6 Home-Shopping Red Flags Even an Inspector Could Miss

The home inspection should catch any deal breakers, right? Not so fast.

Bill Loden, president of the American Society of Home Inspectors (ASHI), has been inspecting homes for the past 20 years. But he says some home headaches simply don’t reveal themselves during a standard inspection — and some are outside an inspector’s scope.

“There are things homeowners think we can do, but we can’t,” he explained. “And honestly, most people don’t want to pay for [a specialist].”

To get the most value from your home inspection, it’s important to know a few things even professionals might miss.

1. Partially blocked or damaged sewer lines

Some house problems don’t show up overnight, and a partially blocked or damaged sewer line often falls in this camp.

“We’ll run water through the fixtures, but we’re there for a limited time,” Loden explained. “Two to four hours might not be long enough for the problem to reveal itself.”

Inspectors will likely determine the type of drain pipe used and estimate its age. They may also look for trees or stumps near the sewer pipe that could cause damage. However, sewer-pipe scoping (sending a camera down the line) isn’t typically included in a standard inspection.

2. Failing HVAC equipment

Similar to damaged sewer lines, HVAC equipment can be fine one day and stop working the next.

“If I check an air conditioner when temperatures are moderate, it can seem fine,” Loden explained. “But under stress, when temperatures shoot up, it can fail.”

Loden says inspectors can bring an HVAC contractor with them for the inspection, but typically it’s not worth the investment when you compare the cost of buying a new unit.

“It will cost anywhere from $3,000 to $5,000 [to hire a contractor] and could take two to three days to complete,” he said.

3. Cracked heat exchanger

An area where you may want to pay for an HVAC contractor: an old furnace.

“In my area in Alabama, we have a lot of package units [furnace/air conditioner combined] that sit outside. It’s not part of the standard inspection to examine the heat exchanger, but a lot of them develop cracks that can allow the indoor air to mix with combustion air that has carbon monoxide,” he explained. “You don’t want that in the house.”

Loden recommends having an HVAC contractor examine the heat exchanger if a furnace is more than 10 years old.

“If the HVAC contractor does find such a crack, by law they have to replace it before the furnace can be used again,” he said.

4. Electrical problems

Loden says the best way to think about a standard home inspection is a “visual inspection,” because when it comes to electrical issues, inspectors can’t always determine the problem’s source.

“If I find a receptacle that doesn’t have ground, I know it’s disconnected somewhere, but I don’t know where,” he said. “You’re going to have to have an electrician find the disconnect in the system.”

5. Structural issues

Is the roof sagging, or is it part of your new home’s architectural style? Luckily, a home inspector should be able to tell.

“All roofs — at least wood roofs — have some inconsistencies. A home inspector knows what’s normal and what’s not,” Loden said.

However, when it comes to identifying how bad a problem is or how much it’s going to cost to repair, an inspector isn’t the right person to ask.

“Because we’re not licensed structural engineers, we’ll refer homeowners to one,” Loden said.

6. Leaks

Leaks may not be there one day and show up the next. For this reason, inspectors might not initially detect them.

“A lot of times we go into vacated homes,” Loden explained. “With the plumbing system not being used on a daily basis, any leaks may have dried up. And it may take a couple days after the water is turned on for the leaks to make themselves visible.”

Loden recalls his own home inspection when it was pouring rain. “The roof was not leaking when I moved in, but six weeks later it was,” he said. “A home inspection is not a guarantee that the house won’t have problems in the future.”

He says that the best thing you can do is carefully check the drains in cabinets before and during your move.

“A lot of times homeowners place belongings under there. Sometimes they’ll pack them up after the inspection and bump the drain traps, causing them to start leaking. The same thing can happen when you move in.”

At the end of the day, the key is to take precautions and make sure you find a certified inspector who has been inspecting in your area for a long time.

“They learn where failures are likely to occur,” Loden said.

Top featured image from Shutterstock.

Related:

Originally published September 5, 2014.

Source: zillow.com

Want to Rent Your Vacation Home? Beware These Lender Rules

When it comes to financing your vacation home, not all loans are created equal — so choose wisely.

Ready to buy that ski cabin or lake house? Renting it out while you’re not using it is a great way to make it happen — but not so fast. Lender rules may not allow it, so here’s what you need to know.

Different loans have different rules

The first step to financing your vacation home is understanding what mortgages are available and their rules about renting:

  • Primary residence loans. These loans are the most favorable, and you’ll get the lowest possible mortgage rates. These loans require you to move into the home within 60 days of closing and live in it for at least one year. After that, you’re free to rent out the home.
  • Second-home loans. These loans have the same rates as primary residences, so your rate will be the lowest it can be, but down payments must be larger — most lenders require 20 percent down. You qualify for the loan using your full primary residence housing cost plus your full second home cost. You can use the home for family and friends, but lenders won’t let you rent the home.
  • Non-owner occupied loans. Also called rental property loans, these loans offer rates .25 percent to .375 percent higher than primary-residence or second-home rates, and down payment requirements typically start at 30 percent. Your lender will let you know if you can use the rental income to qualify. These loans allow you to rent the home and use it when it’s not rented.

Second-home loans come with restrictions

The best thing about a second-home mortgage is that the rates are the same as a primary residence mortgage. The worst thing is that you can’t rent the home.

This is an often overlooked provision of second-home loans, but it’s the most important, because if you ever rent your vacation getaway, you’ll violate the loan’s terms.

When you get a loan, there’s a document called the note, which spells out the loan’s amount, rate, payments and fixed versus adjustable periods. Depending on what state you live in, you’ll also have either a mortgage or a deed of trust in addition to your note, which spells out additional loan requirements. (See which states use mortgages versus deeds of trust.)

At first glance, a second-home mortgage or deed of trust seems like it has the same requirements as a primary residence. Provision 6 says you must move in within 60 days and live there for at least one year — then you’re free to rent it out. Here’s a sample:

secondhomeoccupancyHowever, there’s an addendum — called a rider — in mortgages and deeds of trust that replaces this friendly requirement with a new, much more strict requirement saying that you can’t rent out the home. Here’s a sample:

secondhomeoccupancyaddendum

This language, though hidden deep in the loan documents you’ll sign before closing, makes two critical points:

  • You can’t rent the home.
  • If you applied for a second-home loan and rent it out, your entire loan balance could be called due and payable by your lender.

So, if you plan to afford a vacation home by renting it out, you can’t finance it with a second-home loan. But you’ll need to review non-owner-occupied loan options with your lender to meet the objective of using and renting a home that’s not your primary residence.

As noted above, this means you’ll need to put down a larger down payment, and your rate will be slightly higher. But it’s a small price to pay for the flexibility of earning income from a home that you also use for your own enjoyment.

Top photo from Shutterstock.

Related:

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

Originally published October 4, 2016.

Source: zillow.com

Piggyback Loan Is Another Home Financing Option

Shopping around for a home loan? Then you’re probably trying to figure out how to strike the best balance between your down payment and monthly mortgage expenses. Understanding just how much house you can afford is tricky, which is why it helps to know all of your options in advance.

Piggyback loans are just one more financing option you have at your fingertips for purchasing the home of your dreams — even without that 20% down payment. These loans involve taking out two rather than one mortgage, but can save you thousands of dollars on private mortgage insurance for borrowers who can’t afford a large down payment. Ready to learn more about piggyback home loans and if borrowing one is the right choice for you? Keep reading.

What Is a Piggyback Loan?

A piggyback loan, true to its name, is a set of two loans — with one piggybacking off the other. These loans are also sometimes referred to 80/10/10 loans, where the first loan is equal to 80% of your home’s purchase price, and the second loan is equal to 10% of the purchase price. This type of financing structure assumes you have at least 10% of the home’s purchase price to put toward a down payment.

Since many lenders require private mortgage insurance (PMI) on mortgages with less than a 20% down payment, this financing structure can help bridge that gap (for borrowers who don’t have the full 20% saved up) and ensure that you avoid paying extra PMI fees— which definitely don’t come cheap.

Let’s crunch some numbers as an example. Say you want to buy a home for $300k. Using a piggyback loan, your financing plan would look something like this:

1st loan (80%) $240k
2nd loan (10%) $30k
Down payment (10%) $30k

As you can see, using this financing structure will save you roughly half the sum of your down payment, allowing you to focus on saving up $30k rather than a whopping $60k in order to buy your home.

Benefits of piggyback loan

The biggest benefit of a piggyback loan is the savings you get from not having to take out a PMI policy. These insurance policies, which are required by most banks for borrowers putting less than 20% down on their homes, typically cost anywhere from 0.5% to 1% of your total loan amount per year. Some experts claim this number can even go up to 1.86% per year. This might sound insignificant, but let’s crunch some numbers to really see what it might actually cost you.

Using the same example as before, let’s say you were to take out a conventional loan for a house with a $300k listing price, and put 10% as a down payment. This would put your loan amount at roughly $270k. Here’s what various PMI payments might look like on a loan this size.

PMI rate (as % of your loan) Annual payment due Monthly payment due
0.5% $13,500 $1,125
1% $27,000 $2,250
1.86% $50,220 $4,185

As the numbers will show, PMI is clearly nothing to scoff at. In fact, PMI is so expensive that it could easily cost you a monthly mortgage payment many times over— in addition to actually having to pay your mortgage each month as well.

Things To Keep in Mind

Now that you know a bit more about piggyback loans, and all the savings they can provide, let’s talk about some of the downsides. After all, if piggyback mortgages are so convenient, why don’t more people get them?

The biggest downside of piggyback loans (and the reason more people don’t have them) is because they’re actually pretty hard to get. Think about it: Instead of going through the loan approval process once, you have to go through it twice. You’ll also be borrowing two separate loans at once, which is seen as a higher risk to many lenders.

These loans require higher credit scores, and you might even need to apply through a special lender who is accustomed to dealing with these types of financing packages. There’s also repayment to consider. Although refinancing a mortgage is typically seen as a relatively simple move for borrowers interested in securing lower interest rates— refinancing will be a lot harder when you have two loans instead of one. You’ll also be responsible for paying the closing costs on two separate loans (typically 2% to 5% of the loan amount) as well as any loan origination fees the lender may charge.

How To Apply

According to the credit experts at Experian, you’ll need a “very good to exceptional” credit score in order to qualify for a piggyback loan. Meaning, your score will need to be at least 700, although you’re more likely to qualify with a score of 740 or higher.

You should also plan on having enough saved up for as much of a down payment as you can afford, plus some extra funds for closing costs and other fees associated with buying your home. Finally, you’ll want to make sure your debt-to-income ratio is within a reasonable range before approaching lenders. While all of these things are pretty standard for anyone on the market to buy a home, the requirements are even more strict when applying for a piggyback loan— making it that much more important to have your financial ducks in a row.

Final Word

Piggyback loans might not be the most straight-forward financing package out there, but for the right home buyer— they can make all the difference in the world. Sit down and take a good hard look at your finances to decide if borrowing a piggyback loan might be able to help you reach your financial goals. And if the answer is no, don’t worry— there are a lot of other options that can help you afford your dream home.

Contributor Larissa Runkle specializes in finance, real estate and lifestyle topics.

Source: thepennyhoarder.com

How to Choose the Right School: 6 Tips for Parents

Find a school that makes the grade — all it takes is a little homework.

If you’re a parent, buying or renting a new home isn’t just about where you’ll tuck the kids into bed at night — it’s also about where you’ll send them off to school in the morning.

So, how can you be sure your dream house feeds into your child’s dream school? You’re going to have to do some homework.

1. Go beyond the numbers

Every state’s education department publishes an online “report card” for each district and school. But just as you wouldn’t buy a house based solely on square footage or listing photos, you shouldn’t select a school just for its test scores and teacher-to-student ratios.

Dr. Steve McCammon, chief operating officer at Schlechty Center, a nonprofit that helps school districts improve student engagement and learning, cautions that most reported test scores are for English and math. They don’t provide insight into arts or music programs or how well a school teaches critical thinking skills.

The right school isn’t something you can determine based on any statistics, numbers or even reputation, says Andrew Rotherham, co-founder of Bellwether Education Partners and writer for the Eduwonk blog.

“Don’t go where the highest test scores are or where everybody else says you should go,” he says. “Different kids want different things. Go to the school that fits your kid.”

Adds Rotherham: “The most important things are what does your kid need and what does the school do to meet those needs. Whether you’re talking public, private or charter, you can find excellence and mediocrity in all of those sectors.”

2. Take a school tour

Just as you’d look around potential homes before signing a contract, you’ll want to do the same with potential schools. Call and arrange to tour the school and observe.

“Be suspicious of any school that isn’t into letting you visit,” says Rotherham. Some schools may say visitors are too disruptive, but he calls that a cop-out. “With some fairly basic norms, you can have parents and other visitors around without disrupting learning.”

Sit in on a class or two and take notes. You want to see students who are genuinely engaged, not wasting time or bored. It’s OK for a classroom to have lots of talk and movement if it’s all directed toward a learning goal.

Schools should be relatively noisy places. McCammon says, “If you go into a middle school, and you hear no noises, I would be concerned that the principal is more interested in keeping order than in making sure kids are learning.”

Observe how teachers and administrators interact with the students and vice versa. Do they display mutual respect? “You don’t need to be an education expert,” says Rotherham.

See if student work is on display. “A good school is a school where, regardless of grade level, student work is everywhere,” McCammon says. “It means that place is about kids and their work.”

Talk to kids, too — they’re the subject matter experts on their school. And if you have friends with kids in schools you’re considering, ask them what they like and don’t like about their schools. Kids won’t try to feed you a line. “They’re pretty unfiltered,” Rotherham says.

Check out the physical space, suggests National PTA President Jim Accomando. However, don’t get caught up on the building’s age and overlook the quality of the programs going on inside.

Look for signs that the school community takes pride in the facility. It might not be pristine, but trash on the floors or signs of rampant vandalism are red flags. If you see something that seems off or odd, ask if there’s a plan to address it.

3. Check out the community

Go to a school board meeting for clues about the district. Are parents there because their children are being honored or their work is being showcased? Or are they there because of a problem? Likewise, attend a PTA or PTO meeting, and chat with the parents there. They are likely the most involved “outsiders” and can share school challenges and successes.

Another consideration: the makeup of the students. Chances are, if you opt for a neighborhood school, you’ll find a certain similarity between your kids and their classmates, because there are probably a lot of similarities between you and your neighbors. But a school that has a diverse student body offers a big benefit.

“We live in a diverse society,” Rotherham says. “If you want to prepare your kids for what their lives are going to be like in this country going forward, it’s important for them to have experience with diverse groups.”

Even if your child’s school isn’t particularly diverse, avenues like sports and music give them a chance to interact with students from different backgrounds.

4. Think long term

Today’s first-grader will be heading to middle school before you know it. Unless you plan on moving relatively soon, be aware of the middle and high schools in your district.

“If you pick a house because you love the elementary school, you’d better be psyched by the middle school and high school,” Rotherham says. “Or have some kind of a plan” for post-elementary years.

Of course, there is such a thing as planning too far ahead. The music prodigy wowing your friends at her third-grade recorder performance may decide she hates band and wants to focus on soccer by the time she hits middle school. Rest assured: If upper-level schools in your prospective district are about kids doing great work, they’ll likely be a good fit.

5. Watch for boundary issues

Pay attention to the boundaries of prospective school districts. The houses across the cul-de-sac could be in a different school service area or even a different school district. And boundaries often change. To be sure, call the school district and give them the specific address you’re interested in.

Don’t assume you can fudge an address or get a waiver to enroll your children in a school or a district that doesn’t match your address. Things that were allowed last year may not be this year. If an individual school or district is at capacity, they will get very picky about enrollment outside of the school assigned to your home, which can lead to heartbreak if you find yourself on the wrong side of that boundary line.

6. Look for a place where you feel welcome

Whatever involvement you put into your child’s school will pay off, says Accomando. “If you can be engaged at school, you will understand the pulse of what’s happening there.”

He also says that doesn’t mean getting sucked into a huge commitment. “You can read in your child’s first-grade class. You can hand out water at a fun run or contribute something for a teacher appreciation party at the high school. And when you do, walk the halls and see what’s happening.”

McCammon says good schools should welcome parents as volunteers and visitors. “Look for evidence of parents feeling comfortable and engaging with the school,” he says. The principal should be someone you feel comfortable talking with if there’s a problem.

No matter how welcoming the school, it’s natural to have some butterflies on the first day in a new school. Just as it takes time for a new house to feel like home, it takes time for kids to settle into a new school.

Once they’ve found their way to the restroom without asking directions, made some friends and gotten to know their teacher, they’ll be comfortable with their new learning home. And your research will have been well worth the effort.

Photos courtesy of Shutterstock.

Related:

Originally published January 17, 2018.

Source: zillow.com

5 Reasons to Buy a Home This Fall

The days may be getting shorter, but the list of home-shopping benefits is getting longer.

Real estate markets ebb and flow, just like the seasons. The spring market blooms right along with the flowers, but the fall market often dwindles with the leaves — and this slower pace could be good for buyers.

If you’re in the market for a home, here are five reasons why fall can be a great time to buy.

1. Old inventory may mean deals

Sellers tend to put their homes on the market in the spring, often listing their homes too high right out of the gate. This could result in price reductions throughout the spring and summer months.

These sellers have fewer chances to capture buyers after Labor Day. By October, you are likely to find desperate sellers and prices below a home’s market value.

2. Fewer buyers are competing

Families who want to be in a new home by the beginning of the school season are no longer shopping at this point. That translates into less competition and more opportunities for buyers.

You’ll likely notice fewer buyers at open houses, which could signal a great opportunity to make an offer.

3. Sellers want to close by the end of the year

While a home is where an owner lives and makes memories, it is also an investment — one with tax consequences.

A home seller may want to take advantage of a gain or loss during this tax year, so you might find homeowners looking to make deals so they can close before December 31.

Ask why the seller is selling, and look for listings that offer incentives to close before the end of the year.

4. The holidays motivate sellers

As the holidays approach, sellers are eager to close so they can move on to planning their parties and events.

If a home has not sold by November, the seller is likely motivated to be done with the disruptions caused by listing a home for sale.

5. Harsher weather shows more flaws

The dreary fall and winter months tend to reveal flaws, making them a great time to see a home’s true colors.

It’s better to see the home’s flaws before making the offer, instead of being surprised months after you close. In fact, the best time to do a property inspection is in the rain and snow, because any major issues are more likely to be exposed.

Top photo from Shutterstock.

Related:

Originally published October 2015.

Source: zillow.com

5 Expenses Homeowners Pay That Renters Don’t

Thinking about buying? Be sure to include these five items in your calculations.

Homeownership may be a goal for some, but it’s not the right fit for many.

Renters account for 37 percent of all households in America — or just over 43.7 million homes, up more than 6.9 million since 2005. Even still, more than half of millennial and Gen Z renters consider buying, with 18 percent seriously considering it.

Both lifestyles afford their fair share of pros and cons. So before you meet with a real estate agent, consider these five costs homeowners pay that renters don’t — they could make you reconsider buying altogether.

1. Property taxes

As long as you own a home, you’ll pay property taxes. The typical U.S. homeowner pays $2,110 per year in property taxes, meaning they’re a significant — and ongoing — chunk of your budget.

Factor this expense into the equation from the get-go to avoid surprises down the road. The property tax rates vary among states, so try a mortgage calculator to estimate costs in your area.

2. Homeowners insurance

Homeowners insurance protects you against losses and damage to your home caused by perils such as fires, storms or burglary. It also covers legal costs if someone is injured in your home or on your property.

Homeowners insurance is almost always required in order to get a home loan. It costs an average of $35 per month for every $100,000 of your home’s value.

If you intend to purchase a condo, you’ll need a condo insurance policy — separate from traditional homeowner’s insurance — which costs an average of $100 to $400 a year.

3. Maintenance and repairs

Don’t forget about those small repairs that you won’t be calling your landlord about anymore. Notice a tear in your window screen? Can’t get your toilet to stop running? What about those burned out light bulbs in your hallway? You get the idea.

Maintenance costs can add an additional $3,021 to the typical U.S. homeowner’s annual bill. Of course, this amount increases as your home ages.

And don’t forget about repairs. Conventional water heaters last about a decade, with a new one costing you between $500 to $1,500 on average. Air conditioning units don’t typically last much longer than 15 years, and an asphalt shingle roof won’t serve you too well after 20 years.

4. HOA fees

Sure, that monthly mortgage payment seems affordable, but don’t forget to take homeowners association (HOA) fees into account.

On average, HOA fees cost anywhere from $200 to $400 per month. They usually fund perks like your fitness center, neighborhood landscaping, community pool and other common areas.

Such amenities are usually covered as a renter, but when you own your home, you’re paying for these luxuries on top of your mortgage payment.

5. Utilities

When you’re renting, it’s common for your apartment or landlord to cover some costs. When you own your home, you’re in charge of covering it all — water, electric, gas, internet and cable.

While many factors determine how much you’ll pay for utilities — like the size of your home and the climate you live in — the typical U.S. homeowner pays $2,953 in utility costs every year.

Ultimately, renting might be more cost-effective in the end, depending on your lifestyle, location and financial situation. As long as you crunch the numbers and factor in these costs, you’ll make the right choice for your needs.

Related:

Originally published August 18, 2015. Statistics updated July 2018.

Source: zillow.com

5 Mortgage Misconceptions Set Straight

Looking for a home loan? Get your facts straight so you can proceed with confidence.

Getting a mortgage can be a breeze or a slog, depending on what you know about the process. To get organized and set your expectations properly, let’s debunk some common mortgage myths.

1. Lenders use your best credit scores

If you’re applying for a mortgage jointly with a co-borrower, logic suggests that your lender would use the highest credit score between both of you.

However, lenders take the middle of three credit scores (from Equifax, TransUnion and Experian) for each borrower, and then use the lowest score between both borrowers’ “middle scores.”

So, if you had a middle score of 780, and your co-borrower had a middle score of 660, most lenders would qualify and approve you using the 660 credit score.

Rates are tied to credit scores, so in this example, your rate would be based on the 660 credit score, which would push your rate up significantly — or potentially even make you ineligible for the loan.

There are exceptions to this lowest-case-credit-score rule. Most notably, if you have the higher credit score and are also the higher earner, some lenders will allow your higher credit score on the file — but this is mostly for jumbo loans above $417,000.

Ask your lender about exceptions if you have credit score disparity between co-borrowers, but know that these exceptions are rare.

2. The rate you’re quoted is the rate you’ll get

Unless you’re locking in a rate at the moment it’s quoted, that rate quote can change. Rates are tied to daily trading of mortgage bonds, so most lenders’ rates change throughout each day.

Refinancers can often lock a rate when it’s quoted — as long as you’ve given your lender enough information and documentation to determine if you qualify for the quoted rate.

You typically receive a quote when you’re beginning your pre-approval process, but a rate lock runs with a borrower and a property. So until you’ve found a home to buy, you can’t lock your rate. And while you’re home shopping, rates will be changing daily, so you’ll need updated quotes from your lender throughout your home shopping process.

Rate quotes also come with an annual percentage rate (APR), which is a federally required disclosure that shows what your rate would be if all loan fees are incorporated into the rate.

This can make you think that APR is the rate you’ll get, but your loan payment will always be based on your locked rate, and the APR is just a disclosure to help you understand fees.

3. Fixed-rate mortgages are always better than adjustable-rate mortgages

After the 2008 financial crisis, many borrowers started preferring 30-year fixed loans. For good reason too: The rate and payment on a 30-year fixed loan can never change. But the longer the rate is fixed for, the higher the rate.

So before settling on a 30-year fixed, ask yourself this question: How long am I going to own this home (or keep the loan) for?

Suppose the answer is five years. If you got a five-year adjustable rate mortgage (ARM) instead of a 30-year fixed, your rate would be about .875 percent lower. On a $200,000 loan, you’d save $146 per month in interest by taking the five-year ARM. On a $600,000 loan, the monthly interest cost savings is $438.

To optimize your home financing, peg the loan term as closely as you can to your expected time horizon in the home.

4. Real estate agents don’t care which lender you use

A federal law enacted in 1974 called the Real Estate Settlement Procedures Act (RESPA) prohibits lenders and real estate agents from paying each other fees to refer customers to each other. So as a mortgage shopper, you’re always free to use any lender you choose.

But real estate agents who would represent you as a buyer do care which lender you use. They’ll often suggest that you use a local lender who’s experienced with your area’s nuances, such as local taxation rules, settlement procedures and appraisal methodologies.

These areas are all part of the loan process and can delay or kill deals if a nonlocal lender isn’t experienced enough to handle them.

Likewise, real estate agents representing sellers on homes you’re interested in will often prioritize purchase offers based on the quality of loan approvals. Local lenders who are known and respected by listing agents give your purchase offers more credibility.

5. Mortgage insurance is always required if you put less than 20 percent down

Mortgage insurance is a lender-risk premium placed on many home loans when you’re putting less than 20 percent down. In short, it means your total monthly housing cost is higher. But you can buy a home with less than 20 percent down and avoid mortgage insurance.

The most common way to do this is with a combination first and second mortgage — often called a piggyback — where the first mortgage is capped at 80 percent of the home’s value, and the second mortgage is for the balance of what you want to finance.

Related:

Originally published January 12, 2016.

Source: zillow.com

Why Is My Lender Asking About My Race on My Loan Application?

It may seem odd, but the government requests this personal information for two important reasons.

At some point in the mortgage application process, you’ll get asked questions about your race, ethnicity, gender, and age. Being asked to provide this information can often raise a question of your own: Why?

Let’s answer that question now.

Clearing up anti-discrimination laws

A law called the Equal Credit Opportunity Act (ECOA) enacted in 1974 makes it illegal for lenders to discriminate based on race, national origin, gender, age, marital status, or because one receives public assistance.

Another law called the Home Mortgage Disclosure Act (HMDA) enacted in 1975 requires lenders to collect, report, and disclose a long list of data about mortgages they originate, including each borrower’s race, ethnicity, gender, and age. This HMDA data helps regulators determine if lenders are serving the housing needs of their communities, identify possible discriminatory lending patterns, and assist public officials in making community housing investment decisions.

So ECOA says lenders can’t use race, ethnicity, gender, and age to make loan decisions. And HMDA says lenders must ask for race, ethnicity, gender, and age to monitor for discriminatory patterns.

How are these questions asked in the loan process?

A form called the Universal Residential Mortgage Application contains all of the borrower questions required by federal law.

Your age is obtained by requesting your date of birth.

Race, ethnicity, and gender are requested in a specific categorical format required by federal law.

The fine print of this section in a loan application contains three concepts that are especially important:

  • You are not required to provide this information, but are encouraged by the government to do so.
  • The law provides that a lender may not discriminate either on the basis of this information, or on whether you choose to furnish it.
  • If you’ve made the application in person and do not furnish ethnicity, race, or gender, federal law requires your lender to note the information on the basis of visual observation and last name.

You should also note that as technology streamlines your application process, these questions may not be asked or visually presented in this format — but they will be asked.

Changes to these questions coming soon

HMDA rules are enforced by the Consumer Financial Protection Bureau (CFPB), and the CFPB has already made new laws to improve HMDA data collection. The new laws go into effect on January 1, 2018.

It’s worth knowing about these changes now because lenders will be working toward these changes between now and January 2018.

Revised HMDA laws fine-tune requirements for lenders when collecting race, ethnicity or gender from borrowers who choose to furnish this information versus those who choose not to furnish it.

If a borrower chooses to provide race and ethnicity under the revised laws, they will get an expanded set of categories to select from.

However, if a borrower chooses not to provide race and ethnicity when applying in person, the lender must use the same categories while following the same visual observation and last name requirements they follow today.

The CFPB ruled  that allowing borrowers to self-identify using newly expanded categories and requiring lenders to identify (when borrowers choose not to) using today’s limited categories is the best balance of consumer protection and lender regulatory burden.

What to do if you feel discrimination has occurred

As you can see, our federal regulators think deeply about consumer protection, but no law is perfect at interpreting your individual loan experience.

If you are concerned about mortgage discrimination or believe you have been discriminated against, follow the CFPB’s complaint process, or call the CFPB at 855-411-2372.

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Source: zillow.com

5 Things You Need to Know About Real Estate Disclosures

Whether you’re a buyer or a seller, disclosures are a key part of your real estate transaction.

It’s standard practice in real estate to give a home a fresh coat of paint before putting it on the market. Nine out of 10 times, the intention is to show the property at its best. But every so often, the seller paints the house in hopes of covering something up.

In most parts of the country, sellers (and agents) are required to document any known defects —  whether current or past — to potential buyers. But some sellers don’t play by the rules and will try to get one past a buyer.

Whether you’re a listing a home for sale or in the market to purchase, here are five things you should know about real estate disclosures.

What is a real estate disclosure?

Real estate disclosure statements, which can come in a variety of forms, are the buyer’s opportunity to learn as much as they can about the property and the seller’s experience in it.

Potential seller disclosures range from knowledge of leaky windows to work done without the benefit of a permit, to information about a major construction or development project nearby.

Not only do disclosure documents serve to inform buyers, but they can also protect the sellers from future legal action. It is the seller’s chance to reveal anything that can negatively affect the value, usefulness or enjoyment of the property.

How does a seller make a disclosure?

Disclosure laws vary from state to state, even down to the city and county level. California has some of the most stringent disclosure requirements. The law requires that sellers (and their agents) complete or sign off on dozens of documents, such as a Natural Hazards Disclosure Statement, Local and State Transfer Disclosure Statements, Advisories about Market Conditions and even Megan’s Law Disclosures.

Disclosure typically comes in the form of boilerplate documents (put together by the local or state real estate association), where the seller answers a series of yes/no questions about their home and their experience there.

Additionally, sellers must present any documented communication (between neighbors, previous owners, the seller or the agents) about a substantial defect or item that could have an adverse impact on value.

Depending on where you live, sellers can be on the hook for what they disclose (or fail to) for up to 10 years. Sellers should err on the side of caution. If you know it, put it out there. If you try to hide something, it can come back to haunt you in the form of an expensive lawsuit.

What do sellers disclose to potential buyers?

Previous improvements, renovations or upgrades done by sellers are typical disclosures, as well as whether work was done with or without permits.

Buyers should cross check the seller’s disclosures with the city building permit and zoning reports. Work completed without a permit, or approval by the municipality, may not have been performed to code, which could result in a fire or health hazard.

Other standard disclosures include the existence of pets, termite problems, neighborhood nuisances, any history of property line disputes, and defects or malfunctions with major systems or appliances. Disclosure documents often ask sellers if they are involved in bankruptcy proceedings, if there any liens on the property, and so on.

Is a disclosure the same as an inspection?

Disclosure is something given to the buyer by the seller documenting their knowledge of the property. It is not the same thing as an independent inspection by a third party. An examination may reveal defects that the seller may not have been aware of.

The buyer should always do a full property inspection, before moving forward with the purchase. The inspector checks all systems and components from the roof to the basement. Often, in the interest of the ultimate in full disclosure, a seller hires a property inspector before going on the market and supplies the written report to the buyer.

When does the buyer receive disclosure statements?

In most markets, disclosure documents are provided to buyers once the seller has accepted their offer. In addition to their inspections or loan contingency, the buyer has an opportunity to review the seller’s disclosures. If the buyer discovers something negative about the property through disclosure, she can usually back out.

In some markets, sellers provide these disclosures to the customers before an offer. Smart sellers let buyers know everything they need to know up front. It’s smart because it saves everyone time, hassle and expense by preventing deals from falling apart once they’re in escrow.

Buyers must sign off on all disclosures and reports. So it’s important to review them carefully and ask questions if you need to. Full disclosure upfront is the way to go. Providing full disclosure can help a seller. By laying their cards out, sellers can give buyers a sense of comfort or peace of mind, making their home more desirable than a competing one.

What if a seller lied on disclosure?

Q: “We purchased our first home in Feb. In April, we noticed that our toilet was having a hard time flushing.A plumber determined the septic tank was full. I called a septic service to have the tanks pumped 4/25 .  By July, we had the same issues. We would have never purchased the home knowing it would need such expensive repairs. We paid for an inspection before purchasing that didn’t catch this..Do we have any recourse?”

A: Septic Inspections are not a part of a standard home inspection.  I would look at the inspection report from your inspector to ascertain what was inspected as part of your home inspection (if one was performed). We always recommend a certified septic inspection performed by a County Health Certified septic inspector that can give you a validated certificate of occupancy. That includes pumping and uncovering the tank and pulling the original certified copy of the septic permit.  If any issues are found, these can be addressed before purchase/closing. I would also look at your seller’s disclosure to see what was listed as far as age and condition.We certainly empathize with you and your dilemma and hope it gets worked out in a satisfactory solution.

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Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

Source: zillow.com

3 Situations Where It Pays to Buy a Fixer-Upper

You finally found “the house,” but it needs some work. Will it be a money pit or a money maker?

It’s every home buyer’s worst nightmare: Finding a house within striking distance — of your price range and work— that quickly turns into a money pit.

On the flip side of the fixer-upper experience is someone like Jordan Brannon, a director of digital strategy in Spanaway, WA, near Tacoma. Although he’s sunk considerable money into his two-story, late-1990s home, he feels it was a good investment.

“It was about finding a home that we could add value to — and could purchase at a below-market rate,” he says of his 3,000-square-foot home. But there was one crucial caveat: “The fixer-upper work that we wanted to do, we had to be able to do.”

While that fixer-upper you’ve got your eye on may not be the steal you’re expecting — the average fixer-upper lists for just eight percent less than market value, according to a new analysis from Zillow — it’s still a tempting prospect for many buyers.

Should you make a fixer-upper your next home? Here are three scenarios where the answer may be “Yes!”

When the upgrades are simple

Knowing that hiring contractors was out of the question — in part because Brannon works from home — Brannon and his wife focused on finding a home they could revamp themselves.

This meant forgoing homes with any foundation, electrical, or plumbing issues, and eyeing properties where cosmetic upgrades were the name of the game.

This isn’t to say the couple didn’t put in a lot of hard work; the project took nearly three months.

“We basically gutted the first floor down to drywall — did a full repaint, with all new trim; replaced the kitchen cabinets and countertops, and added new light fixtures and door handles,” Brannon says. New toilets and sinks are recent installments.

“The home looks 10 years younger, and feels cleaner and brighter,” Brannon remarks. “We’re more comfortable living in it, and I’m confident we’ve made an improvement in the home’s resale value.”

Combined estimates from contractors put the value of the improvements around $55,000, minus one bathroom. Altogether, Brannon says the couple spent about $15,000 on the work, plus 240 hours in labor (yes, he’s been tracking). For Brannon, it was a worthwhile endeavor.

When the numbers add up

“Fixer uppers [only] make sense as long as the numbers pencil out,” says George Vanderploeg, a luxury real estate broker with Douglas Elliman in New York. In other words, “Is the money that I have to put into it going to make the property worth at least that much when I do it?”

In general, people will price a property based on what others sell for, Vanderploeg explains. “If I were just to pick a block in Manhattan, say on 63rd Street, between Lexington and Third Avenue, the renovated townhouses there might sell for $3,000 per square foot,” he continues. “An un-renovated townhouse might sell for maybe $2,000 per square foot. If you have the money to put in, it may all work out.”

Of course, for many home buyers, especially those without a big — or any— renovations budget, this is easier said than done.

When the timing is right

Every municipality has a building code, says Vanderploeg, and the work that you do on the home must fall within legal bounds. “An architect usually will supervise the work, and then at the end of the process, they’ll sign off on it,” he says. However, this can be time-consuming.

You can also run into hurdles if your contractor falls behind schedule, has trouble staying on budget, or is just unreliable. “Where people go wrong sometimes is having a bad contractor,” says Vanderploeg.

If you’re unable to live in the home or get stuck waiting for permits, you could also find yourself in a bind. “Sometimes we have to find people a place to live for six months to a year while they’re waiting for something to be finished,” Vanderploeg adds.

For these reasons alone, homeowners need to be clear-eyed about the renovation process.

Remember, committing to upgrade a fixer-upper is more than a labor of love — it requires a time and financial commitment. But if you’re willing to go all in, think about the bragging rights!

Hear about one family’s fixer-upper experience:

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Top image from Zillow listing.

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Source: zillow.com