Back to the Seller

When a seller finds that a qualified inspector has determined the roof needs repair or the water heater has outlived its expected life span, he may agree to make repairs or replacements or to knock down the price so that you can cover the cost of having the work done yourself. Suppose something catastrophic is discovered Perhaps the floors are heaving or the foundation is settling, causing cracks in the interior walls. At this point price is no longer the object you want out. Assuming the deal...

Abstract Plus a Lawyers Opinion

Title is usually in the form of an abstract, which is a historical summary of everything found in a search of public records that affects ownership of the property. It includes not only the chain of ownership, but any recorded easements, mortgages, wills, tax liens, judgments, pending lawsuits, marriages and anything else that affects the title. When a property is sold, a lawyer examines the abstract, and gives a written opinion as to the title including who the owner of record is and her...

Adjust Your Withholding

What good is the tax subsidy if you're worrying about coming up with the cash needed each month to make the mortgage payment Fortunately, you don't have to wait until you file a tax return to cash in on the savings. As soon as you purchase your first home or buy a new house that carries higher deductible expenses, you can direct your employer to begin withholding less from your paychecks. If you are self-employed, it's likely you will be able to scale back your quarterly estimated tax payments...

Adjustable Rate Mortgages

ARMs may be called variable-rate loans, adjustable-rate loans or adjustable-mortgage loans. Whatever the name, they all carry an interest rate that can change periodically during the term of the loan, as well as these four features INITIAL INTEREST RATES. Starting rates are generally one to four percentage points below those on conventional 30-year fixed-rate mortgages. ADJUSTMENT INTERVALS. The adjustment schedule is set out in the mortgage contract. Changes in the rate to be charged on an ARM...

Allocation of Expenses

To figure your vacation-home deductions, you have to allocate expenses to personal or rental use. There are two ways to do this the IRS method and another approach that has been approved in court cases and the one that's best for you depends on your circumstances. According to the IRS, you begin by adding up the total number of days the house was used for personal and rental purposes. Then figure the percentage of time it was used for rental. That's the percentage of total expenses you can...

Alternatives to Selling

There are as many reasons for selling a home as there are for buying one. Some people sell because they are relocating and believe they must sell their current house to get the cash they need for a new home. Others sell because they need more space for a growing family or less space because the children have grown and left. Still others, due to retirement, ill health or a reduction in income, sell because they need the money that's tied up in their home for living expenses. Whatever the reason,...

Assessing Your Resources

Once you have determined that you're serious about buying a home but before you start looking at houses gather the information you will need to present to lenders. Review your financial situation to determine what you can pay down and how large a monthly load you can carry. When you've completed that task, contact a lender to get your figures plugged into mortgage formulas that yield an affordable price range. This kind of preparation called prequalifying will give you a financial comfort zone...

Budgetary Discipline

Accumulating the down payment on a home is often the goal that leads to a family's first real savings program. Later on, paying the mortgage is a strong inducement to creating and sticking with a budget. Depending on your personality and level of discretionary income, this form of enforced savings (and consequent equity buildup) can be an important factor in boosting family net worth. Stripped to its essentials, equity is the difference between what you would get if you sold your home and what...

Buy Down the Mortgage Rate

A buy-down, in which you pay to reduce the buyer's interest rate, can be a powerful selling tool. It isn't complicated, and it lets you avoid the risks of lending directly. Sellers who buy down the purchaser's rate by one percentage point for the full term of the mortgage get roughly 2 more for their homes than do homeowners who don't offer buy-downs. The amount you pay to buy down the interest rate for the life of your purchaser's mortgage loan depends on the size of the loan. The lower the...

Buying a Vacation Home

A simple log cabin in the Ozark mountains. A weathered cottage on Cape Cod. A ski condo in Aspen. A secluded home tucked into a cove on the Caribbean island of St. Lucia. A resort time-share in Pennsylvania's Pocono Mountains. The words vacation property may be used by the owners of each, although the financial, legal and tax consequences of ownership can be as different as the environments. There are many reasons to buy a second home some personal, some financial. You could enjoy a vacation...

Buying Selling a Home

Your all-in-one guide for success from America's leading personal finance authority KIPLINGER'S PERSONAL FINANCE MAGAZINE Published by The Kiplinger Washington Editors, Inc. 1729 H Street, N.W. Washington, D.C. 20006 Library of Congress Cataloging-in-Publication Data Buying & selling a home your all-in-one guide for success from America's leading personal finance authority by the editors of Kiplinger's personal finance magazine. 7th ed. p. cm. Includes index. ISBN 0-938721-92-5 (pbk.) 1....

Choosing a Neighborhood

You've probably heard the old clich that the three major determinants of housing value are 1) location, 2) location and 3) location. Like many clich s, it's basically true. If you can't afford what you want where you want it, sacrifice something inside the house rather than sacrificing the location. You can add a second bathroom or install hardwood floors to bring a house up to your standards, but you can't improve the neighborhood single-handedly. Better to take one that needs work in a good...

Condition of Property and Whats for Sale

The listing agreement should describe the general condition of the property. It should show what is being sold as is and what, if anything, will be repaired, removed, substituted or altered prior to settlement. The agreement should list every fixture that will be sold with the house, and those that will not. Make the agent aware of problems or defects in the property. If the listing agreement doesn't adequately spell out the current condition of the structure, the appliances and the electrical,...

Consider Becoming a Lender

Helping the buyer at closing is attractive because you don't take on the risks of becoming a lender. But if your buyer can't qualify for an institutional mortgage (because she's self-employed, for example, or already owns a number of investment properties), offering financing is your next choice. Becoming a lender is riskier to you, so read chapters 9 and 20 for tips and traps. You should require If you agree to pay some of your buyer's points, do not overlook the full value of your concession...

Credit Life Insurance Something You Can Do Without

Your lender may try to talk you into buying credit life insurance that would pay off the mortgage in the event of your death. Even if your lender doesn't offer it, you may be deluged with mortgage life insurance solicitations after you buy your home. Mortgage life insurance is usually decreasing-term insurance, in which the premium stays the same but the amount of coverage declines each year, in step with the declining balance owed on your mortgage. It is often promoted as valuable protection...

Deductibility of Closing Costs

F your settlement costs include reimbursing the seller for interest or taxes he or she paid in advance for a period you will actually own the house, you may deduct those amounts as though you paid the bills directly. Such adjustments ought to be spelled out on your settlement sheet. If the seller made such payments and you do not reimburse him at settlement, the prepayments are considered built into the price you are paying for the house. In that case, you still write off the prepaid interest...

Deductibility of Mortgage Interest

The opportunity to trade nondeductible rent payments for mostly deductible mortgage payments is a powerful lure enticing you from your rental abode into a home of your own. Whether you are looking for a first home or planning to move up, the number-crunching necessary to determine how much house you can afford demands two calculations one for actual monthly outlays, the other for the true, after-tax cost. In the early years of a home mortgage, nearly all of This table reflects the deductible...

Deductibility of Mortgage Points

A point is a fee equal to 1 of the loan amount that the mortgage lender charges up front. If the charge is for use of the borrowed money as it is when the number of points charged affects the interest rate on the mortgage rather than for loan-processing costs, the point is considered prepaid interest. As long as the home you build or buy is your principal residence, these points are fully deductible in the year paid. Assume, for example, that to get a 100,000 mortgage you have to pay the lender...

Deductibility of Points

Points you pay to get the new mortgage are not fully deductible in the year paid, except to the extent that the funds are used for home improvements. Here's an example A homeowner with a 100,000 mortgage refinances at 120,000 and uses 20,000 to add a sunroom. Assume that two points (2 of 120,000, or 2,400) were charged. Because one-sixth of the money went for a home improvement, one-sixth of the points, or 400, may be deducted in the year paid. The rest must be deducted evenly over the life of...

Deed and Title Condition

Your offer should state the type of deed and condition of title you'll accept from the seller. If customary in your area, the contract could obligate the seller to pay for the lender's title-insurance policy and possibly to provide you with an owner's policy for the amount of the sale price. (And even if it doesn't, consider the policy cost a negotiating point.) Your contract should also make clear what actions the seller must take to deliver a good title by settlement, and what recourse you...

Define Your Needs Pick a Neighborhood

Ow that you know how much home you can afford, it's time to do some hard thinking about what kind of home you want and need. This chapter and the next dealing with kinds of housing will help you narrow the choices. Buying a piece of real estate is a science. Buying a home is an art. The science is getting the legal and financial parts right. The art is finding a property that you'll be happy living in. Only you know what you like. Your best preparation for home buying is to clarify your needs,...

Discount Agents and Counselors

Some real estate brokers offer bare-bones service, charging flat fees or lower commissions in exchange for specific services that can run the gamut from the most basic renting a sign to service barely distinguishable from full-service brokerages. Most offer something in between. For example, Garand Realty, a full-service real estate company located in Fairfax, Va., offers clients the option of a flat-fee listing for 295. For this fee, an agent will come to your home to complete the MLS listing...

Do Your Homework

Get out heating, cooling and water bills, and figure annual totals and monthly averages. Pull together appliance receipts, service records and information on when major systems, such as the furnace, were installed. Col- Walk through every room of your home and make a list of everything that needs to be done. Use this checklist to identify areas of your home that need work before you put it on the market. Check underside of roof for leaks, stains or dampness....

Equity Sharing

In a shared-equity arrangement, the home buyer and an investor frequently a parent, relative or friend buy a house or condo apartment together. It's one way for first-time buyers who otherwise couldn't afford to buy, or who wouldn't qualify for a mortgage, to do so. For example, rather than making a loan or gift to help a child into homeownership, parents become part owners and rent their share of the place to the child. As investors, the parents share in the appreciation of the house. As...

Expiration Date

Knowing the average and median length of time it takes for homes to sell in your neighborhood should influence your choice of a listing expiration You can extend a listing beyond its original life, but don't inadvertently sign an agreement containing an automatic extension. date. A period of three to six months is common. Generally, the shorter the better, but it isn't reasonable to insist on a three-month listing when homes like yours are taking six to nine months to sell. A relatively short...

Financing a Coop

Unlike the collateral (property) that secures a traditional mortgage, collateral for a share loan includes stock in a corporation. The NCB, through its affiliate, NCB Savings Bank, is one of the largest single share-loan originators. Once a co-op becomes a participating project by meeting NCB Fannie Mae standards, you can apply for a share loan from NCB Savings Bank. The NCB usually works through a local lender or processing agent. Check with the cooperative's office to find out where to call...

Financing the Purchase

You should be able to finance your home with a mortgage if the unit is permanently set up on land you own (or on land you are buying along with the unit, in what is known as a single real estate transaction). Fannie Mae and Freddie Mac buy qualified manufactured-home loans originated by banks, savings and loans, and mortgage bankers. Manufactured houses are eligible for government- backed FHA and VA loans. In California, you may be able to title your manufactured home as real estate even if you...

Finding an Appraiser

Pick a licensed appraiser who specializes in residential properties in your area. Ask local mortgage lenders for names of appraisers they use on a regular basis. Check the status of their licenses, work experience, training, credentials and education. Appraiser organizations, in which appraisers claim membership, should be able to tell you whether an individual is a member in good standing and has the credentials claimed. They may also be willing to give you names of other licensed members...

Fine Tuning Your Choice

Once you understand how different loans work, try these tips for getting the mortgage that is the best possible one for you Use reports and other loan sources to identify the best loan prospects. Discuss details with promising lenders over the phone or in person before making a final selection. Make sure advertised loans and rates are available. Use the annual percentage rate (APR) to compare loans. The APR is the cost of your mortgage loan expressed as a yearly rate. It reflects the effect of...

Fixed or Adjustable Rate

After all exotic mortgages are laid aside, the choice for most home buyers comes to this Should you get a fixed- or adjustable-rate mortgage The standard fixed-rate, fully amortizing home mortgage with its preset, life-of-the-mortgage, monthly payments covering principal repayment and interest came into being during the Great Depression and fueled the enormous expansion of homeownership in the decades following World War II. Its beauty was and is the peace of mind homeowners get from pre- With...

Flood Insurance

The most important risk excluded from most homeowners policies is damage caused by flooding from rivers, dams and other natural sources. If you buy a home in an area the government has designated flood prone, you may be able to purchase flood coverage through the federal government's National Flood Insurance Program (NFIP). Under the 1994 National Flood Insurance Reform Act, homeowners who receive federal disaster assistance must purchase flood insurance and maintain it for as long as they own...

Form a Legal Partnership

The best strategy for unrelated individuals to buy a home may be in a limited partnership, in which the partnership, not the individuals, takes the title. If a partner dies, the heirs would acquire the interest in the partnership other partners could be among the heirs if the deceased willed it so. A partnership also avoids problems if one person goes into bankruptcy or has other legal difficulties that could cloud the title, because the partnership is separate from any legal entanglements of...

Get a Good Title

If you build a new house and it burns to the ground, you'll still own the land, even if you failed to cover the house with insurance. But if you buy a home with a faulty title perhaps due to fraud, forgery, conflict between long-ago heirs, unpaid liens from contractors, or just a title-search error you could lose everything. Is it likely According to industry experts, despite the best efforts of observant escrow-closing officers and title searchers-examiners, title scams are a continuing...

Get Creative

In lousy markets, sellers must come up with innovative strategies custom-made for the deal. SUBSTITUTE THE DOWN PAYMENT. Consider taking a note or equity in place of a cash down payment. You may have a buyer who has a note carried back on the sale of another property. He or she may be willing to assign this note to you in lieu of all or part of a down payment. A couple may have considerable equity in a property they want to keep and may be willing to write a note secured by a deed of trust or...

Get the Place in Shape

Walk through every room of your home and make a list of everything that needs to be done. During your inspection, jot down problems and note what can be done to make each room attractive. Taking down dark curtains and opening a room to sunlight may change its character completely. So can repainting. You can't anticipate what will catch the attention of a prospective buyer. Plaster walls and a new furnace may hardly elicit a comment but the cracked toilet-tank top, that's another story. A buyer...

Get Your Earnest Money Ready

Some people are short on liquid assets but have substantial equity in their homes. This could pose a problem when they have to write a check for earnest money to submit to a seller along with their purchase contract. Earnest money shows that you're a serious, qualified purchaser. (If the contract is not accepted or the deal later hits a snag through no fault of yours, you'll get the earnest money back, with interest if you specified in your offering contract that the money be held in an...

Get Your Home Inspected

Having your property inspected before you list it can pay off because you have time to decide what to do about a problem before a buyer finds it. Ask the inspector for repair recommendations on these big-ticket items roof structure, shingles, foundation, basement or crawl space, heating and air-conditioning systems, and electrical and plumbing systems. Should you fix the problem or cut the price Find out what it would cost to do the repair. Compare that with the price cut a buyer might ask....

Go for Equity

Another way to look at the problem is to ask yourself what you want from your home in addition to its shelter value. Choose a mortgage that helps move you closer to those objectives. Suppose that ten years from now you will need a home-equity loan to finance college educations for your children. From your perspective, tax benefits Are you buying a home for more than just shelter Choose a mortgage that helps you move closer to those objectives. from mortgage-interest payments are less of a...

Hashing Out Disputes

When homeowner and builder reach a stalemate over disputed warranted items within the first two years, either may request the plan administrator to arrange for an impartial third party to mediate, at no cost to the buyer. Referees for such disputes are not affiliated with the plan administrator or the builder. If a mutually acceptable solution cannot be reached, the neutral party decides on the issue, based on the warranty documents. The builder is bound by the decision once it is accepted by a...

Hire Your Own Representative

This is a good time to get expert help, if you haven't already done so. A buyer's broker or a real estate lawyer you pay will represent your interests, deciphering the contract form, suggesting contingency clauses and negotiating with the seller or seller's agent. Get names of experienced lawyers from friends, associates, bankers, title-insurance officers and the local bar association. When interviewing, ask for an advance estimate of the fee. Find out what role he or she usually plays, and...

Home Sweet Tax Shelter

Your home probably the biggest investment of your life can be the best tax shelter you'll ever enjoy. Uncle Sam is standing by to serve as a generous partner in your investment, ready to subsidize your mortgage payments while you're paying for your house and virtually willing to turn a blind eye to the profit you make when you sell it. Given the favored status of homeownership in America, it is no surprise that deductions for mortgage interest and local property taxes have survived as others...

Home Equity Debt

In addition to deducting interest on acquisition debt, homeowners can deduct interest on up to 100,000 of home-equity debt. The interest on such borrowing is fully deductible whether you tap your equity via refinancing, a second mortgage or a home-equity line of credit as long as the loan is secured by your principal residence or second home. The interest is deductible almost without regard to how the borrowed money is spent, but there are a few exceptions. If the money is used to invest in...

Home Equity Options

Home-equity loans and lines of credit have become the preferred choice of most borrowers. Banks are offering a wide array of enticing options to make it easier for homeowners to get at their equity to pay for such things as reducing nondeductible credit card debt, college tuition, a new car or home improvements. There are deals that allow you to set up mini fixed-rate loans under a line of credit or fixed-rate loans that can be adjusted when rates drop, and lines of credit that can protect you...

Homeowners Insurance

If your mortgage servicer fails to pay an insurance premium, you should get a warning from your insurer before the policy is canceled. Some companies send just one notice to the homeowner and mortgage servicer. If you have an intractable problem with your mortgage servicer, it's time to contact the owner of your loan. In any correspondence, be sure to include the mortgage company's name, your loan number, name, address, and home and work phone numbers. If Fannie Mae bought the loan, call...

How Agents Work

There are two basic roles in the real estate business broker and agent (or sales associate). A broker is licensed by Many states and the District of Columbia require agents to disclose the legal and financial arrangements they make with the sellers, for whom they work, to buyers they help Even so, unwary buyers continue telling agents too much about their strategies and intentions all of which agents are duty-bound to tell sellers. the state to conduct a real estate business and to negotiate...

How Is the Neighborhood Organized

Once you find a home you like, give the land it sits on more than a perfunctory once-over. Step back and notice the overall pattern of blocks and streets in the neighborhood. Most subdivi- sions are laid out in blocks and lots. A section of land is blocked off and divided into lots. Use a map to determine the layout of the community that has piqued your interest. According to the Urban Land Institute, suburban developments after World War II continued using the grid pattern of streets the...

How Much Coverage Do You Need

Once you've pinned down the type of policy that suits your needs, the next step is to figure out how much coverage you want on the house and its contents. The basic building block of any policy is the amount of coverage on the house. This should be based on the replacement value that is, what it would cost to rebuild the structure. Because you are unlikely to experience a total loss on your home, you may be tempted not to insure for the full value. But insuring for less than full value is false...

How Much Down How Much Borrowed

N deciding how much cash to put down, remember that getting settled in a new home always ends up costing more than you anticipate. Hold back some cash for furnishing and unexpected outlays. Add an extra cushion of cash if you're buying an older home that could surprise you with a plumbing or roofing expenses. Should you borrow as much as you can Small down payments and big mortgages give you the power of leverage (see Chapter 1) as well as available cash for other investments. And when...

How the FHAs Program Works

To qualify for the FHA program, a problem must meet HUD definitions and you must meet all of the following criteria The home must be covered by an individual FHA-insured mortgage. The property, including a condo unit, must have been approved for mortgage insurance before construction started and must have passed a final HUD inspection. (This clause eliminates many owners whose homes were inspected only during construction.) You must request assistance no later than four years after the date on...

How This Book Will Help

This book is really two books in one Part One, for buyers and Part Two, for sellers. Whichever you are buyer, seller, or both at once carefully read the part addressed to the other party. You will gain insight into the concerns and strategies of all the major players in a transaction, and the knowledge will help you get a better deal for yourself. Recognizing that the vast majority of real estate transactions are handled by brokers and agents who receive a commission on the sale, Buying and...

How to Pick an Agent

If location, location, location are the watchwords for picking a property, experience, experience, experience are the watchwords for picking an agent. Too many buyers don't pick their agent they acquire one at an open house or by responding to an ad. Many select one who is a friend, relative or neighbor. You could be lucky such an agent might turn out to be skilled, experienced and resourceful. On the other hand, you could end up with an amateur. Obtain the names of brokers and agents active in...

How to Take Title

Before you can take title to your new home, you will have to decide what form of ownership is desirable. If you're single, you'll probably buy the house in your name alone. Husbands and wives generally own their property through joint ownership, in one of two forms, either joint tenancy with the right of survivorship or tenancy by the entirety. Under either form of joint tenancy, when one spouse dies, the other becomes sole owner of the property. This happens automatically, bypassing probate,...

If the House Is Still on the Drawing Board

Buying a not-yet-built house isn't like buying an existing one it's harder. You reap advantages similar to those you get buying a new house ditto the disadvantages. But, depending on market conditions and the builder, you may be able to tailor plans so you help design your dream house. BUY BASED ON REPUTATION. The key point to remember You're not buying a piece of land and a house you're buying a builder. More to the point, you're buying a builder's reputation. Make the usual checks with the...

If You Encounter Discrimination

Members of racial and ethnic minority groups often encounter overt or subtle discrimination when they go looking for a home to buy. A black family may be steered away from a neighborhood being told you probably can't afford to buy there. A seller may refuse to sell her home to an Hispanic family because she believes her neighbor would be angry. A Jewish home buyer may be told that an owner just took the house off the market, when in fact it's still available. A borrower may be turned down...

Implied Warranties Versus Extended Warranties

If your builder won't fix the problem, you have no alternative but to sue. Many states and local jurisdictions hold builders and developers to an implied warranty on the habitability of their homes. (Implied warranties are derived from common law as developed by case law.) In general that means a builder that is authorized to construct homes in a jurisdiction should for a specified time at least a year or two replace or repair anything that threatens a home's soundness and the safe functioning...

Improvements and Repairs

Monthly payments are just the beginning of the costs of owning a home. You can count on spending plenty over the years maintaining, repairing and improving your property. Here, too, Uncle Sam gets involved. For tax purposes, work around the house is divided between projects considered repairs and those con- assessments for benefits that tend to increase the value of your property sidewalks, for example should be added to the basis of your property. stituting capital improvements that enhance...

Independent Mortgage Companies

Independent mortgage companies such as Countrywide Funding, to name the largest make just more than three-fourths of all home mortgages, including most VA-guaranteed and FHA-insured loans. Mortgage bankers work closely with the secondary market by selling their loans to agencies buying standardized, or conforming home mortgages. You will be expected to meet secondary-market standards covering credit-worthiness, down-payment size and appraisals. Once your application is approved, you will get a...

Insurance on Your Life

F your new home represents a higher financial burden than you've ever carried before, and you have a spouse or children to protect in the event of your death or disability, this is a good time to review your insurance needs. Have an accountant, trusts-and-estates lawyer, financial planner or trusted insurance professional review your situation on disability and life insurance. Depending on your age, your best bet may be conventional term life insurance whose proceeds, if invested wisely, would...

Interviewing the Agents

To save time, you may wish to hold an informal open house for agents, during which several will come to tour your home at the same time. Select two or three to give you a full listing presentation (see the box on the preceding page for what the presentation should include). After all the presentations, select the one agent you want to do business with first. Your decision should be based on everything from professionalism and knowledge to personality. After your interviews, you may find...

Keep Yourself Informed

Keep abreast of progress on both sides. If your buyer is having trouble getting a loan on the terms specified in the contract, you should know it if she is turned down, it could jeopardize the whole deal, and you could end up putting the house back on the market. A day or so before closing, make sure all the necessary papers and documents have been gathered and are in the hands of the right players. The settle- Federal Housing Administration (FHA) rules permit mortgage lenders to charge sellers...

Keeping Uncle Sams Hands Off Your Profit

Up to 250,000 of home-sale profit is tax-free 500,000 if you file a joint return. To qualify, you must own and live in the house for two of the five years before the sale. Generally, you can use this break only once every two years. Under the law, the first 250,000 of profit on the sale of your principal residence is excluded from taxable income. The exclusion is doubled to 500,000 if you are married and file a joint return. Very few homeowners rack up so much profit. A married couple who buys...

Lend Part of the Down Payment

Be very cautious about making a loan so large that it reduces the buyer's equity in the property below 20 . The lower the new owner's stake, the more likely a drop in property value could trigger a default on the loan. A second mortgage puts you second in line, behind the primary lender, if the buyer defaults. For your protection, include language in the note and the contract to the effect that should the buyer default on any mortgage lien against the property, you...

Limited Personal Use Heavy Renting

Less-affluent vacation-home buyers need rental income to help carry their investment. They also need appreciation and tax shelter to make ownership sustainable. They may manage the property on their own or seek renters to supplement those lined up by their manager. They may not use the property themselves in the early years of ownership, or may do so only out of season (see the discussion on the trade-offs between personal and rental use, beginning on page 240). Owning vacation property in an...

Local Assessments

In addition to real estate taxes, it is not unusual for local governments to assess homeowners for services or benefits provided during the year. Such bills need to go in your home file because, depending on what the charge is for, the cost may be either a deductible expense or an addition to your basis. In general, assessments for benefits that tend to increase the value of your property sidewalks, for example should be added to the basis of your property. Special charges for repairs or...

Long Term Mortgages

The most common long-term mortgages last fifteen, twenty or thirty years. ADVANTAGES. Predictability is the big plus. You know exactly how much interest you will pay over the term of the loan. Total monthly payment of principal and interest is fixed, and in early years it consists primarily of tax-deductible interest. Mortgages without prepayment penalties permit you to shorten the term of the loan at will and lower ultimate interest cost by making periodic payments against principal....

Looking at the Neighborhood

Much of the value of a home rests in its surrounding economic and social environment its neighborhood. In general, the more defined a neighborhood, the more likely that homes there will maintain their value. You are looking for more than just a cluster of homogeneous properties. A few blocks of carefully tended homes otherwise surrounded by blight isn't a viable neighborhood. Typically, it takes at least a dozen blocks, marked off by recognizable boundaries, for a neighborhood to sustain its...

Make a List of Needs and Wants

Most buyers are in search of something they cannot describe. They may be trying, often unknowingly, to replicate a childhood home, if it was a happy one. This doesn't mean that they are looking for the same red-brick house with privet hedge, but rather that they are seeking a feeling, an ambience. It could be a sense of spaciousness, warmth, airiness, the amount of daylight, the quality of the light, coziness, the abundance of nooks and crannies, a parklike backyard. If you're looking for a...

Making a Mortgage Choice

Deciding which mortgage is best requires a close look at your present circumstances, future earnings and financial goals. Clear forecasting of economic conditions a few years down the road would help, too but don't hold your decision hostage to your predictions about interest rates and economic cycles. That's something even experts fail to do with precision. Instead keep your needs in the forefront. Do you intend to stay put for many years Then getting the best interest rate is important....

Many Kinds of Homes

Population density, topography, climate, history, and ethnic heritage all can have an impact on your choice of housing. If you choose a particular school district in a small county, for example, you may have to rule out buying a condominium, townhouse or cooperative apartment. You'll have to buy the single-family detached dwelling best suited to your needs. Are you thinking about buying a manufactured home Local zoning laws may dictate where you can live and limit your choices. Large...

Need Seller Financing

Seller financing, whereby sellers become the mortgage holder for their buyers, has tended to be popular at certain times and for certain reasons when market mortgage rates are high and sellers have to help buyers if they want to make deals at all, and when many buyers fail to meet the stiff down-payment and loan-qualifying hurdles imposed by commercial mortgage lenders. In the latter instance, the hardest hit are first-time buyers, the self-employed, those who need to spend more than a third of...

Negotiating Through an Agent

Buyers and sellers usually find bargaining awkward and uncomfortable. Both are likely to be more frank and open when talking to a third party. For these reasons, an experienced agent often is successful when two-party, face-to-face negotiations fail. You should be comfortable being utterly frank with your agent. Agents know sellers sometimes take positions they don't mean to hold to the end. Let your agent know what is most important to you. Be precise about what is and isn't acceptable. Make...

Negotiating With Buyers

Tension between buyer and seller is inevitable. A buyer wants the most house for his money a seller wants the most money for his house. If you've employed an agent to represent only you, rely on this professional to direct events toward a satisfactory conclusion. If you are selling on your own, consider hiring a lawyer or agent (acting as a real estate consultant) to help with negotiations alternatively, brush up on basic aspects of the art when you hang out the for sale sign. Read the chapters...

No News Is No News

Recognizing that it has no financial stake in most home sales, the IRS doesn't even want to hear about them. The deal doesn't have to be reported on your tax form if there is no chance for the IRS to share in your profit. When you sell, the settlement agent will ask you to sign a form certifying that your profit is tax-free that is, that you meet the ownership and residency requirements, the profit is below the tax-free limits and that you weren't renting out the place or using it as a home...

NoDown No Kidding

Lenders are also offering to finance 100 of the cost of a new home. This opens the market to many first-time buyers who otherwise would have insufficient savings to cover a down payment. The no-down mortgage usually consists of a first mortgage, either fixed or adjustable, of up to 80 of the home price (maximum of 500,000), and a second mortgage usually a variable-rate line of credit for the remaining 20 . To further entice homebuyers, the no-downs are offered with no private mortgage insurance...

Offer a Decorating Allowance

Say you've spruced up the place along the lines sug- Keep in mind that buyers often insist on a discount that's more than the cost of a fix-up. A buy-down, in which you pay to reduce the buyer's interest rate, can be a powerful selling tool. gested in Chapter 16, but along comes a couple who love the house but hate the carpet and can't stand your wallpaper. You can offer a decorating allowance to be paid at settlement covering agreed-on redecorating expenses.

Offer Help at Closing

Maybe your buyer isn't concerned about the monthly payment. Maybe he or she has a good salary but not much in savings. In that case, during negotiations you can offer to pick up some closing expenses. But be aware that lenders place a limit on seller contributions. If you exceed that limit, the additional assistance will reduce the amount the lender is willing to finance. A simple and effective tactic is to offer to pay one or more of the points the buyer would have to pay to get a mortgage....

On to Settlement

You are only days away from becoming an owner. The search has been expensive in terms of both time and money. Now it's time for you to pay for the property and for the seller to deliver the deed. There is no standard name for this next step. Depending on where you live, it is known as title closing, settlement or closing of escrow. The closing officer in your area may be a title company, an abstract lawyer or a regular real estate lawyer. Occasionally, it is a broker or lender. When closing...

Open

You agree to pay a commission to any agent as long as he or she is the first to produce an acceptable buyer. Again, you don't owe any commission if you are the first one to find a buyer. This type of listing is most common when there is no multiple listing service. It's also the kind of listing often used by sellers who want to do most of the selling work themselves (see the preceding chapter for a discussion of fizzbos) but want the cooperation of agents in finding buyers. The commission is...

Open Listing 3 Deal for All Agents

Because many house hunters do their searching with agents, who get compensated for those efforts only by sharing in the sales commissions, it's understandable that the agents will try to steer their clients away from fizzbo listings. A fizzbo who refuses to pay any commission will, in effect, be trying to split house hunters away from the agents who may have given them considerable help in the search. If, as described above, you are willing to pay 3 to an agent who brings in the final buyer,...

Other Tax Angles of Owning

T's easy to take advantage of the basic tax benefits the write-offs for mortgage interest and property taxes. If your mortgage is held by a financial institution, you will receive a statement early each year show- ing how much deductible interest you paid in the previous year (the IRS gets a copy, too). The statement will also show how much you can deduct for property taxes if you make those payments through an escrow account handled by your lender. Otherwise, copies of tax bills and your...

Other Types of Financing

Those borrowers who don't fit the mold designed by secondary-market mortgage buyers such as Fannie Mae, Freddie Mac and Ginnie Mae can have a hard time buying a home. If you are self- If you're self-employed, involved in a divorce or otherwise unable to qualify for a mortgage, seller financing is one alternative. employed, involved in a divorce or otherwise unable to qualify for a mortgage originated by a bank, thrift or mortgage company that will turn around and sell your loan to the secondary...

PART IFor Buyers

CHAPTER 1 To Buy or Not to Buy 3 The Intangibles Financial Benefits The Risks and Hard Work of Homeownership Rent Versus Buy Buying a House With Others CHAPTER 2 Assessing Your Resources 11 Figure Your Net Worth The Down Payment How Big a Loan Prepare Yourself How Much Down, How Much Borrowed Clean Up Your Credit Report Your Credit Score Obtaining Preapproval With a Lender Kinds of Loans Get Your Earnest Money Ready CHAPTER 3 Home Sweet Tax Shelter 29 Deductibility of Mortgage Interest Adjust...

Personal Use Only

Affluent buyers are often looking for a unique or unusual property. They want it to reflect their status in life and aren't interested in rental income. They intend to use the property for their own and their family's enjoyment, but long-term appreciation and estate building are primary investment objectives. The home may qualify as a second residence if so, mortgage interest will be fully deductible as long as the combined debt secured by the vacation home and principal residence doesn't...

Pick the Right Firm

Before you sign a contract, check the reputation and experience of the firm and agent. Does the firm handle sales and buyer's brokerage under the same roof How does it avoid conflict of interest What are the firm's disclosure rules Once you're satisfied, set up a meeting with the broker to discuss your needs. You shouldn't have to pay for this initial consultation. Be- A dual agent serves both the buyer and the seller acting as an intermediary between both parties. fore they'll start work, some...

Pick the Right Mortgage

Time spent shopping for a mortgage is time well spent. A good deal can yield dramatic dividends in the short run and over time if monthly savings are invested elsewhere. Before you rule out one loan or another, read through this chapter and give some thought to your particular needs and aspirations. Because you obtained preapproval before house hunting, you're ahead of the game. Financial papers are at hand and up to date, and you know the general parameters (size and types) of mortgages you...

Pick Up Some Payments

You can draw buyers especially first-timers strapped for cash by offering to pay their principal and interest for several months. Have the contract worded so that you write a A buy-down gives buyers a double benefit a cheaper mortgage and the ability to qualify for a larger loan. check at closing for the amount you've agreed on. Specify that the money be put in an escrow account with the lender and applied monthly to pay for principal and interest. It helps the buyer's cash flow and, more...

Prepare Fact Sheets

Prospects seldom take notes as they are being shown around. They may be reluctant to appear too interested, or they may find writing distracts them from looking. But they rarely refuse a printed fact sheet. These fact sheets are important they tell at a glance what you're selling, highlight the best points, and can later refresh the memories of lookers who may have seen a dozen other offerings. See the box below for a list of what to include. In addition, inform potential buyers orally about...

Preparing for Settlement

Uyers may dread the arrival of closing day and the huge outlay of cash, yet still be eager to get on with it so they can move into their new home. Sellers look forward to collecting their bounty, but their anticipation may be tinged with anxiety and sadness about giving up their home for good. The bulk of the work between contract signing and closing falls on the buyer, who must arrange for a home inspection, financing, and homeowners- and title-insurance policies. As the seller, you have...

Price and Terms

If you receive what you consider an insultingly low offer, don't give in to an emotional response. Now is the time to be realistic, objective and, above all, cool. Examine the offer. Was the price based on an independent appraisal or a broker's market analysis How long has your property been on the market How many Beware of the contract that binds only you. Examine each contingency. is each clear and precise is it reasonable written offers have you received What kind of market are you in...

Price It Right

The single most important task in the selling of a house is pricing it right at the market value, neither too low nor too high. This requires either your own careful study of comparable transactions in your neighborhood or the services of a professional appraiser, who will do the same thing for you. The owner must decide whether to price the house at full market value and try to pocket the commission savings, or to share these savings with the buyer, settling for a little less than the full...

Property and Liability

A typical homeowners HO-3 policy combines two basic types of insurance with some additional coverage PROPERTY PROTECTION. This part of the policy reimburses you for losses or damages to the house and its contents. The amount of insurance coverage is based on the anticipated cost of replacing the entire structure, with coverage on personal property usually figured as the cash value at the time of loss. There are set monetary limits for specific classes of objects. They range from 200 for...

Prorating

The contract should state that property taxes (among other things) will be prorated to the closing date. Prorating is a method of equitably dividing continuing expenses, such as mortgage interest, property taxes and insurance, between buyer and seller. Government-backed loans and conventional mortgages may not prorate the same way, but in general it works like this In January, Mr. Owner pays the annual premium on his homeowners insurance policy. He then puts his house on the market and sells it...

Protection Period

If, after the listing expires, you sell your home to someone your former agent had a hand in finding, there may be a clause in the contract that entitles the agent to a commission. Naturally, no agent wants to lose a commission because the listing agreement expires while he or she is still working with a prospective buyer. Typically, protection clauses give commission rights to agents for 90 to 180 days after a contract ends. If a listing agreement contains such a provision, it also should...

Protocol for Working With an Agent

If an agent takes you to a house and tours it with you the first time you see it, you should submit your contract offer through him or her. If you don't, that agent may still be entitled to a share of the sales commission from the seller should you buy the house. On the other hand, if an agent merely mentions that a particular house is for sale, but you first tour it by yourself or with another agent, the first agent will probably not have any claim to part of the commission. That's why agents...

Provide an Interim Mortgage

You could also offer to become the primary or sole lender for a limited period of time. Say a couple has cash for the down payment but they can't qualify for a mortgage while still paying on their old house. As a seller, you could offer them a loan at 10 for one year, with interest-only payments due quarterly and the full principal due as a balloon payment either when the old home sells or at the end of the year, whichever occurs first. (You would treat the interest as taxable income.)

Questions of Quality

You might pay around 26,000 for a single-section unit, 46,000 for a multisection. The purchase price usually includes some furniture, major appliances, draperies, carpeting and delivery from the manufacturer to a homesite. Single section or single-wide units may give you up to 1,400 square feet of living space. You can join two or more single-sections together to form a multisection home. At first glance, the most luxurious multisection models featuring wood or vinyl siding, pitched roofs,...

Rent or Buy the Land

Before you buy, decide whether you will place the home on land you own or on land you rent or lease. The decision is important because if you later regret your choice of a homesite, the only practical solution may be to sell. It also has tax implications. The majority of buyers put their manufactured homes on land they own. Your best approach is to select a lot before you buy the home. While zoning restrictions that keep manufactured homes out of residential neighborhoods still exist in some...

Response Time Limit

Your contract should require the seller to accept the offer in writing within a certain time usually no more than 48 hours or the offer will be void. How long you give depends on market activity in general and likely buyer interest in that home in particular. Failure to state a time limit invites having your contract shopped. That means that the seller or agent may use your offer to stimulate slower-moving buyers to get a move on and top your offer. You are free to withdraw and cancel an offer...

Reverse Mortgages

These special mortgages allow you to live off your nest egg and in it, too. Like home-equity loans, reverse mortgages now come in several forms. You can choose between either fixed monthly payments, a lump sum, or a line of credit on which you can draw funds as you need them. You pay nothing back until the term is up, when the advances plus interest must be repaid, presumably from the proceeds from the sale of your home. Monthly income is tax-free. In addition, nonin-sured loans can be obtained...

Saleby Owner House

Theoretically, a house should cost less if bought directly from the owner rather than through an agent. And if the deal is structured right, the seller will do fine, too. What the seller wants is the maximum net proceeds from the sale, so a lower offer that is not reduced by a sales commission should net as much or more for the seller than a higher offer from which the commission is subtracted. Many sellers will try for a few weeks to sell the house themselves before listing it with a broker....