the commission outside of escrow to lower to sales price.
This information is not intended as legal advice, or guaranteed accurate or complete. Specific situations may differ. Contact your attorney and/or county for information regarding any particular situation.
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Windermere Welcome Home
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Showing posts with label Harbor Bay real estate. Show all posts
Showing posts with label Harbor Bay real estate. Show all posts
Sunday, March 2, 2008
Wednesday, February 27, 2008
Transfer Property Tax Base if You are Over 55 in California!
Transfer Property Tax Base if You are Over 55 in California
Office of Assessor COUNTY of Alameda CALIFORNIA
1221 Oak St., County Administration Building
Oakland, California 94612-4288
South County Toll Free (800) 660-7725 www.acgov.org/assessor
TRANSFER OF PROPERTY TAX BASE FOR PERSONS 55 AND OLDER OR SEVERELY AND PERMANENTLY DISABLED (Revenue and Taxation Code 69.5) (Proposition 60, 90, or 110)
PURPOSE
This pamphlet will acquaint you with Section 69.5 which allows any person age 55 or older or severely and permanently disabled to transfer the base year value of their original property to a replacement dwelling of "equal or lesser value" that is purchased or newly constructed within two years of the sale of the original property. The full text of the law can be found in the State of California Property Taxes Law Guide, Volume 1.
HISTORY
Proposition 60 allowed for base value transfers to qualified replacement dwellings of "equal or lesservalue" within the same county that were purchased or newly constructed on or after November 6, 1986. Proposition 90 extended the Prop 60 benefits to qualified homeowners transferring their base year values from other counties and was effective July 13, 1989 in Alameda county. Proposition 110 extended the benefits to qualified disabled homeowners of any age and was effective for replacement dwellings purchased or newly constructed on or after June 6, 1990. Senate Bill 1692 effective September 25, 1996 allowed qualified persons who had prior claims based on age 55 to have a second claim based on disability.
REQUIREMENTS
1. At the time of the sale of the original property, the claimant or the claimant's spouse who resides with the claimant is at least 55 years of age, or severely and permanently disabled. The claimant's spouse need not be an owner of record of the original property. If co-owners, only the co-owner who is the claimant must be age 55 or disabled.
2. The claimant has not previously been granted, as a claimant, the property tax relief provided by this section. (See definition of "claimant") The sole exception is where the claimant was first granted relief based on age 55 and subsequently became severely and permanently disabled. The claimant may then qualify for a second claim based on the disability.
3. The replacement property must be purchased or newly constructed within two years either before or after of the sale of the original property.
4. The sale of the original property must be a change in ownership that subjects the property to reappraisal at its current market value or results in a base year value transfer as a replacement dwelling for someone qualifying under Section 69.5 or the disaster relief provisions of Section 69.
5. At the time the claim is filed, the claimant is an owner of the replacement dwelling and occupies it as his or her principal place of residence and, as a result thereof, the property is eligible for the homeowner's exemption.
6. Either at the time of its sale or at the time it was substantially damaged by calamity or within two years of the purchase or new construction of the replacement dwelling, the claimant was an owner of the original property and occupied it as his or her principal place of residence and, as a result thereof, the property was eligible for the homeowner's exemption.
7. The replacement dwelling must be of "equal or lesser value" than the original residence. "Equal or lesser value" means that the market value of a replacement dwelling may not exceed: 100% of the market value of the original property if the replacement dwelling is purchased or newly constructed prior to the date of sale of the original property, 105% of the market value of the original property if the replacement dwelling is purchased or newly constructed within the first year following the date of sale of the original property, or 110% of the market value of the original property if the replacement dwelling is purchased or newly constructed within the second year following the date of sale of the original property. The market value of the original property may include indexing adjustments. Unless the replacement dwelling satisfies the "equal or lesser value" test, no benefit is available, not even a partial benefit.
TO APPLY
To apply for relief the completed claim form and required documents must be filed with the assessor within three years of the date the replacement dwelling is purchased or newly constructed. This claim is not open to public inspection.
TO RESCIND
To rescind a claim a written notice of rescission must be delivered to the assessor within certain time limits. A fee may be required.
DEFINITIONS
"Claimant" means any person claiming relief provided by this law and their spouse if the spouse is also a record owner of the replacement dwelling. "Person" means any individual, but does not include any firm, partnership, association, corporation, company, or other legal entity or organization of any kind except that the claimant(s) may hold their residence in trust for themselves.
"Severely and permanently disabled person" is any person who has a physical disability or impairment, whether from birth or by reason of accident or disease, that results in a functional limitation as to employment or substantially limits one or more major life activities of that person.
"Original property" and "Replacement dwelling" means place of abode that is owned and occupied by the claimant as his or her principal place of residence. Each unit of a multi-unit dwelling is considered a separate dwelling for claim purposes.
"Sale and Purchase" mean "a change in ownership for consideration".
"Market value of the original property" means its market value at the time of its sale or immediately prior to its damage by calamity if it was sold in its damaged state.
QUESTIONS & ANSWERS
Q: When making the "equal or lesser value" test, is a simple comparison of the sales price of the original residence and the purchase price or cost of new construction of the replacement dwelling all that is needed?
A: Generally, when a property is sold on the open market its sales price is considered market value. However, because sale/purchase prices or costs of new construction are not always the same as market value, the assessor may have to determine the market value, which may differ from the sale/purchase price or cost of new construction.
Note: Only the market value of the primary residence and its related improvements are used for the "equal or lesser value" test. For single unit properties this represents the total value of the property. For residential properties with commercial uses or extra living units the appraiser must deduct the market value of those portions for the "equal or lesser value" tests. (See example below)
Q: The claimant sold his original two-unit property that consisted of his primary residence and a second unit and purchased a replacement dwelling. What portion of his sold property will qualify as the "original property" for the "equal of lesser value" test?
A: For the "equal or lesser value" test, the "original property" consists of the claimant's primary residence (land and improvements). The market value of the second unit (land and improvements) would be deducted from the market value of the total property. Only the amount of the indexed base value allocated to the original residence would be transferred.
Q: If otherwise qualified, will I meet the "equal or lesser value" test if I sold my original residence July 20,1999 for $350,000 and purchased my replacement dwelling May 3, 2000 for $365,000? Both properties were bought and sold for market value.
A: Yes. The replacement dwelling was purchased within the first year following the sale of the original and its purchase price did not exceed 105% of the market value of the original residence ($350,000 X 1.05 = $367,500). (See requirement No. 7)
Q: Can an otherwise qualified owner buy a vacant lot and then build a new replacement dwelling and qualify?
A: Yes. As long as the completion of the new dwelling took place within two years, either before or after, the sale of the original property. The purchase of the lot can take place at any time before the completion of new construction. For the "equal or lesser value" test the total market value of the replacement property (land and improvements) is determined as of the date of the completion of the new construction.
Q: Can I, a qualified claimant, sell my original home and buy a replacement dwelling with co-owners not of age 55 and transfer my base value?
A: Yes, co-owners of any age are allowed. However, the total full market value of your original home will be compared with the total full market value of the replacement dwelling for the "equal or lesser value" test regardless of the fact that you are only a part owner of the replacement dwelling.
Q: Can two owners sell their separately owned and occupied properties, combine their base year values, and purchase one replacement dwelling together?
A: No. There is no provision for combining base year values. The base year value of only one original property can be transferred to the replacement dwelling.
Q: Can two co-owners sell their original residence they shared and each still qualify for the claim when each acquires a separate replacement dwelling?
A: No. Only one can receive the benefit. The qualified co-owners must decide between themselves who will get the benefit. Only in the case of a multiple unit original property where several co-owners qualify for separate homeowner's exemptions may portions of the factored base year value of that property be transferred to several qualified replacement dwellings.
Q: Can I sell my original property and purchase a 50% interest in a replacement dwelling and still qualify?
A: No. A partial or fractional interest purchase is not eligible. The entire interests in both the replacement dwelling and the original property must be purchased and sold.
Q: Will the transfer of an original property or acquisition of a replacement dwelling by gift or devise qualify under Section 69.5?
A: A property that is given away or acquired by gift or devise will not qualify because nothing of value was exchanged. Section 69.5 requires a "sale" of the original property and a "purchase" of a replacement dwelling.
Q: May I sell my original property to my child and give my child the benefit of the parent-child exclusion and still transfer my base value when I purchase a replacement property?
A: No. The parents need to choose to which exclusion they wish to apply their base year value. If the parents sell to their children and choose to transfer their base year value to them using the parent-child exclusion, then the base year value is no longer theirs to transfer to a replacement residence.
Q: Can a mobile home qualify as either an original or a replacement dwelling for the base year value transfer?
A: Yes, but only if the mobile home is subject to local property taxation (LPT). Mobile homes that pay vehicle license fees annually (VLF) would not qualify because they have no base year values.
Q: Can a supplemental tax assessment be issued when the base year value is transferred from an original property to a replacement dwelling?
A: Yes. The law requires that supplemental assessments, both positive and negative, be calculated for all transactions that result in base-year value changes. This is accomplished by comparing the base value transferred from the original property to the assessment on the replacement dwelling.
Q: After receiving the notice that my application has been approved, do I still need to pay the existing tax bills?
A: Yes. All outstanding tax bills on your replacement property must be paid. They will not be cancelled or corrected. Any overpayments you make will be refunded when the claim is processed.
Q: Can new construction completed on a replacement dwelling after the transfer of the base value also qualify for relief under this section?
A: Yes, provided that the new construction was completed within two years of the sale of the original property, the assessor is notified within 30 days of the completion, and the market value of the new construction plus the market value of the replacement dwelling when acquired does not exceed the market value of the original property as determined for the original claim.
TELEPHONE NUMBERS
ASSESSOR'S DEPARTMENT
General Information
Assessee Services ................................... 510 / 272-3787
Base Value Transfers ........................... 510 / 272-3787
(Age 55 / Disabled / Disaster Relief / Eminent Domain)
Exclusions .............................................. 510 / 272-3800
(Parent-Child / Grandparent-Grandchild)
Change in Ownership Information ......... 510 / 272-3800
Homeowner's Exemption ....................... 510 / 272-3770
Business Personal Property
General Information ............................... 510 / 272-3836
Boats and Aircraft .................................. 510 / 272-3838
South County Toll Free ....................... 800 / 660-7725
Web Site: www.acgov.org/assessor
RELATED COUNTY OFFICES
Clerk, Assessment Appeals Board
Assessment Appeals Information ........ 510 / 272-6352
Tax Collector
Tax payment information including
24 Hour Automated System ................. 510 / 272-6800
Auditor
Property Tax Rates ............................... 510 / 272-6564
Recorder
Deed Recording Information ............... 510 / 272-6363
Rev 7/02
In need of a Realtor Contact: Jean Powers 800-378-7300
Office of Assessor COUNTY of Alameda CALIFORNIA
1221 Oak St., County Administration Building
Oakland, California 94612-4288
South County Toll Free (800) 660-7725 www.acgov.org/assessor
TRANSFER OF PROPERTY TAX BASE FOR PERSONS 55 AND OLDER OR SEVERELY AND PERMANENTLY DISABLED (Revenue and Taxation Code 69.5) (Proposition 60, 90, or 110)
PURPOSE
This pamphlet will acquaint you with Section 69.5 which allows any person age 55 or older or severely and permanently disabled to transfer the base year value of their original property to a replacement dwelling of "equal or lesser value" that is purchased or newly constructed within two years of the sale of the original property. The full text of the law can be found in the State of California Property Taxes Law Guide, Volume 1.
HISTORY
Proposition 60 allowed for base value transfers to qualified replacement dwellings of "equal or lesservalue" within the same county that were purchased or newly constructed on or after November 6, 1986. Proposition 90 extended the Prop 60 benefits to qualified homeowners transferring their base year values from other counties and was effective July 13, 1989 in Alameda county. Proposition 110 extended the benefits to qualified disabled homeowners of any age and was effective for replacement dwellings purchased or newly constructed on or after June 6, 1990. Senate Bill 1692 effective September 25, 1996 allowed qualified persons who had prior claims based on age 55 to have a second claim based on disability.
REQUIREMENTS
1. At the time of the sale of the original property, the claimant or the claimant's spouse who resides with the claimant is at least 55 years of age, or severely and permanently disabled. The claimant's spouse need not be an owner of record of the original property. If co-owners, only the co-owner who is the claimant must be age 55 or disabled.
2. The claimant has not previously been granted, as a claimant, the property tax relief provided by this section. (See definition of "claimant") The sole exception is where the claimant was first granted relief based on age 55 and subsequently became severely and permanently disabled. The claimant may then qualify for a second claim based on the disability.
3. The replacement property must be purchased or newly constructed within two years either before or after of the sale of the original property.
4. The sale of the original property must be a change in ownership that subjects the property to reappraisal at its current market value or results in a base year value transfer as a replacement dwelling for someone qualifying under Section 69.5 or the disaster relief provisions of Section 69.
5. At the time the claim is filed, the claimant is an owner of the replacement dwelling and occupies it as his or her principal place of residence and, as a result thereof, the property is eligible for the homeowner's exemption.
6. Either at the time of its sale or at the time it was substantially damaged by calamity or within two years of the purchase or new construction of the replacement dwelling, the claimant was an owner of the original property and occupied it as his or her principal place of residence and, as a result thereof, the property was eligible for the homeowner's exemption.
7. The replacement dwelling must be of "equal or lesser value" than the original residence. "Equal or lesser value" means that the market value of a replacement dwelling may not exceed: 100% of the market value of the original property if the replacement dwelling is purchased or newly constructed prior to the date of sale of the original property, 105% of the market value of the original property if the replacement dwelling is purchased or newly constructed within the first year following the date of sale of the original property, or 110% of the market value of the original property if the replacement dwelling is purchased or newly constructed within the second year following the date of sale of the original property. The market value of the original property may include indexing adjustments. Unless the replacement dwelling satisfies the "equal or lesser value" test, no benefit is available, not even a partial benefit.
TO APPLY
To apply for relief the completed claim form and required documents must be filed with the assessor within three years of the date the replacement dwelling is purchased or newly constructed. This claim is not open to public inspection.
TO RESCIND
To rescind a claim a written notice of rescission must be delivered to the assessor within certain time limits. A fee may be required.
DEFINITIONS
"Claimant" means any person claiming relief provided by this law and their spouse if the spouse is also a record owner of the replacement dwelling. "Person" means any individual, but does not include any firm, partnership, association, corporation, company, or other legal entity or organization of any kind except that the claimant(s) may hold their residence in trust for themselves.
"Severely and permanently disabled person" is any person who has a physical disability or impairment, whether from birth or by reason of accident or disease, that results in a functional limitation as to employment or substantially limits one or more major life activities of that person.
"Original property" and "Replacement dwelling" means place of abode that is owned and occupied by the claimant as his or her principal place of residence. Each unit of a multi-unit dwelling is considered a separate dwelling for claim purposes.
"Sale and Purchase" mean "a change in ownership for consideration".
"Market value of the original property" means its market value at the time of its sale or immediately prior to its damage by calamity if it was sold in its damaged state.
QUESTIONS & ANSWERS
Q: When making the "equal or lesser value" test, is a simple comparison of the sales price of the original residence and the purchase price or cost of new construction of the replacement dwelling all that is needed?
A: Generally, when a property is sold on the open market its sales price is considered market value. However, because sale/purchase prices or costs of new construction are not always the same as market value, the assessor may have to determine the market value, which may differ from the sale/purchase price or cost of new construction.
Note: Only the market value of the primary residence and its related improvements are used for the "equal or lesser value" test. For single unit properties this represents the total value of the property. For residential properties with commercial uses or extra living units the appraiser must deduct the market value of those portions for the "equal or lesser value" tests. (See example below)
Q: The claimant sold his original two-unit property that consisted of his primary residence and a second unit and purchased a replacement dwelling. What portion of his sold property will qualify as the "original property" for the "equal of lesser value" test?
A: For the "equal or lesser value" test, the "original property" consists of the claimant's primary residence (land and improvements). The market value of the second unit (land and improvements) would be deducted from the market value of the total property. Only the amount of the indexed base value allocated to the original residence would be transferred.
Q: If otherwise qualified, will I meet the "equal or lesser value" test if I sold my original residence July 20,1999 for $350,000 and purchased my replacement dwelling May 3, 2000 for $365,000? Both properties were bought and sold for market value.
A: Yes. The replacement dwelling was purchased within the first year following the sale of the original and its purchase price did not exceed 105% of the market value of the original residence ($350,000 X 1.05 = $367,500). (See requirement No. 7)
Q: Can an otherwise qualified owner buy a vacant lot and then build a new replacement dwelling and qualify?
A: Yes. As long as the completion of the new dwelling took place within two years, either before or after, the sale of the original property. The purchase of the lot can take place at any time before the completion of new construction. For the "equal or lesser value" test the total market value of the replacement property (land and improvements) is determined as of the date of the completion of the new construction.
Q: Can I, a qualified claimant, sell my original home and buy a replacement dwelling with co-owners not of age 55 and transfer my base value?
A: Yes, co-owners of any age are allowed. However, the total full market value of your original home will be compared with the total full market value of the replacement dwelling for the "equal or lesser value" test regardless of the fact that you are only a part owner of the replacement dwelling.
Q: Can two owners sell their separately owned and occupied properties, combine their base year values, and purchase one replacement dwelling together?
A: No. There is no provision for combining base year values. The base year value of only one original property can be transferred to the replacement dwelling.
Q: Can two co-owners sell their original residence they shared and each still qualify for the claim when each acquires a separate replacement dwelling?
A: No. Only one can receive the benefit. The qualified co-owners must decide between themselves who will get the benefit. Only in the case of a multiple unit original property where several co-owners qualify for separate homeowner's exemptions may portions of the factored base year value of that property be transferred to several qualified replacement dwellings.
Q: Can I sell my original property and purchase a 50% interest in a replacement dwelling and still qualify?
A: No. A partial or fractional interest purchase is not eligible. The entire interests in both the replacement dwelling and the original property must be purchased and sold.
Q: Will the transfer of an original property or acquisition of a replacement dwelling by gift or devise qualify under Section 69.5?
A: A property that is given away or acquired by gift or devise will not qualify because nothing of value was exchanged. Section 69.5 requires a "sale" of the original property and a "purchase" of a replacement dwelling.
Q: May I sell my original property to my child and give my child the benefit of the parent-child exclusion and still transfer my base value when I purchase a replacement property?
A: No. The parents need to choose to which exclusion they wish to apply their base year value. If the parents sell to their children and choose to transfer their base year value to them using the parent-child exclusion, then the base year value is no longer theirs to transfer to a replacement residence.
Q: Can a mobile home qualify as either an original or a replacement dwelling for the base year value transfer?
A: Yes, but only if the mobile home is subject to local property taxation (LPT). Mobile homes that pay vehicle license fees annually (VLF) would not qualify because they have no base year values.
Q: Can a supplemental tax assessment be issued when the base year value is transferred from an original property to a replacement dwelling?
A: Yes. The law requires that supplemental assessments, both positive and negative, be calculated for all transactions that result in base-year value changes. This is accomplished by comparing the base value transferred from the original property to the assessment on the replacement dwelling.
Q: After receiving the notice that my application has been approved, do I still need to pay the existing tax bills?
A: Yes. All outstanding tax bills on your replacement property must be paid. They will not be cancelled or corrected. Any overpayments you make will be refunded when the claim is processed.
Q: Can new construction completed on a replacement dwelling after the transfer of the base value also qualify for relief under this section?
A: Yes, provided that the new construction was completed within two years of the sale of the original property, the assessor is notified within 30 days of the completion, and the market value of the new construction plus the market value of the replacement dwelling when acquired does not exceed the market value of the original property as determined for the original claim.
TELEPHONE NUMBERS
ASSESSOR'S DEPARTMENT
General Information
Assessee Services ................................... 510 / 272-3787
Base Value Transfers ........................... 510 / 272-3787
(Age 55 / Disabled / Disaster Relief / Eminent Domain)
Exclusions .............................................. 510 / 272-3800
(Parent-Child / Grandparent-Grandchild)
Change in Ownership Information ......... 510 / 272-3800
Homeowner's Exemption ....................... 510 / 272-3770
Business Personal Property
General Information ............................... 510 / 272-3836
Boats and Aircraft .................................. 510 / 272-3838
South County Toll Free ....................... 800 / 660-7725
Web Site: www.acgov.org/assessor
RELATED COUNTY OFFICES
Clerk, Assessment Appeals Board
Assessment Appeals Information ........ 510 / 272-6352
Tax Collector
Tax payment information including
24 Hour Automated System ................. 510 / 272-6800
Auditor
Property Tax Rates ............................... 510 / 272-6564
Recorder
Deed Recording Information ............... 510 / 272-6363
Rev 7/02
In need of a Realtor Contact: Jean Powers 800-378-7300
Saturday, February 23, 2008
Some Banks are Withdrawing Equity Line of Credit From Homeowners!
Homeowners Losing Equity Lines
As House Values Fall, Some Banks Withdraw Credit
(By Susan Biddle -- The Washington Post)
In one brief phone call, Nancy Corazzi's lender yanked away what was left of the $95,000 home equity line of credit that she and her husband took out five months ago.
The lender informed her that her Howard County home had plummeted in value and the company did not want the risk that she would owe more than the house was worth.
"I got off the phone and I was shaking," said Corazzi, who was using the money to pay preschool tuition for her twins ."I was near tears. We needed this credit line to get us through some tough times."
Several of the nation's largest lenders, along with smaller ones, are shutting off access to home equity lines in areas where home values are declining. It's an unusually aggressive move as the industry grapples with fallout from the mortgage crisis that began unfolding last year.
Now that home prices have dropped in many parts of the country, lenders are nervous that they may never collect the money that they extended to borrowers. They are responding by freezing or lowering the credit limits on home equity lines, leaving thousands of borrowers like Corazzi in the lurch.
"Nearly all the top home equity lenders I know of are doing this or considering doing this," said Joe Belew, president of the Consumer Bankers Association, which represents some of the nation's largest home equity lenders. "They are all looking at how to protect themselves as real estate values go down, and it's just not good for the borrowers to get so overextended."
Countrywide Financial, the nation's largest mortgage lender, suspended the home equity lines of 122,000 customers last month after reviewing their property values and outstanding loan balances. The company, like others, has an internal automated appraisal system that tracks values.
The company declined to disclose how many of the affected borrowers lived in the Washington area. About 381,000 borrowers in the region had home equity lines at the end of last year, according to Moody's economy.com.
USAA Federal Savings Bank froze or reduced credit lines for 15,000 of its customers, including Corazzi, and will not reconsider its decisions until "real estate values improve substantially," the company said in a statement.
Bank of America is starting to do the same and is contacting some borrowers, said Terry Francisco, a bank spokesman.
"We know this can cause hardship to our customers," Francisco said. "If they used the credit to make payments that are in the pipeline, we will work with them to make sure the payment goes through."
The appeal of home equity lines has always been their flexibility
They operate like credit cards, with the home as collateral. Borrowers can use the money when they want, up to a limit, then repay it over time. The limit depends on the amount of equity they have in the house. Home equity lines, which grew popular in the late 1980s, have typically attracted educated borrowers with above-average incomes and job stability who tend to repay what they borrow in a timely manner, industry studies show.
Since the crisis in the housing and mortgage markets started, however, delinquencies on home equity lines reached 0.84 percent in the third quarter, the highest level in a decade, the American Bankers Association said.
Because missed payments are often a precursor to foreclosure, lenders are spooked. Companies that hold credit lines typically recoup little, if any, of their money in a foreclosure, hence the retreat on home equity lending.
Larry F. Pratt, chief executive of First Savings Mortgage in McLean, said most mortgage documents he has seen give lenders wide latitude to suspend or freeze credit lines.
"A layperson would not recognize the language because it's not that blatant," Pratt said. "It talks about deterioration of the value of the asset or the value of the collateral. . . . It's not boilerplate language by any means."
Maggie DelGallo did not realize that when she took out a home equity line a few years ago on her home in Loudoun County. Her lender recently froze the line.
DelGallo, a real estate broker, has used some of her credit line over the years. Had she known the freeze was coming, "I would have drained it," she said. "I would have taken every dime and possibly placed it in a money-market vehicle."
DelGallo said she does not think she is in dire straits. "It's more like a huge disappointment," she said. "I have this line of credit attached to my home that's useless."
Last year, 34 percent of borrowers said they used their home equity lines to pay off other debt and 29 percent used them for home renovation, according to a survey of lenders by BenchMark Consulting International. Another 31 percent used them to pay for other things, such as medical bills, weddings or vacations.
Corazzi initially used her line to consolidate debt. She and her husband took out the credit line in October because they thought her job was in jeopardy.
It was. In December, her salaried position as a loan-processing manager at a local mortgage bank changed to a commission-only job.
Given the slowdown in the industry, Corazzi has collected only one paycheck since then. Her husband, Ron, sells large-format copiers and printers to builders, and his salary alone cannot support them and their four children, ages 4 to 8.
By the time their lender called, the couple had $45,000 remaining unused on the credit line. Ron Corazzi is now looking for a second job, and his wife is hoping to pick up work as a substitute teacher.
Meanwhile, they are trying to open a new home equity line elsewhere, but chances are slim given the change in Nancy Corazzi's job status and the drop in their home's value. Five months ago, the Ellicott City house was appraised at $560,000; the lender says it is now worth $469,100.
"I told them, 'You guys are wrong,' " Nancy Corazzi said. "They said, 'Sorry, this is what we're doing in the entire area.' "
Corazzi said she was blindsided by what's happened. "I didn't know they could do that. I thought I was too smart to have something like this happen to me."
As House Values Fall, Some Banks Withdraw Credit
(By Susan Biddle -- The Washington Post)
In one brief phone call, Nancy Corazzi's lender yanked away what was left of the $95,000 home equity line of credit that she and her husband took out five months ago.
The lender informed her that her Howard County home had plummeted in value and the company did not want the risk that she would owe more than the house was worth.
"I got off the phone and I was shaking," said Corazzi, who was using the money to pay preschool tuition for her twins ."I was near tears. We needed this credit line to get us through some tough times."
Several of the nation's largest lenders, along with smaller ones, are shutting off access to home equity lines in areas where home values are declining. It's an unusually aggressive move as the industry grapples with fallout from the mortgage crisis that began unfolding last year.
Now that home prices have dropped in many parts of the country, lenders are nervous that they may never collect the money that they extended to borrowers. They are responding by freezing or lowering the credit limits on home equity lines, leaving thousands of borrowers like Corazzi in the lurch.
"Nearly all the top home equity lenders I know of are doing this or considering doing this," said Joe Belew, president of the Consumer Bankers Association, which represents some of the nation's largest home equity lenders. "They are all looking at how to protect themselves as real estate values go down, and it's just not good for the borrowers to get so overextended."
Countrywide Financial, the nation's largest mortgage lender, suspended the home equity lines of 122,000 customers last month after reviewing their property values and outstanding loan balances. The company, like others, has an internal automated appraisal system that tracks values.
The company declined to disclose how many of the affected borrowers lived in the Washington area. About 381,000 borrowers in the region had home equity lines at the end of last year, according to Moody's economy.com.
USAA Federal Savings Bank froze or reduced credit lines for 15,000 of its customers, including Corazzi, and will not reconsider its decisions until "real estate values improve substantially," the company said in a statement.
Bank of America is starting to do the same and is contacting some borrowers, said Terry Francisco, a bank spokesman.
"We know this can cause hardship to our customers," Francisco said. "If they used the credit to make payments that are in the pipeline, we will work with them to make sure the payment goes through."
The appeal of home equity lines has always been their flexibility
They operate like credit cards, with the home as collateral. Borrowers can use the money when they want, up to a limit, then repay it over time. The limit depends on the amount of equity they have in the house. Home equity lines, which grew popular in the late 1980s, have typically attracted educated borrowers with above-average incomes and job stability who tend to repay what they borrow in a timely manner, industry studies show.
Since the crisis in the housing and mortgage markets started, however, delinquencies on home equity lines reached 0.84 percent in the third quarter, the highest level in a decade, the American Bankers Association said.
Because missed payments are often a precursor to foreclosure, lenders are spooked. Companies that hold credit lines typically recoup little, if any, of their money in a foreclosure, hence the retreat on home equity lending.
Larry F. Pratt, chief executive of First Savings Mortgage in McLean, said most mortgage documents he has seen give lenders wide latitude to suspend or freeze credit lines.
"A layperson would not recognize the language because it's not that blatant," Pratt said. "It talks about deterioration of the value of the asset or the value of the collateral. . . . It's not boilerplate language by any means."
Maggie DelGallo did not realize that when she took out a home equity line a few years ago on her home in Loudoun County. Her lender recently froze the line.
DelGallo, a real estate broker, has used some of her credit line over the years. Had she known the freeze was coming, "I would have drained it," she said. "I would have taken every dime and possibly placed it in a money-market vehicle."
DelGallo said she does not think she is in dire straits. "It's more like a huge disappointment," she said. "I have this line of credit attached to my home that's useless."
Last year, 34 percent of borrowers said they used their home equity lines to pay off other debt and 29 percent used them for home renovation, according to a survey of lenders by BenchMark Consulting International. Another 31 percent used them to pay for other things, such as medical bills, weddings or vacations.
Corazzi initially used her line to consolidate debt. She and her husband took out the credit line in October because they thought her job was in jeopardy.
It was. In December, her salaried position as a loan-processing manager at a local mortgage bank changed to a commission-only job.
Given the slowdown in the industry, Corazzi has collected only one paycheck since then. Her husband, Ron, sells large-format copiers and printers to builders, and his salary alone cannot support them and their four children, ages 4 to 8.
By the time their lender called, the couple had $45,000 remaining unused on the credit line. Ron Corazzi is now looking for a second job, and his wife is hoping to pick up work as a substitute teacher.
Meanwhile, they are trying to open a new home equity line elsewhere, but chances are slim given the change in Nancy Corazzi's job status and the drop in their home's value. Five months ago, the Ellicott City house was appraised at $560,000; the lender says it is now worth $469,100.
"I told them, 'You guys are wrong,' " Nancy Corazzi said. "They said, 'Sorry, this is what we're doing in the entire area.' "
Corazzi said she was blindsided by what's happened. "I didn't know they could do that. I thought I was too smart to have something like this happen to me."
A Seller's Plan! Where do I Start?
1. Find the Right Representative
The experience and knowledge of a dedicated real estate professional can be priceless. A good Realtor® forms a powerful team with his or her clients that makes it possible for them to have a smooth, successful, stress-free sale.
2. Determine your Needs/Wants for the Sale and for Your New Home
Selling your primary residence can be tricky because you have to simultaneously be thinking about where you would like to buy. First weigh your priorities – selling price is certainly important, but having a quick and efficient sale can often be worth accepting a slightly lower offer. Talk to your agent and make sure you’re comfortable with where your priorities are.
At the same time, you should be compiling a needs/wants list for the home you will buy. You will probably have to act fairly quickly when your house sells, so any amount of preparation you can do will serve you well.
3. Prepare Your House for Showing
Underprepared homes can be sales disasters. Your home will never get as much attention from potential buyers as when it is first listed, so clearing clutter, cleaning, making repairs, and putting your home’s best foot forward is essential. Don’t “open for business” until your home is ready to be seen as favorably as possible.
4. Find out How Your Local Market Looks
Being realistic about your market is the key to a smooth sale. There is no substitute for a professional real estate representative when it comes to local market knowledge.
5. List aAway!
Lots of photos and online exposure are the key to getting a good response for your listing. Working with an agent who uses Point2 Agent software is a great step in the right direction. Now just “open” the house and sit back and wait for the flood of eager buyers!
--------------------------------------------------------------------------------
What is a CMA and Why Do You Need One?
CMA is real estate shorthand for "Comparative Market Analysis." A CMA is a report prepared by a real estate agent providing data comparing your property to similar properties in the marketplace.
The first thing an agent will need to do to provide you with a CMA is to inspect your property. Generally, this inspection won't be overly detailed (she or he is not going to crawl under the house to examine the foundation), nor does the house need to be totally cleaned up and ready for an open house. It should be in such a condition that the agent will be able to make an accurate assessment of its condition and worth. If you plan to make changes before selling, inform the agent at this time.
The next step is for the agent to obtain data on comparable properties. This data is usually available through MLS (Multiple Listing Service), but a qualified agent will also know of properties that are on the market or have sold without being part of the MLS. This will give the agent an idea how much your property is worth in the current market. Please note that the CMA is not an appraisal. An appraisal must be performed by a licensed appraiser.
The CMA process takes place before your home is listed for sale. This is a good assessment of what your house could potentially sell for.
CMAs are not only for prospective sellers. Buyers should consider requesting a CMA for properties they are seriously looking at to determine whether the asking price is a true reflection of the current market. Owners who are upgrading or remodeling can benefit from a CMA when it's used to see if the intended changes will "over-improve" their property compared to others in the neighborhood.
Jean Powers CRS, ASP®, e-PRO, PMN
Real Estate Broker
(510) 908.9002
(800) 378.7300
Homes@JeanPowers.com
www.JeanPowers.com
www.JeanSellsDreams.com
The experience and knowledge of a dedicated real estate professional can be priceless. A good Realtor® forms a powerful team with his or her clients that makes it possible for them to have a smooth, successful, stress-free sale.
2. Determine your Needs/Wants for the Sale and for Your New Home
Selling your primary residence can be tricky because you have to simultaneously be thinking about where you would like to buy. First weigh your priorities – selling price is certainly important, but having a quick and efficient sale can often be worth accepting a slightly lower offer. Talk to your agent and make sure you’re comfortable with where your priorities are.
At the same time, you should be compiling a needs/wants list for the home you will buy. You will probably have to act fairly quickly when your house sells, so any amount of preparation you can do will serve you well.
3. Prepare Your House for Showing
Underprepared homes can be sales disasters. Your home will never get as much attention from potential buyers as when it is first listed, so clearing clutter, cleaning, making repairs, and putting your home’s best foot forward is essential. Don’t “open for business” until your home is ready to be seen as favorably as possible.
4. Find out How Your Local Market Looks
Being realistic about your market is the key to a smooth sale. There is no substitute for a professional real estate representative when it comes to local market knowledge.
5. List aAway!
Lots of photos and online exposure are the key to getting a good response for your listing. Working with an agent who uses Point2 Agent software is a great step in the right direction. Now just “open” the house and sit back and wait for the flood of eager buyers!
--------------------------------------------------------------------------------
What is a CMA and Why Do You Need One?
CMA is real estate shorthand for "Comparative Market Analysis." A CMA is a report prepared by a real estate agent providing data comparing your property to similar properties in the marketplace.
The first thing an agent will need to do to provide you with a CMA is to inspect your property. Generally, this inspection won't be overly detailed (she or he is not going to crawl under the house to examine the foundation), nor does the house need to be totally cleaned up and ready for an open house. It should be in such a condition that the agent will be able to make an accurate assessment of its condition and worth. If you plan to make changes before selling, inform the agent at this time.
The next step is for the agent to obtain data on comparable properties. This data is usually available through MLS (Multiple Listing Service), but a qualified agent will also know of properties that are on the market or have sold without being part of the MLS. This will give the agent an idea how much your property is worth in the current market. Please note that the CMA is not an appraisal. An appraisal must be performed by a licensed appraiser.
The CMA process takes place before your home is listed for sale. This is a good assessment of what your house could potentially sell for.
CMAs are not only for prospective sellers. Buyers should consider requesting a CMA for properties they are seriously looking at to determine whether the asking price is a true reflection of the current market. Owners who are upgrading or remodeling can benefit from a CMA when it's used to see if the intended changes will "over-improve" their property compared to others in the neighborhood.
Jean Powers CRS, ASP®, e-PRO, PMN
Real Estate Broker
(510) 908.9002
(800) 378.7300
Homes@JeanPowers.com
www.JeanPowers.com
www.JeanSellsDreams.com
Friday, February 22, 2008
A Buyers's Transaction!
Where do I Start?
For many, beginning the homebuying process can be overwhelming. You may be uncertain about taking the initial steps. I hope this guide will help clear up some of those uncertainties by providing you with some useful information about the homebuying process.
When is the right time to start talking to a professional, and who do I choose?
Anytime you have questions you want answered is the right time to start. You can begin with either a Realtor or a lender. A Realtor can help you assess your financial picture, counsel you through the entire homebuying process, find a home that suits you and introduce you to a lender who can work with you on a financing package that meets your needs. A Realtor will work through all the intricacies of the transaction until close of escrow. A lender will work with you on the loan process and can preapprove you for a loan before you even begin house-hunting.
If it happens that you are not ready for any of this, both professionals will be happy simply to provide you with information.
How do I choose a Realtor?
In today's market, finding and purchasing a home can be a very involved and a complicated process. It is essential to find a Realtor who is qualified and dedicated to providing you with the best representation. It is best that you hire a Realtor who is a Broker. A Broker has more education, knowledge and skills than a Realtor who only has a Sales license. Always check the Department of Real Estate to see how long the Realtor has had a license and if they are in good standing. You can go to: www.dre.org . Once you have found that the Realtor is experienced and a full-time professional who knows the market in the area in which you are interested, determine if they know the available inventory in your location and price range. Ask for and check for references.
Your Realtor should have the time and energy to devote to you and your search for a home. Perhaps most importantly, choose an agent with whom you have a personal rapport.
Buying a home is an intimate type of business transaction. Trying to go through the process with someone you can't relate to will not work. Find a qualified Broker who you like, one who matches your personality and meets your individual needs. This will make the home purchase experience much more enjoyable.
What happens after I have chosen a Broker Realtor and spoken with a lender?
Given your price range, decide what kind of home you want and need. Think about size, location, special features such as fireplace and garage.
Begin looking at properties with your Realtor Broker so you have a good basis for making a final decision. Assess whether the home you can afford to purchase is the right home for you. If this is not the case, you may be unrealistic in your expectations and may need to adjust them to suit your budget.
When you find the home you like, make an offer to purchase. Your Realtor Broker's knowledge of the market and market values will assist you in making sure the price you offer represents good value for the property.
I've found the home I want. I've made the offer. What happens next?
The seller may accept your offer, reject your offer, or make a counter offer. If your offer is rejected, you can make another offer or look for a different house. If the seller makes a counter offer, you can either accept that offer or counter with yet another offer. Negotiations may continue back and forth until you and the seller agree to a final purchase price and terms of the contract. When this agreement is reached, the offer is "ratified". Your Realtor will now be required to deposit the specifed amount as per your contract, into an escrow account with a Title Company. During the escrow period, which is usually 30 to 40 days, certain conditions ("contingencies") specified in the contract must be met or waived within agreed-upon time periods.
These conditions typically include: having a professional inspection of the property, obtaining formal loan approval from the lender, and reviewing the seller's disclosures.
When Will I Actually Own The Home?
You will own the home when all conditions of the contract are met and escrow closes. The following are some of the conditions commonly found in home purchase contracts:
Finding a loan for the amount and at the terms stated in the contract. You should have a pre approved loan with a lender prior to submitting an offer to purchase the property.
Receiving a satisfactory report on the condition of the home by a professional home inspector, and a termite inspector. Obtaining any other inspections you deem necessary. If major problems are discovered, you do not have to buy the home or you can renegotiate the contract.
Conducting a title search and ensuring the property is free of any legal claims against it. You will also have to buy title insurance for yourself and the lender, in case a problem with the title arises after you purchase the house.
Purchasing homeowner's or hazard insurance is required by the lender.
Asking and receiving satisfactory answers to any and all questions you have about the property.
Obtaining disclosures from the seller informing the buyer of any fact which the seller is aware of that would materially affect the value of the property.
The seller must make any repairs to the home which are agreed upon in the contract, you may purchase property in its present condition or ask the seller to credit money in escrow for repairs.
Just prior to close of escrow, your loan becomes effective (it "funds"). The escrow officer will explain the closing documents which you must sign. One of these is a HUD-1 settlement form from the lender. This form, required by federal law, itemizes the services and costs to the buyer and seller. You will also be required to pay the closing costs and the rest of the downpayment, either wired or by a cashier's check, to the title company at least 2 days prior to closing escrow.
The title company formally records the new deed of trust, and you go "on record" as the new owner. You get the keys to your new home and, it's yours!
How important is my credit?
In addition to verifying income, a lender will want a credit report showing that a borrower has repaid monthly debts on a timely and regular basis. It would be a good idea to examine your credit history prior to submitting a mortgage application. If you discover any discrepancies, be sure to notify the credit bureau to correct them, because any unexplained credit delinquencies can be a basis for a disapproval by a lender.
Many delinquent or late payment accounts can be resolved by writing a detailed explanatory letter to the credit bureau. There are several national credit bureaus that provide credit reports for a nominal fee. Listed below are the credit bureaus commonly used by the lending industry.
Equifax Information Service
P.O. Box 740241 Atlanta, GA 30374-0241
(800) 685-1111 ($8.00 service charge)
TRW Credit Data
P.O. Box 749029Dallas,TX 75374-9029
(800) 392-1122
(1 free yearly)
When writing to the above agencies, provide your full name, present address, previous 5 year addresses, social security number, date of birth, and a verification of your name and present address (e.g. a copy of a billing statement).
How do I find the best loan?
Loans are available from a number of sources, including banks, mortgage companies, federal credit unions and financial companies. Your Realtor can be a good source of information about various lenders.
Assessing current needs and future objectives
You can simplify your search for the right loan if you start with a clear understanding of your plans for the property. Such an understanding requires some soul-searching on you part as to your personal and financial goals.
Ask yourself:
Are you looking to build equity quickly? Are you expecting increases in your income?
Is there a strong possibility of a career change or other situation which might cause you to have to move in the near future?
To what extent will the tax deductions from your home's interest payments affect your present and future tax situation?
Are you planning any major improvements? If so, how will they be financed?Before you start looking for homes, it is important to have a good idea of how much you can put down and how much you can afford in monthly payments.
Downpayment
You may intend to put 20% of the purchase price as a downpayment. There are loans available with as little as 5% down, although lenders may charge somewhat higher fees or interest on these. Also, a downpayment less than 20% often includes a requirement from the lender that you purchase private mortgage insurance (PMI) as a protection against possible default.
Monthly Payments
In addition to the downpayment, lenders want to determine if a borrower has enough stable income to make payments on a mortgage. Typically, they do not want a borrower's total housing costs, principal, interest, taxes, and insurance (PITI), to exceed 33 percent of his/her monthly income. The "33" is sometimes called a "top" ratio. Also, total housing costs plus other monthly expenses (car payments, student loans, credit cards, etc.) should not exceed 38 percent of the borrower's total gross income. These parameters are not absolute. Some buyers may qualify at a higher debt-to-income ratio
Types of loans
Today's borrower can choose from several types of loans. Some loans feature the same rate and payment amount for the duration of the loan (Fixed). Others are more flexible. Their rates and payment schedules can adjust to reflect changing economic factors (Adjustable). Still others offer a convertible feature, enabling you to convert from one type of loan to another after a period of time.
Fixed rate loans
Predictability is the key feature of a fixed rate loan. You can be certain that your rate and payment will never change as long as you have the loan. This makes it easier to plan and budget your finances.
Adjustable rate loans (ARMs)
ARM interest rates are tied to-and fluctuate to reflect changes in-a published financial index. When those index rates go up or down, ARM rates do too. By law, the index a lender uses cannot be controlled by that lender (e.g. a bank cannot use its prime rate as an index). Common indices include 11th District Cost of Funds, one-year T-note, and six-month T-bill. ARMs are easier to qualify for than fixed rate loans because the interest start rate is lower.
Glossary of lending terms
Annual payment capsAn annual cap limits the amount of change in payment that can occur. The maximum amount of change is usually 7.5% of the previous year's monthly payment. Payments cannot exceed that cap, no matter what the index rate does during the year. If, for example, your monthly payment is $1,000, it cannot go up by more than $75 per month the following year.
Annual percentage rate (APR)
APR is the effective interest rate over its projected life. It includes interest plus all other costs such as lender fees and closing costs (escrow, title insurance, appraisal fee, processing, etc.) Your loan's APR is a reflection of what you'll be paying annually for the loan and a good way to compare with other loans. Your lender is required by law to quote the APR when quoting an interest rate.
Closing costs
Expenses in addition to the price of the home incurred by buyers and sellers when a home is sold. Common closing costs include escrow fees, title insurance fees, document recording fees and real estate commissions.
Index
There are a number of them. Some move sharply over relatively short time spans. Others change more slowly over longer period of time.
Interest rate adjustment caps
ARMs that don't have an annual payment cap will usually offer an annual cap of up to 2% of interest rates adjustments.
Lifetime interest rate caps
This feature puts a ceiling on the rate to which an ARM loan can be adjusted over the life of the loan. If the rate ever reaches the lifetime cap, the borrower has a fixed rate loan at that rate until the index falls again, and the rate can be adjusted downward.
Loan assumability
Unlike fixed rate mortgages, many ARM loans can be assumed by a qualified borrower. This can be a valuable benefit when the time comes to sell the home.
Margin
The interest rate for an ARM loan reflects the index plus a fixed margin. The margin covers the lender's operating expenses and profit. The margin amount must be included in the loan document, and can not change once the loan is funded.
Negative amortization
Negative amortization can occur when the payment is not large enough to cover the full amount of interest due. The borrower can choose whether he wants to pay the additional amount or have it added to the loan balance.
No prepayment penalty
Most ARMs can be paid off either fully or partially with no penalty.
Points
One point equals 1 percent of the mortgage amount. Typically lenders charge from zero to two points. Loan points are tax deductible.
Locking in
Also called a rate-lock, this is a lender's promise to commit to a certain interest rate on a loan, usually for 30 to 60 days.
Deciding on a Lender
It is important to find a lender you can depend on to provide you a loan at a competitive rate. In addition, you want your application processed swiftly and accurately at reasonable cost. The lending institution's stability, experience and commitment should also be examined.
Your Realtor can help you find a lender with a financing package that meets your needs.
What is an escrow and why is it needed?
An escrow is an arrangement in which a disinterested third party, called an escrow holder, holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer's and seller's instructions.
People buying and selling real estate often open an escrow for their protection and convenience. The buyer can instruct the escrow holder to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions. The seller can instruct the escrow holder to retain possession of the deed until the seller's requirements, including receipt of the purchase price, are met. Both rely on the escrow holder to carry out faithfully their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out.
An escrow is convenient for the buyer and seller because both can move forward separately but simultaneously in providing inspections, reports, loan commitments and funds, deeds, and many other items using the escrow holder as the central depositing point. If the instructions from all parties to an escrow are clearly drafted, fully detailed and mutually consistent, the escrow holder can take many actions on their behalf without further consultation. This saves much time and facilitates the closing of the transaction.
Who may hold escrows
The escrow holder may be any disinterested third party (some states require escrow holders to be licensed). Escrow officers with established firms generally are experienced and trained in real estate procedures, title insurance, taxes, deeds and insurance.
Impartiality
An escrow officer must remain completely impartial throughout the entire escrow process.He or she must follow instructions of both parties without bias.
Escrow instructions
Escrow instructions are written documents, signed by the parties giving them, which direct the escrow officer in the specific steps to be completed so the escrow can be closed. Typical instructions might include: the method by which the escrow holder is to receive and hold the purchase price to be paid by the buyer; the conditions under which a lapse of time or breach of purchase contract provision will terminate the escrow without a closing; instructions on the payment of prior liens.
Closing the escrow
Once the terms and conditions of the instructions of both parties have been fulfilled, the escrow is closed and the safe and accurate transfer of property and money has been accomplished.
In summary
The escrow holder facilitates real estate sales or purchases by:
Acting as the impartial depository of documents and funds.- Keeping all parties informed of progress on escrow.
Responding to lender's requirements
Securing a title insurance policy
Prorating and adjusting insurance, taxes, etc
Recording the deed and loan documents
It's not always that simple
Every escrow is unique and most are more complex than explained here. If you have further questions, contact an escrow officer or attorney to provide more detailed information.
What protection does title insurance provide?
Title insurance protects against any matter affecting the past ownership of the property. Title insurance is issued after the title company carefully examines copies of the public record. However, even the most thorough search cannot absolutely assure that no title hazards are present, despite the knowledge ad experience of professional title examiners. In addition to matters shown by public records, other title problems may exist that cannot be disclosed in a search.
Some common hidden risks that can cause a loss of title or create an encumbrance on title:
False impersonation of the true owner of the property
Forged deeds, releases, or wills
Undisclosed or missing heirs
Instruments executed under invalid or expired power of attorney
Mistakes in recording legal documents
Misinterpretations of wills
Fraud
Deeds by persons of unsound mind
Deeds by minors
Deeds by persons supposedly single, but in fact married
Liens for unpaid estate, inheritance, income or gift taxes
Title insurance will pay for defending against any lawsuit attacking your title problems or pay the insured's losses. For a one time premium, and owner's title insurance policy remains in effect as long as you or your heirs retain an interest in the property, or have any obligation under a warranty in any conveyance of it.
By combining expertise in risk elimination at the time of issuing a policy, and protection against hidden risks as long as the policy remains in effect, your title insurer protects against title loss.For more detailed information on title insurance, contact a title officer at your title company.
I hope you have found this information helpful. It is designed to be of general interest, and while the content is reliable, it is not intended as a substitute for the advice of professional lenders, accountants, escrow officers, attorneys, etc. Before acting on any matter contained herein, you should consult with your professional adviser.
Do not hesitate to call or email me if you have any questions .
Homes@JeanPowers.com
510.908.9002 Cell
800.378.7800 Bus.
For many, beginning the homebuying process can be overwhelming. You may be uncertain about taking the initial steps. I hope this guide will help clear up some of those uncertainties by providing you with some useful information about the homebuying process.
When is the right time to start talking to a professional, and who do I choose?
Anytime you have questions you want answered is the right time to start. You can begin with either a Realtor or a lender. A Realtor can help you assess your financial picture, counsel you through the entire homebuying process, find a home that suits you and introduce you to a lender who can work with you on a financing package that meets your needs. A Realtor will work through all the intricacies of the transaction until close of escrow. A lender will work with you on the loan process and can preapprove you for a loan before you even begin house-hunting.
If it happens that you are not ready for any of this, both professionals will be happy simply to provide you with information.
How do I choose a Realtor?
In today's market, finding and purchasing a home can be a very involved and a complicated process. It is essential to find a Realtor who is qualified and dedicated to providing you with the best representation. It is best that you hire a Realtor who is a Broker. A Broker has more education, knowledge and skills than a Realtor who only has a Sales license. Always check the Department of Real Estate to see how long the Realtor has had a license and if they are in good standing. You can go to: www.dre.org . Once you have found that the Realtor is experienced and a full-time professional who knows the market in the area in which you are interested, determine if they know the available inventory in your location and price range. Ask for and check for references.
Your Realtor should have the time and energy to devote to you and your search for a home. Perhaps most importantly, choose an agent with whom you have a personal rapport.
Buying a home is an intimate type of business transaction. Trying to go through the process with someone you can't relate to will not work. Find a qualified Broker who you like, one who matches your personality and meets your individual needs. This will make the home purchase experience much more enjoyable.
What happens after I have chosen a Broker Realtor and spoken with a lender?
Given your price range, decide what kind of home you want and need. Think about size, location, special features such as fireplace and garage.
Begin looking at properties with your Realtor Broker so you have a good basis for making a final decision. Assess whether the home you can afford to purchase is the right home for you. If this is not the case, you may be unrealistic in your expectations and may need to adjust them to suit your budget.
When you find the home you like, make an offer to purchase. Your Realtor Broker's knowledge of the market and market values will assist you in making sure the price you offer represents good value for the property.
I've found the home I want. I've made the offer. What happens next?
The seller may accept your offer, reject your offer, or make a counter offer. If your offer is rejected, you can make another offer or look for a different house. If the seller makes a counter offer, you can either accept that offer or counter with yet another offer. Negotiations may continue back and forth until you and the seller agree to a final purchase price and terms of the contract. When this agreement is reached, the offer is "ratified". Your Realtor will now be required to deposit the specifed amount as per your contract, into an escrow account with a Title Company. During the escrow period, which is usually 30 to 40 days, certain conditions ("contingencies") specified in the contract must be met or waived within agreed-upon time periods.
These conditions typically include: having a professional inspection of the property, obtaining formal loan approval from the lender, and reviewing the seller's disclosures.
When Will I Actually Own The Home?
You will own the home when all conditions of the contract are met and escrow closes. The following are some of the conditions commonly found in home purchase contracts:
Finding a loan for the amount and at the terms stated in the contract. You should have a pre approved loan with a lender prior to submitting an offer to purchase the property.
Receiving a satisfactory report on the condition of the home by a professional home inspector, and a termite inspector. Obtaining any other inspections you deem necessary. If major problems are discovered, you do not have to buy the home or you can renegotiate the contract.
Conducting a title search and ensuring the property is free of any legal claims against it. You will also have to buy title insurance for yourself and the lender, in case a problem with the title arises after you purchase the house.
Purchasing homeowner's or hazard insurance is required by the lender.
Asking and receiving satisfactory answers to any and all questions you have about the property.
Obtaining disclosures from the seller informing the buyer of any fact which the seller is aware of that would materially affect the value of the property.
The seller must make any repairs to the home which are agreed upon in the contract, you may purchase property in its present condition or ask the seller to credit money in escrow for repairs.
Just prior to close of escrow, your loan becomes effective (it "funds"). The escrow officer will explain the closing documents which you must sign. One of these is a HUD-1 settlement form from the lender. This form, required by federal law, itemizes the services and costs to the buyer and seller. You will also be required to pay the closing costs and the rest of the downpayment, either wired or by a cashier's check, to the title company at least 2 days prior to closing escrow.
The title company formally records the new deed of trust, and you go "on record" as the new owner. You get the keys to your new home and, it's yours!
How important is my credit?
In addition to verifying income, a lender will want a credit report showing that a borrower has repaid monthly debts on a timely and regular basis. It would be a good idea to examine your credit history prior to submitting a mortgage application. If you discover any discrepancies, be sure to notify the credit bureau to correct them, because any unexplained credit delinquencies can be a basis for a disapproval by a lender.
Many delinquent or late payment accounts can be resolved by writing a detailed explanatory letter to the credit bureau. There are several national credit bureaus that provide credit reports for a nominal fee. Listed below are the credit bureaus commonly used by the lending industry.
Equifax Information Service
P.O. Box 740241 Atlanta, GA 30374-0241
(800) 685-1111 ($8.00 service charge)
TRW Credit Data
P.O. Box 749029Dallas,TX 75374-9029
(800) 392-1122
(1 free yearly)
When writing to the above agencies, provide your full name, present address, previous 5 year addresses, social security number, date of birth, and a verification of your name and present address (e.g. a copy of a billing statement).
How do I find the best loan?
Loans are available from a number of sources, including banks, mortgage companies, federal credit unions and financial companies. Your Realtor can be a good source of information about various lenders.
Assessing current needs and future objectives
You can simplify your search for the right loan if you start with a clear understanding of your plans for the property. Such an understanding requires some soul-searching on you part as to your personal and financial goals.
Ask yourself:
Are you looking to build equity quickly? Are you expecting increases in your income?
Is there a strong possibility of a career change or other situation which might cause you to have to move in the near future?
To what extent will the tax deductions from your home's interest payments affect your present and future tax situation?
Are you planning any major improvements? If so, how will they be financed?Before you start looking for homes, it is important to have a good idea of how much you can put down and how much you can afford in monthly payments.
Downpayment
You may intend to put 20% of the purchase price as a downpayment. There are loans available with as little as 5% down, although lenders may charge somewhat higher fees or interest on these. Also, a downpayment less than 20% often includes a requirement from the lender that you purchase private mortgage insurance (PMI) as a protection against possible default.
Monthly Payments
In addition to the downpayment, lenders want to determine if a borrower has enough stable income to make payments on a mortgage. Typically, they do not want a borrower's total housing costs, principal, interest, taxes, and insurance (PITI), to exceed 33 percent of his/her monthly income. The "33" is sometimes called a "top" ratio. Also, total housing costs plus other monthly expenses (car payments, student loans, credit cards, etc.) should not exceed 38 percent of the borrower's total gross income. These parameters are not absolute. Some buyers may qualify at a higher debt-to-income ratio
Types of loans
Today's borrower can choose from several types of loans. Some loans feature the same rate and payment amount for the duration of the loan (Fixed). Others are more flexible. Their rates and payment schedules can adjust to reflect changing economic factors (Adjustable). Still others offer a convertible feature, enabling you to convert from one type of loan to another after a period of time.
Fixed rate loans
Predictability is the key feature of a fixed rate loan. You can be certain that your rate and payment will never change as long as you have the loan. This makes it easier to plan and budget your finances.
Adjustable rate loans (ARMs)
ARM interest rates are tied to-and fluctuate to reflect changes in-a published financial index. When those index rates go up or down, ARM rates do too. By law, the index a lender uses cannot be controlled by that lender (e.g. a bank cannot use its prime rate as an index). Common indices include 11th District Cost of Funds, one-year T-note, and six-month T-bill. ARMs are easier to qualify for than fixed rate loans because the interest start rate is lower.
Glossary of lending terms
Annual payment capsAn annual cap limits the amount of change in payment that can occur. The maximum amount of change is usually 7.5% of the previous year's monthly payment. Payments cannot exceed that cap, no matter what the index rate does during the year. If, for example, your monthly payment is $1,000, it cannot go up by more than $75 per month the following year.
Annual percentage rate (APR)
APR is the effective interest rate over its projected life. It includes interest plus all other costs such as lender fees and closing costs (escrow, title insurance, appraisal fee, processing, etc.) Your loan's APR is a reflection of what you'll be paying annually for the loan and a good way to compare with other loans. Your lender is required by law to quote the APR when quoting an interest rate.
Closing costs
Expenses in addition to the price of the home incurred by buyers and sellers when a home is sold. Common closing costs include escrow fees, title insurance fees, document recording fees and real estate commissions.
Index
There are a number of them. Some move sharply over relatively short time spans. Others change more slowly over longer period of time.
Interest rate adjustment caps
ARMs that don't have an annual payment cap will usually offer an annual cap of up to 2% of interest rates adjustments.
Lifetime interest rate caps
This feature puts a ceiling on the rate to which an ARM loan can be adjusted over the life of the loan. If the rate ever reaches the lifetime cap, the borrower has a fixed rate loan at that rate until the index falls again, and the rate can be adjusted downward.
Loan assumability
Unlike fixed rate mortgages, many ARM loans can be assumed by a qualified borrower. This can be a valuable benefit when the time comes to sell the home.
Margin
The interest rate for an ARM loan reflects the index plus a fixed margin. The margin covers the lender's operating expenses and profit. The margin amount must be included in the loan document, and can not change once the loan is funded.
Negative amortization
Negative amortization can occur when the payment is not large enough to cover the full amount of interest due. The borrower can choose whether he wants to pay the additional amount or have it added to the loan balance.
No prepayment penalty
Most ARMs can be paid off either fully or partially with no penalty.
Points
One point equals 1 percent of the mortgage amount. Typically lenders charge from zero to two points. Loan points are tax deductible.
Locking in
Also called a rate-lock, this is a lender's promise to commit to a certain interest rate on a loan, usually for 30 to 60 days.
Deciding on a Lender
It is important to find a lender you can depend on to provide you a loan at a competitive rate. In addition, you want your application processed swiftly and accurately at reasonable cost. The lending institution's stability, experience and commitment should also be examined.
Your Realtor can help you find a lender with a financing package that meets your needs.
What is an escrow and why is it needed?
An escrow is an arrangement in which a disinterested third party, called an escrow holder, holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer's and seller's instructions.
People buying and selling real estate often open an escrow for their protection and convenience. The buyer can instruct the escrow holder to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions. The seller can instruct the escrow holder to retain possession of the deed until the seller's requirements, including receipt of the purchase price, are met. Both rely on the escrow holder to carry out faithfully their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out.
An escrow is convenient for the buyer and seller because both can move forward separately but simultaneously in providing inspections, reports, loan commitments and funds, deeds, and many other items using the escrow holder as the central depositing point. If the instructions from all parties to an escrow are clearly drafted, fully detailed and mutually consistent, the escrow holder can take many actions on their behalf without further consultation. This saves much time and facilitates the closing of the transaction.
Who may hold escrows
The escrow holder may be any disinterested third party (some states require escrow holders to be licensed). Escrow officers with established firms generally are experienced and trained in real estate procedures, title insurance, taxes, deeds and insurance.
Impartiality
An escrow officer must remain completely impartial throughout the entire escrow process.He or she must follow instructions of both parties without bias.
Escrow instructions
Escrow instructions are written documents, signed by the parties giving them, which direct the escrow officer in the specific steps to be completed so the escrow can be closed. Typical instructions might include: the method by which the escrow holder is to receive and hold the purchase price to be paid by the buyer; the conditions under which a lapse of time or breach of purchase contract provision will terminate the escrow without a closing; instructions on the payment of prior liens.
Closing the escrow
Once the terms and conditions of the instructions of both parties have been fulfilled, the escrow is closed and the safe and accurate transfer of property and money has been accomplished.
In summary
The escrow holder facilitates real estate sales or purchases by:
Acting as the impartial depository of documents and funds.- Keeping all parties informed of progress on escrow.
Responding to lender's requirements
Securing a title insurance policy
Prorating and adjusting insurance, taxes, etc
Recording the deed and loan documents
It's not always that simple
Every escrow is unique and most are more complex than explained here. If you have further questions, contact an escrow officer or attorney to provide more detailed information.
What protection does title insurance provide?
Title insurance protects against any matter affecting the past ownership of the property. Title insurance is issued after the title company carefully examines copies of the public record. However, even the most thorough search cannot absolutely assure that no title hazards are present, despite the knowledge ad experience of professional title examiners. In addition to matters shown by public records, other title problems may exist that cannot be disclosed in a search.
Some common hidden risks that can cause a loss of title or create an encumbrance on title:
False impersonation of the true owner of the property
Forged deeds, releases, or wills
Undisclosed or missing heirs
Instruments executed under invalid or expired power of attorney
Mistakes in recording legal documents
Misinterpretations of wills
Fraud
Deeds by persons of unsound mind
Deeds by minors
Deeds by persons supposedly single, but in fact married
Liens for unpaid estate, inheritance, income or gift taxes
Title insurance will pay for defending against any lawsuit attacking your title problems or pay the insured's losses. For a one time premium, and owner's title insurance policy remains in effect as long as you or your heirs retain an interest in the property, or have any obligation under a warranty in any conveyance of it.
By combining expertise in risk elimination at the time of issuing a policy, and protection against hidden risks as long as the policy remains in effect, your title insurer protects against title loss.For more detailed information on title insurance, contact a title officer at your title company.
I hope you have found this information helpful. It is designed to be of general interest, and while the content is reliable, it is not intended as a substitute for the advice of professional lenders, accountants, escrow officers, attorneys, etc. Before acting on any matter contained herein, you should consult with your professional adviser.
Do not hesitate to call or email me if you have any questions .
Homes@JeanPowers.com
510.908.9002 Cell
800.378.7800 Bus.
Thursday, February 21, 2008
Californians Can Afford to Purchase a New Home!
Group says more Californians can afford to buy their first home
By ALEX VEIGA, AP Business Writer
(02-19) 12:13 PST Los Angeles (AP) --
Frustrated California renters take heed: A trade group says it's getting easier for people to afford their first home.
With home prices in a downward spiral in many once-booming areas, the percentage of California households that can afford to finance an entry-level home increased in the last three months of 2007 compared to the same period a year earlier, the California Association of Realtors said Tuesday.
The trade group for real estate agents calculates affordability based on the minimum household income required to make a 10 percent downpayment and secure an adjustable interest rate loan at 6.21 percent.
Some 33 percent of the households in the state met those guidelines in the fourth quarter — up from 25 percent in the same three months of 2006, the association said.
Buyers needed to earn $82,200 to afford financing of $411,170, the typical statewide price for an entry-level home during the quarter, the trade association estimated.
The monthly payment for such a purchase, including taxes and insurance, was $2,740, the association said.
An entry-level home was defined as one priced at about 85 percent of the median home price in an area.
The most affordable area of the state during the quarter was the desert north of Los Angeles, where some 54 percent of households met the association's $43,800 annual income threshold to finance an entry-level home priced at $218,880.
Sacramento County was next, with 53 percent of households within the income range needed to afford a home priced at $252,920.
The least affordable area was the Central Coast region of Monterey, where only 20 percent of households earned the $118,200 needed to finance an entry-level home at $591,200.
In Los Angeles County, 27 percent of households earned the $86,700 a year needed to buy a home priced at $433,200.
Some 46 percent of households in Riverside and San Bernardino counties, which have been hit particularly hard by rising foreclosures and falling home values, earned $57,600 a year, enough to finance a $287,330 home, the association said.
In the San Francisco Bay area, meanwhile, only 23 percent of households reported income of at least $132,300, the minimum to purchase a home priced at $660,660.
Compliments of:
California Association of Realtors: www.car.org
By ALEX VEIGA, AP Business Writer
(02-19) 12:13 PST Los Angeles (AP) --
Frustrated California renters take heed: A trade group says it's getting easier for people to afford their first home.
With home prices in a downward spiral in many once-booming areas, the percentage of California households that can afford to finance an entry-level home increased in the last three months of 2007 compared to the same period a year earlier, the California Association of Realtors said Tuesday.
The trade group for real estate agents calculates affordability based on the minimum household income required to make a 10 percent downpayment and secure an adjustable interest rate loan at 6.21 percent.
Some 33 percent of the households in the state met those guidelines in the fourth quarter — up from 25 percent in the same three months of 2006, the association said.
Buyers needed to earn $82,200 to afford financing of $411,170, the typical statewide price for an entry-level home during the quarter, the trade association estimated.
The monthly payment for such a purchase, including taxes and insurance, was $2,740, the association said.
An entry-level home was defined as one priced at about 85 percent of the median home price in an area.
The most affordable area of the state during the quarter was the desert north of Los Angeles, where some 54 percent of households met the association's $43,800 annual income threshold to finance an entry-level home priced at $218,880.
Sacramento County was next, with 53 percent of households within the income range needed to afford a home priced at $252,920.
The least affordable area was the Central Coast region of Monterey, where only 20 percent of households earned the $118,200 needed to finance an entry-level home at $591,200.
In Los Angeles County, 27 percent of households earned the $86,700 a year needed to buy a home priced at $433,200.
Some 46 percent of households in Riverside and San Bernardino counties, which have been hit particularly hard by rising foreclosures and falling home values, earned $57,600 a year, enough to finance a $287,330 home, the association said.
In the San Francisco Bay area, meanwhile, only 23 percent of households reported income of at least $132,300, the minimum to purchase a home priced at $660,660.
Compliments of:
California Association of Realtors: www.car.org
Tuesday, February 19, 2008
Easing Your Children's Fears When Making a Move!
Helping Your Children Move to Their New Home!
If you’re relocating to a new city, you should try to make the transition as smooth as possible for your children. The best thing you can do is to keep them informed. Even if you think they don’t care or won’t fully understand the details, keep them as informed as possible so they feel secure about the situation. Children understand much more than some of us give them credit for. Getting them on-board for the move will help to make the relocation less stressful for the whole family.
The greatest fear preschool children typically have is that they will somehow be left behind. If you need to leave your children for a short time to search for your new home or to orient yourself to the new location, reassure them that you will be back. It may help if you bring them back something from the new location. Consider assigning them a task to complete before you return, such as packing some of their toys in boxes. This will help them feel involved in the move.
Elementary children may fear how the move will disrupt their everyday lives. Take pictures of the new location and of spots that you know they will enjoy, such as parks and pizza parlors. If possible, take them to the new location before the move to let them get a first-hand feel for the place and take the mystery out of it. Nothing is scarier to kids than the unknown.
Teenagers may be worried about fitting in and making new friends at their new school. To help ease their fears, find out as much as you can about the high school they will be attending. Make special note of the local trends, sports teams and school clubs.
Again, if possible, visit the new town before the move and visit the school that each child will attend. Schedule a meeting with the principal and teachers before their first day of school. If you can’t do it before the move, make sure to do it as soon as possible after the move. Once your children start to make new friends, encourage them to bring their new classmates home to visit.
Play tourist in your new location. This is a great way to learn the area and makes the children feel like it is a vacation. It will take time to make new friends so the touring keeps them busy and less likely to dwell on the loss of old friends.
Ready to select a REALTOR®….I am here to help!
Jean Powers
Broker Associate, CRS, ASP, LTG, PMN, SRES
Windermere Welcome Home
510.908.9002
Toll Free: 800.378.7300
Successfully Serving Alameda Since 1984
If you’re relocating to a new city, you should try to make the transition as smooth as possible for your children. The best thing you can do is to keep them informed. Even if you think they don’t care or won’t fully understand the details, keep them as informed as possible so they feel secure about the situation. Children understand much more than some of us give them credit for. Getting them on-board for the move will help to make the relocation less stressful for the whole family.
The greatest fear preschool children typically have is that they will somehow be left behind. If you need to leave your children for a short time to search for your new home or to orient yourself to the new location, reassure them that you will be back. It may help if you bring them back something from the new location. Consider assigning them a task to complete before you return, such as packing some of their toys in boxes. This will help them feel involved in the move.
Elementary children may fear how the move will disrupt their everyday lives. Take pictures of the new location and of spots that you know they will enjoy, such as parks and pizza parlors. If possible, take them to the new location before the move to let them get a first-hand feel for the place and take the mystery out of it. Nothing is scarier to kids than the unknown.
Teenagers may be worried about fitting in and making new friends at their new school. To help ease their fears, find out as much as you can about the high school they will be attending. Make special note of the local trends, sports teams and school clubs.
Again, if possible, visit the new town before the move and visit the school that each child will attend. Schedule a meeting with the principal and teachers before their first day of school. If you can’t do it before the move, make sure to do it as soon as possible after the move. Once your children start to make new friends, encourage them to bring their new classmates home to visit.
Play tourist in your new location. This is a great way to learn the area and makes the children feel like it is a vacation. It will take time to make new friends so the touring keeps them busy and less likely to dwell on the loss of old friends.
Ready to select a REALTOR®….I am here to help!
Jean Powers
Broker Associate, CRS, ASP, LTG, PMN, SRES
Windermere Welcome Home
510.908.9002
Toll Free: 800.378.7300
Successfully Serving Alameda Since 1984
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