Bright Spot in a Bad Economy

Nancy Doniger

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By BILLIE COHEN

Published: August 14, 2008

IN these tough times, with gas prices setting records and airfares skyrocketing, many people are lucky to have jobs, let alone time to take a vacation. And yet there’s some good news for second-home owners hoping to rent out an investment property: vacationers are turning to these rentals more than ever.

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More articles on second homes and vacation destinations.

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“As the economy sours, demand for vacation home rentals increases, as rental homes are seen as inexpensive alternatives to luxury hotels,” said Douglas Pope, a founder of HotPads.com, a real estate search engine. “Also, people are now beginning to divert their vacations to more local spots where rental homes are an option.”

Not that you should run out and buy an investment property with the hope of getting rich on rentals or a short-term flip.

“If you’re going to flip it in a year or two, this is not the thing to do,” said Anne-marie Boyer, a broker with San Diego’s Finest Real Estate. “You need to plan to be in it for the long haul.”

But if you’re already in it, there is room for hope.

“Vacation rentals as a category are growing well in the U.S.,” said Justin Halloran, managing director of United States brands for HomeAway, a group of vacation-rental Web sites. “They are taking shares from hotels because they give more space, freedom and amenities than hotels” — like kitchens, private pools and more bedrooms for less money.

Mr. Halloran said that both supply and demand are going up, particularly in what are called “drive markets,” regions that vacationers can reach by car, like the Hamptons in New York or Ocean City, Md.

In the second quarter of 2008, inquiries about vacation rentals in Las Vegas on HomeAway.com increased 67 percent from the same period in 2007, and the supply of properties was up 31 percent. Similarly, in Palm Springs, Calif., demand went up 58 percent and supply 31 percent; and in Manhattan, demand grew 166 percent and supply 108 percent.

So if you bought a second property to rent out, you’re not necessarily in for a dry spell. And while your first thought might be to hire a property manager to find tenants, that’s not necessarily your best option.

“You need to be very cautious in choosing your property manager, and be sure to have a firm understanding of what is expected from their services,” Mr. Pope said. “You should also not necessarily leave all the marketing up to the property manager. They generally have a lot of properties in their portfolio to worry about; you may want to give your own property special attention.”

To do that, look to online vacation-rental listings you can publish yourself, which can give you a wide audience with little effort. Some of these sites, like HotPads.com and Craigslist.org, offer free listings, while others, like VRBO.com and HomeAway.com, provide a number of services based on a subscription fee.

“My first recommendation, to the extent that your budget allows it, is to buy multiple subscriptions,” Mr. Halloran said. “You’ll reach different audiences.”

And don’t ignore the overseas market. “I wouldn’t recommend that someone, say, with an apartment or condo on the Texas Gulf should advertise in the U.K.,” Mr. Halloran said, “but if you’ve got a place in Orlando, you’re probably going to get some good demand from Germany and the U.K.”

The next step is to make sure that your listing stands out from the rest, by doing things like “taking the right photos, writing compelling titles and making sure your availability calendar is updated,” Mr. Halloran said. Photos, he said, are the most important factor.

You might also think about financial incentives to draw renters.

“A lot of people have owned their property for a while,” said Robert Boyer, a real estate investor adviser with San Diego’s Finest Real Estate. “They can drop their rates a little bit and still come out with a positive cash flow, or at least not a negative cash flow. Whereas people who’ve bought more recently have a more difficult time.”

If you aren’t having much luck, consider offering a different kind of incentive. On HomeAway.com, Mr. Halloran has seen people offer a free eighth day on a seven-day stay or no cleaning fee. “There was one in Maine that offered a free bucket of live lobsters and a bucket of beer,” he said.

Clearly, with a little online savvy, a little creativity — and maybe a little beer — you can still find renters.

Real Estate Agent - Licensed Professional.
Working with one can save you time, money and frustration.

A Good Agent Will:
Know the inventory.
Have easy access to the homes.
Are trained to write contracts.
Can estimate closing costs and payments.
Coordinate inspections, paperwork and escrow.

A good real estate agent will take the time and have the patience to guide you
through the basic steps of buying a home. Choose an agent you feel comfortable with, someone who will represent your best interests. The more experienced they are, the more likely they will know how to quickly deal with problem situations as they arise. Ask for referrals or letters of recommendations.

Many people are put off by agents because they feel they are too pushy or aggressive. Working with an agent having these characteristics can be an advantage in that
things get done in a timely manner. Feel they are of good character though. If you feel your real estate agent is incompetent or not working in your best interest, interview another agent. If you are comfortable with your agent, be loyal to him/her. Don’t use them to find a house and then have a relative “in the business” write up the contract. This is the time you need to have someone who knows how to effectively negotiate without emotional constraints.

Inventory Knowledge
A good agent knows the housing market.
Agents spend a lot of time previewing properties. Daily they review new listings on the Multiple Listing Service (MLS) providing information about size, room count, amenities, condition, schools and price.
They know houses that are listed where the owner requests no yard sign.
Many agents specialize in a specific neighborhood and personally know many
of the people who live there.
Easy Access
Most homes listed for sale have lock boxes which provide agents access when
the owners are not home. Should you want to preview specific homes, the agent notifies the owners and shows the homes to you at your convenience.
Good Source of Contacts
Real estate agents are always coming in contact with loan agents, insurance agents, inspectors, contractors, and others who are involved with real estate. Over the years they acquire many names and can provide you with those who they feel are reliable.

Salesperson - Broker Relationship
A salesperson is licensed to perform real estate activities on behalf of a licensed real estate broker/company. The salesperson is responsible to the broker/company under whom he or she is licensed. All of a salesperson’s activities must be performed in the name of the real estate company.
The salesperson has no authority to receive commission directly from a client.
The broker/company is the only one licensed to act as the client’s legal agent.
An associate broker is a broker who chooses to work as a sales person under the name and supervision of another broker/owner.
The associate broker must have all the qualifications for a brokers license and pass the broker’s exam, but transacts business exactly as a salesperson would.

Buyer - Agent Relationship
When an agent and client work together, they enter into a fiduciary relationship which is governed by the law of agency. This fiduciary relationship is one of trust and confidentiality between the parties. Under this relationship the agent and his/her real estate firm has certain duties they must perform.
They are: accounting, disclosure, care, confidentiality, loyalty, and obedience. Even though the agent has this fiduciary relationship, they may not be working in buyer’s best interest. You may think the agent is truly working for you, but that depends on the type of agent they are.

Types of Agents
Exclusive Buyers Agent
Sellers Agent / Listing Agent
Dual Agent

Exclusive Buyer’s Agent
This type of agent truly works for and has loyalty to only the buyer. This agent is obligated to convey to the buyer/client any information about the seller’s willingness to accept a lower price or what the property is worth. The other types of agents are not obligated to work in the buyer’s best interest. Using an Exclusive Buyers Agent is the best way to buy a house. There is a growing trend for the Exclusive Buyers Agent.
Typically the exclusive buyer’s agent will get paid through the seller’s commission. When working with an exclusive buyer’s agent, the buyer usually signs a contract to work only with that agent. This works to both parties advantages. This can work to the buyer’s advantage through a lower sales price and better service. An agent who knows you are committed only to them is going to give you their best service from the beginning.
A buyer entering into an exclusive buyer agreement might want to start with a contract period of one week. After such a time, the buyer should be able to decide if the agent is living up to their standards and in comfortable to work with. They then have the option of extending the contract or working with another agent.

Sellers Agent / Listing Agent
The sellers agent is a listing agent. Their loyalty is to the seller. All confidential information a buyer discloses to a sellers agent is passed on to the seller. They try to get the highest price possible for the seller, which is not in the best interest of the buyer.

Dual Agent
A dual agency is created when the buyer’s agent and seller’s agent work for the same real estate company. Real estate companies prefer their agents to sell one of the companies listings. This creates a dual agency as both agents work under the same broker. A dual agent is better than a seller’s agent, but not as good as an exclusive buyer’s agent when it comes to the buyer’s best interest.

The Commission
Many first time buyers don’t want to use an agent because they wrongly assume they will have to pay them a commission. Typically the commission is paid by the seller, therefore the buyer gets the agent’s services for free. The seller usually compensates the broker/company not the salesperson with a commission for having successfully performed the service for which the broker was employed. This broker will then compensate, through escrow, the buyer’s agent’s broker for part of the commission. After escrow has closed, the broker’s of both the listing and selling agents will split this fee with the agents involved.

You Should Know
A real estate agent is qualified to provide valuable information and assistance,
but is not an expert in every aspect of real estate.
They are not permitted to give legal advice.
You should carefully read all documents that you are asked to sign.
If you do not understand the effect of any part of a document or if you desire legal or
tax advice, consult an attorney or tax advisor.
Likewise a real estate agent does not hold himself as an expert regarding the condition or boundaries of the property.

Obtain the services of the appropriate professionals.

Mandatory Disclosures Required
With ever increasing mandatory disclosure obligations being placed on sellers of real estate, it can be difficult to keep-up with new requirements.
Below is a summary of disclosures required in residential transactions (1-4) units. Many of these disclosures are required on commercial transactions also.
Local residential disclosures may exist also, therefore it is always prudent to inquire about such requirements before escrow closes.

Required Disclosures
TDS (Transfer Disclosure Statement)
The law requires a seller to provide prospective buyers with a written disclosure statement covering such items as appliances, structural defects and modifications, possible easements, neighborhood problems and other material fact that may affect the principal’s decision in a transaction.
Natural Hazards Disclosure Law
The Natural Hazards Disclosure law requires the seller or seller’s agent to disclose whether the property is located in the following six zones:
Flood Hazard Zones
Areas subject to unusual flood risks
Inundation Zones
Areas subject to potential flooding in the event of a dam failure.
Very High Fire Hazard Severity Zones
Areas where property owners may be obligated to undertake specific maintenance duties.
Wild land Fire Areas
Areas wherein the state has responsibility for fire suppression
Earthquake Fault Zones
Areas located a certain distance from earthquake fault line
Seismic Hazard Zones
Areas subject to unusual ground movement during earthquakes
Lead Paint Disclosures
The law requires both sellers and lesser to disclose known lead hazards by providing an informational booklet and a disclosure form as addenda to the purchase contract or lease. The federal lead paint disclosures apply to leases and sales of residential property, including mobile homes, constructed before 1978.
Mello - Roos Districts
This law requires a seller of real property to disclose to a prospective buyer that the property is located in a Mello-Roos district. A Mello-Roos district is one in which special taxes are levied against property owners within the area to finance various public services, such as police and fire protection and facilities like schools and libraries.
Homeowner’s Guide to Earthquake Safety
Informational booklet designed to help property owners spot and correct earthquake - related concerns. A seller must deliver the “Homeowner’s Guide” if the property consists of one to four residential dwellings, was built prior to Jan. 1, 1960, is of conventional light - frame construction.
Megan’s Law
Megan’s Law was enacted to notify buyers and tenants about the proximity of registered six offenders. The law requires every purchase contract and lease agreement to contain a specific written notice that a database containing information about registered sex offenders may be accessed by buyers and tenants.
This disclosure is required for every lease or real property sales contract for residential real property entered into on or after July 1, 1999.
Military Ordnance
Disclosures involving the location and proximity of any military ordnance sites.
Water Heater & Smoke Detector Statement of Compliance
Recent California law requires that hot water heaters be securely strapped to prevent toppling over in an earthquake.
Installed smoke detectors are required outside of bedroom doors.
All residential transactions require these be accomplished prior to closing.
Known Hazardous Substances on the Property
State law requires that disclosure of known environmental contamination or hazards on a subject property be made to prospective Buyers. Environmental contamination could be a private underground fuel or heating oil tank that has leaked.

Environmental Hazards Disclosure Booklet
State mandate required that the California Departments of Real Estate and Health Services prepare a booklet to explain and discuss the most commonly found environmental hazards affecting residential property. This booklet is designed to provide general information on asbestos, formaldehyde, lead, radon, and hazardous waste. Delivery of this booklet to prospective Buyers is not required but is recommended.
Neighborhood Environmental Contamination
The potential for hazardous substance contaminated sites in the vicinity of residential property could be anything from a local gasoline station with a leaking underground fuel tank to an industrial site.
Disclosing the environmental information that is reasonably available today acknowledges that buyers may have questions over the uncertainties environmental contamination issues present.
Real estate agents and sellers are being held to ever more stringent and higher standards of care. The number one claim on Errors & Omissions Insurance is “failure to disclose” some item that a Buyer felt was material.
Although there is no way to completely prevent law suits, there are some general guidelines to help protect against non-disclosure liability.
Make all disclosures in writing and obtain acknowledgment signatures.
If there is any doubt, don’t wait for the Buyer to ask - disclose, disclose, disclose.

MANY older adults looking to extract cash from their homes have recently turned to reverse mortgages, rather than take on new monthly debt through second mortgages or home equity lines of credit. But these transactions can be expensive — closing costs can often run to $15,000 — and risky, since borrowers face big penalties if they move.

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Now, financial institutions are starting to offer new alternatives to such loans. One particularly innovative idea is being offered by EquityKey, a San Diego-based company that is a division of KBC Bank, a financial services company with headquarters in Belgium. EquityKey’s service essentially offers a cash advance on the home, in exchange for the owner’s promise to share in the home’s future appreciation.

Owners 65 to 85 with good credit who live in homes valued above $400,000 (above $500,000 in New York and California) can receive a payment of up to 15 percent of a home’s equity. Those who move out within 10 years must pay back the entire amount — and 5 percent more if they move within the first five years.

If the house sells at any time after that, though, the customer or the estate pays EquityKey only if the home’s value has increased since the time of the payment. In that case, EquityKey receives half of the appreciation amount. If the homeowner dies within 10 years of signing the deal, the heirs owe nothing to EquityKey.

That is because the company takes out a life insurance policy on the client at the time of the transaction. “So, you need to be able to qualify for life insurance to do this,” said Jeff Nash, a founder of EquityKey. If that is the case, the transaction can yield significant benefits to those who are “house rich and cash poor,” he added.

Take, for example, the owner of a home appraised at $1 million. EquityKey conducts a credit check and otherwise evaluates the applicant’s financial ability to maintain the home. It also considers local market conditions in determining the likelihood that the home’s value will rise.

Assuming the applicant clears those hurdles, EquityKey writes the homeowner a check of up to $150,000 and refunds a $300 application fee. There are no closing costs. Mr. Nash said income and estate tax implications depend on each homeowner’s circumstances, but he said clients typically need not pay taxes until the home is sold.

Mr. Nash said a prospective client should speak with a financial planner before entering such a transaction. “If you have some reasonable likelihood of being forced to sell your home in the near term,” he said, “don’t do this deal.”

With its risk-sharing concept, EquityKey is similar to products recently introduced by Grander Financial and REX & Company — but neither of them imposes age restrictions. Grander Financial serves customers in New Jersey and Connecticut, but not New York.

REX & Company, which serves all three states, offers clients cash advances of up to 15 percent of the home’s value. But unlike EquityKey’s transactions, REX agreements require clients to repay part of the payment if the home loses value when it sells.

Michael Berman, REX’s chief executive, said the company had conducted about 175 transactions and disbursed about $20 million. The typical client, he said, is someone “who is very sophisticated financially.”

“They seem to really understand what they’re getting into, and know they’re choosing to forgo some of the change in value of their home for some good use of the money,” he added. “It’s definitely not an impulsive thing.”

August 13, 2008,  6:58 pm

Self-Employed Borrower Worries About Mortgage

By Jay Romano

I am wondering how the problems in the mortgage industry will impact the self-employed. I am self-employed and I was preapproved for a mortgage last year but decided to wait until I had 20 percent for the down payment. I would be getting a stated income mortgage. In other words, I would not have to provide proof of my income. I have a credit score of over 800, but I’m concerned that I may be denied a mortgage because of all the problems lenders are having.

Mortgages have become more difficult for the self-employed to obtain, especially if a borrower is applying for a “stated income” loan,” said Tim Malburg, president of Capstone Mortgage in Wilton, Conn.

Mr. Malburg said that in most cases, a person applies for a “stated income” mortgage because he or she cannot provide two years’ of tax returns — perhaps because the 2007 return has not yet been filed — or because his or her tax returns do not show sufficient income to qualify for the loan.

This kind of loan is riskier than an “income verification ” loan in which claimed income is verified by tax returns. “In the past, some lenders were willing to overlook this additional risk because of rising real estate prices,” Mr. Malburg said. “But those days are gone.”

Making a Prepayment on a Mortgage

By Jay Romano

I have read a lot about the advantage of making an extra payment to reduce the principal on a long-term mortgage. But when I make the extra payment, do I submit only the principal amount or do I submit an extra full monthly payment — that is, do I include the tax escrow payment as well?

Marc Eisenson, a principal of www.goodadvicepress.com, and author of several books on mortgage payment strategies, said that to make a prepayment, you would send in the required monthly amount, including any escrow payments required, along with any additional principal that you want to prepay. “Your mortgage coupon probably has a line where you can indicate the additional principal amount you are including,” Mr. Eisenson said.

He noted that by paying off principal early, a borrower saves interest and reduces the term of the mortgage. “The more you prepay, and the sooner you do it, the more time and money you save,” he said.

For example, Mr. Eisenson said, on a $250,000 mortgage at 7 percent for 30 years, the required monthly principal and interest payment is $1,663.26. Making a prepayment of $100 a month will save $66,779 in interest over the term of the loan and reduce the term by 4 years and 10 months.

Down Payment
Most lenders require at least 10% of the purchase price, though new programs are available for 3%-5% down. 100% financing can be found, but you credit must be excellent and PMI insurance will be required.
Loan Origination Fee
A lender’s fee for establishing a new loan. Government regulations allow only 1% origination fee on FHA or VA loans. Conventional loan fees can vary from -1 to 3+ points, plus other costs. A point is 1% of the loan.
Appraisal Fee
Fee paid to obtain an estimate of market value upon which the lender will base the loan amount. The cost is about $350-$1000. Non refundable.
Credit Report
An evaluation of the buyer’s credit habits made by a credit bureau for the lender.
The cost is $20-$60. Non refundable.
Tax Service Fee
A charge of approximately $75 is made by a tax service company to verify to the lender that the taxes have actually been paid when due or are due to be paid by borrower or mortgage company if impounding.
Assumption Fee
Fee of approximately $250 up to 1% of the loan balance is charged by the existing lender for the privilege of assuming the existing loan.
Pest Inspection Fee
Fees of $75 - $175 is charged by termite companies for inspecting property for damage done by wood destroying organisms and dryrot.
It is customary for the seller to pay for Section 1 and the buyer for Section 2 work.
Other Inspection Fees
Other inspections the buyer may choose to have done are: property inspections that usually cover foundation, electrical, plumbing and overall construction at a cost of $300-$400. Roof inspections cost $75-$125. Geological reports cover subject’s site in relation to fault and slide zones, costing about $100.
Septic $200-$400. Radon $50-$100. Asbestos $75-$125.
Alta Title Insurance
This is an extended policy with more specific coverage than the CLTA standard policy.
It covers unrecorded liens, is based on loan amount only and is required by almost all lenders. The cost is obtained from a rate chart and is based on the loan amount.
City Transfer Tax
A municipal tax imposed within the corporate limits of some cities.
The cost is $3.30 per $1,000 of selling price, usually negotiable between buyer and seller, but custom varies between countries.
The VA does not allow the veteran buyer to pay any portion of this cost.
Miscellaneous Costs & Fees
An estimate of $150 should be adequate to cover minor items as notary, recording documents, endorsements, etc. as well as allowing for variations from these other estimates.
Hazard Insurance Reserve
Two month’s premium is collected for the impound account if required.
The buyer will need to either provide or pay for coverage for the 1st year.
Prepaid Interest
Interest must be paid from COE (close of escrow) to 30 days prior to the first regular mortgage payment. An estimate of one months interest should suffice.
Mortgage Insurance
Mortgage Insurance is required on all conventional loans greater than 80%.
The cost may range from 1/2% to 1% per year and 14 months premium is
collected in advance. This is coverage for the lender in case of default.
Tax Impounds
If the new loan is going to have an impound account, the lender will require from 2-10 months taxes to be deposited, depending on the time of year. Note: if taxes are prorated, buyer’s total charge for taxes should equal about six month’s taxes.
Escrow Fee
These fees range from $750-$2500, depending on the sales price. In some counties its customarily paid by the seller, in other counties the buyer pays, while in others it may be customarily split. Remember though, everything is negotiable.
Negotiating Fees
The above fees are typical costs when buying real estate in California counties.
Most of the fees are considered buyer’s non-recurring closing costs.
Some of the fees are fixed while others are negotiable.
Your real estate agent can negotiate with the sellers to pay some or most of these costs, saving you thousands of dollars in closing costs.

Ask your real estate agent and loan agent to provide estimated closing costs of buying a home before looking at homes.

Why a Real Estate Appraisal?
There are many reasons why you need a real estate appraisal.
Reduce property taxes, probate, estate planning, divorce settlements are some.
The most common one is to obtain a mortgage.
Most lenders are required by federal and state laws and current banking regulations to obtain an appraisal for most loans secured by real estate.
As of Jan. 1, 1993, all appraisals made for mortgage loans from federally insured lenders and other federally related transactions must be made by a licensed or certified appraiser.
What is a Appraisal?
An appraisal is an objective supported opinion of value of an adequately described piece of property made by an appraiser who has sufficient knowledge, training and experience to accurately estimate its value.
In this detailed and time consuming report, appraisers use comparable sales together with information about the property being appraised, its neighborhood and community along with the local and national economy, to support the appraised value.

Look Objectively not Subjectively.
The most important thing you can do when previewing is to look at the house as if empty: four walls, floors and a roof.
Don’t let the current owners’ furniture and decor influence you.

Important Tip!
If you are buying a house with the owner carrying the paper (loan), it is well worth the cost to hire an appraiser to make sure you don’t pay more than it is worth.
For your protection many real estate agents will write in a purchase contract: this contract is contingent upon the property appraising for the sales price.

How is Value Established?
The value of a house is based upon recent sales of the similar neighboring homes in the market as well as rentals and listing data.
Ideally, appraisers want to use sales of properties of the same size, age, room count, condition and with similar amenities and external influences. This rarely happens though, so adjustments have to be made, based on what people will pay extra for.
Examples: extra square footage, bedrooms, fireplace, upgrading, parking facilities, swimming pool, lot size, location and so on. To help get a better picture, this information is entered on a form, a value for differences is established and comparisons are made to the subject property.
A minimum of three verified closed sales with photos are required to establish a value.

Houses Appraise for More When:
- Well maintained inside and out.
- Located in a good school district.
- Additions are done with the proper building permits.
- Additions conform with and fit well into the existing house.
- Properties throughout the neighborhood are well maintained.
- Not over improved or the largest house on the block.
- Style of the house conforms with those in the neighborhood.
- Zoning changes are not expected or there is not a mixed use.

Remember: Location, location, location.
You can change everything about a house except it’s location.

What is Poor Location?
- Located on a feeder street.
- Under an airport flight path.
- In or near a gang territory.
- Center of night life activities.
- In a rundown block or neighborhood.
- Next to a school or school yard playground.
- Next to apartments or commercial property.
- In close proximity to a freeway, expressway or railroad.
- Next to a gas station, near a municipal garbage or toxic waste dump.
- Odors from factories, farms and processing plants are routinely noticed.
- The city is affected by the closing of a major employer.

Think about Selling - When You are Buying.
Location is a big factor in a home’s appraised value. This is most notably felt at the time you sell or refinance. What seems like a bargain when you buy might turn into a real headache when you try to sell.
Drive around the neighborhood and note any adverse conditions.
You may think you can live with something adverse for the price, but when it’s time to sell you might find buyers won’t.

Important Tip!
Adding onto your house = Always obtain a building permit.
A 600 square foot addition built without a permit is given no value on an appraisal. When it is time to sell or refinance, the frustrations of the building permit process will be worth it.
Always save copies of the final permit sign offs and keep with your house papers.

Buying a House with an Addition?
Verify that it was built with a permit prior to closing the sale.
Don’t just accept the sellers word. Get copies of the permits before final sign off.
Should you want to refinance or sell at a later date, and the appraiser cannot verify the addition being permitted, no value should be given.
The result: no new loan or worse . . . no sale.

Tip!
A one bedroom house or condominium doesn’t appreciate as well and is harder to sell.

Work with An Agent
An advantage of working with a real estate agent is that they can provide you with sales information of similar properties to better guide you on how much to offer.
Your agent can provide recent sales “comps” for similar homes in the neighborhood.
Finding the list prices is also important. Comparing the list prices with the sale prices tells you exactly what percentage of the list price sellers are getting.

To find out what prices homes are selling for and to get a comprehensive report about the neighborhood, try Zillow which covers most communities across the United States. It’s free and fairly accurate.
A local real estate agent typically will be more accurate what a home is likely to sell for in a specfic neighborhood location.

Before Looking
Before you actively look at homes to buy, it’s necessary to know how much you can qualify for. Use mortgage calculators to determine how much you can buy with your down payment and closing cost money and what your monthly payments will be.
Know Your Credit Worthiness
Look at your credit report before you go to a lender. It is not uncommon to find problems with reports, especially if you have a common last name.
To get copies of your credit report, start at My FICO Score.

Get Pre-Approved
After you see your credit report and any problems are cleared up, get pre-approved with a lender. Take the steps necessary to get a letter from the lender stating you are “pre-approved” for a loan in a specific price range. It’s important to have this letter before you make a contract offer to buy real estate. Once your pre-approved, you know what price range of homes you should be looking at.

What Kind of House is Right?
Determine the specifics you want or need in a home.
- What are your day to day and future needs?
- Do you enjoy swinging a hammer?
- Older houses have great charm, but may need updating.
- New homes offer the latest energy efficiency and design features.
- Larger lots can give room for additions and swimming pools.
- A fixer upper can dramatically increase in worth.
- A PUD may have private recreational facilities such as a pool and play parks.
- A condo or town-house will relieve you of yard work and exterior maintenance.
Sit down with your real estate agent and make up a wants and needs list. Knowing your price range, your agent can determine in what neighborhoods or towns to start looking. You may find that you are limited to where you look based on your situation.
There is no sense in wasting your or your agent’s time in areas out of your price range.

Wants and Needs
- Price range
- Building style/design
- New construction
- Remodeled
- Fixer upper
- Minimum # bedrooms
- Bathrooms
- Family room
- Fire place
- Office/den
- Hardwood floors
- Swimming pool / Spa
- In-law quarters
- Workshop
- Central air conditioning
- Parking facilities
- Yard size
- School district
- Work locations
- Special zoning or location

With a list of houses that you can afford to buy, drive-by them and check out the surrounding neighborhood. Next make an appointment with your real estate agent to view the interior of the ones you are interested in.
After you have narrowed your selection to few houses it is important to visit them at different times of the day. Visit them during the morning commute time. If you visit only during the middle of the day, you might not notice if the street in front of the home is used as a minor thoroughfare or a shortcut. This is also a good time to find out how you emerge from you residential area into traffic on a thoroughfare or how long it takes for freeway access. Go back after dark and walk around the block. You might notice that headlights from approaching traffic shine into the home or hear sounds from a nearby night club or park that you were not aware of.

After previewing a number of homes, you will want to preview some a second time.
This is the time to make measurements, ask questions and make a closer self-inspection.
When you want to make an offer, ask your agent for sales comps to arrive at an offering price.
A “seller’s market” or “buyer’s market” can have big effect on how much to offer. There is no sense in making a low offer on a well priced home in a seller’s market.

A properly written contract will allow a buyer a number of outs if certain items are not met or approved. Get a copy of a typical real estate contract prior to making an offer and have your agent go over it with you.
To find out what prices homes are listed for in areas you are considering, go to Local MLS Search

Google Search

Real Estate GuidesTax Changes and Effects
The new capital gains law allows homeowners to avoid paying taxes on the first $500,000 of profit if they are married or on the first $250,000 if they are single.
You must have lived in the home as your primary residence for two of the last five years.
You are allowed to use the provision as often as you like, as long as it fits in that
two year period. Any gains above the limit will be taxed at the new 20% capital gains rate - down from the current 28 %.
The old law provided a $125,000 “one time” tax free exclusion on profits for home sellers
55 or older. This no longer is used, but those who have used it will be allowed to use the new provisions without penalty.
Under the old law you could roll over gains if you bought a more expensive house.
If you sold a more expensive one and purchased a less expensive one you were liable
for gains tax. Under the new law this provision is no longer in effect.

Time Frames
If you bought and sold a home within 1 year, any capital gains would be taxed as regular income.
If bought and sold between 1 and 2 years, gains would be taxed at the long term capital gains rate.
Filing an extension may be a consideration, talk with a CPA for advice.
Needing to sell and move for specific reasons may have cause for exclusion of gains tax prior to two year ownership.
Save Receipts
Always save receipts for home improvements in a “house file”.
If you don’t qualify for the 2 year ownership rule, the cost of improvements can be used to offset capital gains tax you may have after the sale of your property.

People Benefited Now!
- Wanting to downsize, children have all moved out.
- Retirement and move out of the area to less expensive area.
- Job relocation from area with high property values to lower values.
One Thought!
People with rental property could sell their current home, move into their rental for two years and sell it under the $500,000/$250,000 provision with the same benefits.
Change in Property Values?
It is unknown how many people have been waiting to sell their property until this bill
was passed. One possible scenario: Many homes are suddenly put on the market.
The Immediate Impact!
Should not immediately affect property values as there currently appears to be more buyers than sellers. Immediate effect would be properties with more “days on the market”. This would hurt sellers needing to move soon or those sellers who listed the house over market value.
The Next Impact!
When more and more houses are put on the market with fewer buyers this market peak
will end. Property values could go back down again like 7 years ago, to start a new cycle.
Timing for those sellers sitting on the fence could mean more money made.
Contact your accountant or tax attorney for advice.

Penalty-free IRA
The final package allows penalty-free early withdrawals of up to $10,000 from an IRA
to help with the down payment on a first-time home purchase.
The IRA can be the home purchaser’s own account or can be a parent’s or grandparent’s.
Need Answers
If you are not sure what tax consequence you face when selling real estate, consult with a CPA or tax attorney first.