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An interesting homeownership cycle begins with a starter home and progresses to larger and smaller homes throughout a person’s lifetime. Within a few years after purchasing their initial home, they might move up to a little larger house. The reasons could be that they simply want a larger home and can afford it, or their increased family size may be motivating the move.
While the children are small, they can probably get by with less space but as they grow and behave more like adults, even though they may not be, the need for more room becomes more pressing. Depending on the size of the family, this will last some time and then, as they go off to college, enter the work force and find their own living space, the parents may find that they no longer need the larger home.
In the interest of saving money or possibly convenience, they migrate from a larger home to a smaller home until they consider an assisted living facility or possibly, a nursing home. Another alternative, many homeowners are electing is to move in with their children or other family members. Some homeowners are even retro-fitting their homes with equipment and safety devices that will allow them to continue to live in their homes in old age.
According to the American Community Survey, a person in the United States can expect to move 11.7 times in their lifetime. When that person is 18 years old, they can expect to move another 9.1 times and by age 45, they can expect another 2.7 moves in their lifetime.
One of the suspected reasons affecting the low housing inventory in America at this time is the group of homeowners who would move but are reluctant because the home will sell and with the shortage of homes, they may not be able to replace it with what they want.
The fact that builders have not kept up with the demand in the past twenty years has been a major contributor to the low inventory that housing is currently experiencing. It is estimated that it will take two million new homes a year for the next decade to get caught up, assuming demand doesn’t increase.
There are also other factors involved like the fact that since 2007, the owner’s tenure in their home has more than doubled from five years to 10.6 years. People are staying in their homes longer which means the homes are not coming on the market for sale.
Another consideration is that sellers with extremely low mortgage rates are reluctant to buy another house which would have to be financed at a higher rate than they are currently paying.
Regardless of where you are in the homeownership cycle, your agent can provide important information and experience that is essential to making a smooth move. Having the facts reduces the risk of unexpected outcomes.

Filed under: Blog by Chris Clark
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Some homeowners who could not afford to make their mortgage payments this past year have been relieved to find out that their mortgage servicer or lender allowed them to pause or possibly, reduce their payments for a limited period.  While it does relieve the financial pressure, it is a temporary remedy.

About 2/3 of the people who entered forbearance during the pandemic have exited the program.  There are only a little over two million homeowners remaining in forbearance.

It is important for owners who find that they cannot make the payments on their mortgage to contact their lender and request a forbearance.  If you stop making mortgage payments without a forbearance agreement, the servicer will report this information to the credit reporting companies, and it can have a lasting negative impact on your credit history. Without going through that process, the lender assumes you are delinquent, and protections afforded under forbearance may not apply.

Forbearance does not forgive the money that is owed.  The borrower must repay any missed or reduced payments in the future.  If forbearance was issued under the CARES Act, the lender cannot require payment in full at the end of the forbearance.  Additionally, Fannie Mae has declared “following forbearance, you are not required to repay missed payments all at once, but you have that option.”

The forbearance agreement issued by the lender allows a borrower to avoid foreclosure for a period until, hopefully, the borrower’s financial situation improves.  If at the end of the stated period, the borrower’s hardship still exists, the lender may be able to extend the time frame.

The provisions of the forbearance vary based on the type of mortgage.  The lender can tell you the specific provisions and options.

Loans made by Fannie Mae and Freddie Mac require lenders to suspend reports to credit bureaus of past due payments for borrowers in a forbearance plan and no penalties or late fees will be assessed.  Furthermore, the lender is mandated to “work with the borrower on a permanent plan to help maintain or reduce monthly payment amounts as necessary, including a loan modification.”

At the end of the forbearance, there can be several options available to repay the suspended or paused amounts.  You can resume your normal payment and repayment plan can be established.  If you can start making the payment but can’t afford additional payments, the missed payments could be added to the end of the loan or possibly, a secondary lien that is due and payable when you refinance, sell or terminate your mortgage.

In cases where the borrower can’t afford to make the regular payments, a loan modification may be available with lower payments, but the term would be extended.  While the CARES Act does not require borrowers at the end of the forbearance period to repay skipped payments in a lump sum, if a borrower is able, they may do so.

The purpose of this is to re-establish a payment plan that the borrower can repay the money owed.  To be eligible for a loan modification, borrowers must show they cannot make the current mortgage payments because of financial hardship while demonstrating they can meet their obligations with the proposed restructured terms.

Under the CARES Act, borrowers with a GSE-backed mortgage are entitled to an additional 180-day extension which would be a total of 360 days.  It is necessary to contact the servicer/lender for the extension.

There can be both legal and tax issues concerning in forbearance and professional advice is recommended.  A list of U.S. Department of Housing and Urban Development approved Counseling agencies are available.

Filed under: Blog by Chris Clark
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Even in the current, low inventory housing market, sellers are resisting the urge to sell it themselves and still seeking the help of a real estate professional.  It may be more important than ever and there is too much at stake to risk going it alone.

The number of people attempting to sell on their own has been in steady decline since 2003 from 14% to 8% in the latest Profile of Home Buyers and Sellers produced by the National Association of REALTORS®.

The most frequently mentioned difficulties that owners who decided to sell it without the benefit of an agent included preparing the home for sale, understanding, and performing the paperwork, getting the price right and selling it within the length of time planned.  Another commonly cited challenge was having enough time to devote to all aspects of the sale.

The other nine out of ten homeowners who are selling are many times faced with the question: “How do I determine which agent to use?”  In some situations, owners know more than one agent and the dilemma becomes picking the right person for the job.

To get the answers that will lead to selecting the right agent, an owner needs to ask the right questions.  Open-ended questions will give you a more descriptive answer that can bring clarity to your decision.  Questions that begin with who, what, when, where, why and how will elicit a much more robust answer.

The following suggestions should be helpful for homeowners considering selling:

• How long have you been selling homes and is this your full-time job?
• What designations or other credentials do you have?
• How many homes did you and your company sell last year?
• What is your average market time compared to MLS and your top competitors?
• What is your sales price to list price ratio?
• When will you report to me on the progress of my transaction?
• Who can you recommend for service providers like mortgage, inspections, repairs, and maintenance?
• Why do you want to work with me?
• Where are the opportunities to expose my home to the largest market?
• What is your marketing plan for my home?

In today’s market, homes, on average, are selling in 17 days and sellers are seeing an average of five offers.  It is not uncommon for homes to sell for more than the list price, assuming they are not priced dramatically over the market in the first place.

Specific to today’s market, additional questions to help you identify the best agent for the job could include:

• With the shortage of homes on the market, is it necessary to update in advance?
• In this competitive market, is staging the home important?
• What are your thoughts on professional photography and video?
• Is there a way to stimulate competition among to buyers?
• Explain to me range of pricing and how it applies to home search on the Internet.
• Can you profile the most likely buyer for my property?

Don’t think of these things as being an interrogation but more like an interview.  That is exactly what it is; you are trying to find out how this prospective agent is going to handle some of the intricacies in the selling process that can affect the successful sale of your home.

After evaluating the answers you receive, you will either move forward to have this agent represent you or you move in a different direction.  A third option, from our perspective, that occasionally develops is that we determine that we may not be able to manage the outcome that you are expecting.

Selecting the right agent to represent you, even in a Seller’s market, is an important decision and you need to have all the help you can get making the right one.  We’re happy to provide the answers you want and need and will disqualify ourselves if we believe that it is not in your best interest. Our reputation depends on satisfactory results from every transaction we handle.

Download our Sellers Guide.

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Ask any real estate agent and they will tell you a similar sad story.  The seller, whose home just hit the market, received an offer which was less than the list price, but felt secure their home would sell quickly and countered for more.  For whatever reason, the buyer did not continue to negotiate and moved on.

After a week or two and no other offers, the seller instructed the listing agent to contact the buyer’s agent and say that the seller had reconsidered and would now accept their original offer. However, the initial enthusiasm the buyer had was gone and they were looking elsewhere.

This is a story that frequently happens across America, in all price ranges.  The lesson to be learned is that sometimes, the first offer is the best.  Consider the rationale, a home is fresh on the market and buyers, especially the ones who have lost bids on other homes, act quickly to hopefully avoid some of the competition.

When an offer is not accepted, it voids the original offer and, in this case, the seller makes the buyer a counteroffer; the buyer can accept it, make a counteroffer, or walk away.  Even if afterwards, the seller reconsiders and says that he will accept the terms of the original offer, the buyer is under no obligation to accept it.

Alternatively, if the seller accepts the buyer’s original offer, a contract has been agreed upon based on the terms within.  The house is sold and closed once any contingencies such as financing and/or inspections have been satisfied.

Think of an example where a seller countered for an additional $5,000.  If he had accepted the original offer, the home would have been sold.  In essence, he bought the home back from himself in hopes of making an extra $5,000.

To put it in perspective, on a $350,000 home, the additional $5,000 would have been 1.4% of the value.  As an investor, the risk involved in having to continue to own the property may not be justified by such a low rate of return.  Having the property sold may actually provide peace of mind and convenience that far exceeds the $5,000.

When a seller receives an offer, they are faced with three options.

1. They can accept the offer and the house is sold considering the contingencies can be met.
2. The seller can reject the buyer’s offer outright and wait for an acceptable offer.
3. The seller can counteroffer the buyer with terms that are agreeable to the seller.

Many agents feel that if the offer is not acceptable, the counteroffer alternative presents a greater likelihood of negotiating to an acceptable agreement between the parties.  Every situation is unique, but compromise has brought buyers and sellers to agreement in many situations.

One of the valuable advantages sellers have is their agent’s experience and lack of emotional connection to the property.  Your agent can provide objectivity and alternatives for you to consider in making you decisions.

Filed under: Blog by Chris Clark
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For many people, their home is their largest asset and their best performing investment.  The equity in a home is the difference in what it is worth and what is owed.  Two dynamics, appreciation and unpaid balance, work in concert to make homeowner’s equity grow.

It can be said that you appreciate the fact that your home is your best financial investment.  It is also ironic that the appreciation, the increase in value, is what causes it to be your best financial investment.

In a one-year period, the increase in value divided by the beginning value will determine the rate of appreciation for the year.  News stories and articles, frequently, report statistics on appreciation for the month, the year or longer. In many cases, a national appreciation is mentioned but the local appreciation is more reflective of an individual property.

The National Association of REALTORS® reports “The median existing-home price² for all housing types in June was $363,300, up 23.4% from June 2020 ($294,400), as every region recorded price jumps. This marks 112 straight months of year-over-year gains.”

The low inventory being experienced nationwide has caused some significant appreciation that has increased homeowners’ equity.  According to Black Knight, a mortgage technology and research firm, at the end of 2020, roughly 46 million homeowners held a total of $7.3 trillion in equity.

If a homeowner has a mortgage on their home, while the home is appreciating, the unpaid balance is declining.  An increasing portion of each payment is applied, when the payment is made, to the principal balance to retire the debt based on the term of the loan.

Each month the equity in the home becomes larger because the home is worth more due to appreciation and the unpaid balance is less due to amortization.

Once a homeowner has sufficient equity in their home, they can borrow against it and take cash out of their home.  Most lenders require that the homeowner maintain at least 20% equity position.  This means that owners can borrow up to 80% of the appraised value less the amount that is currently owed on the property.

The options include a cash-out refinance mortgage or a home equity line of credit, HELOC.  While some institutions have stopped offering HELOCs, they are still available.

The HELOC is a line of credit that is established for usually ten years.  The owner is approved, and the money is available to draw out as needed.  The interest is calculated daily.  Like a credit card, when the balance is paid down, the unused portion of the available credit is available again.

Your real estate agent may be able to offer some lender suggestions.

Filed under: Blog by Chris Clark
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It has been said that more money has been lost due to indecision than ever was due to making the wrong decisions.  Many times, the larger the decision, the more likely procrastination comes into play and doing nothing will cost something.

Buying a home is certainly one of the biggest decisions people make.  Careful consideration and planning are necessary steps leading to a prudent decision.  Considering today’s market that includes a global pandemic, financial volatility, and rapidly rising home prices, it is understandable that many people thinking about a home purchase are in a wait and see posture.

However, there is a cost connected to waiting and it may be a lot more than you think.  The recent Home Price Expectation Survey 2021 Quarter two estimated appreciation rates will average just under 5% annual for the next five years.  It expects prices to increase by 8% in the next one year.

Being a renter or even putting off moving to a larger home, could keep you from enjoying the benefit of that appreciation.  If your down payment is in the bank, your expected earning will be less than 2%.  In a home, the owner has the benefit of leverage when a mortgage is used to finance the home.

Buyers are borrowing a large portion of the purchase price at around 3% interest but the entire value of the home is appreciating at a higher rate and the profit builds equity for the homeowner.

Another major component for the owner is that the amortizing mortgage is being reduced with each payment that is made.  As the home goes up in value due to appreciation, the unpaid balance goes down with principal reduction creating equity from two directions.

If you waited one year to buy a $350,000 home today, the price could easily be $378,000.  A 5% down payment on this home at today’s price is $17,500.  If you could earn 2% on a certificate of deposit, it would be worth $17,850 in one year.  If it used as a down payment on a $350,000 home that appreciates at 8%, the equity in one year would be $52,442. Use the Your Best Investment calculator to make your own projection.

Mortgage experts anticipate rates to rise by 0.75% in the next year which means that you’ll pay more interest on a larger mortgage by waiting.  The monthly payment could easily be $200 more by waiting a year.  Based on how long you intend to be in the home, it could make the overall housing cost much more.

To run some examples of projections based on your own expectations and at the price you are considering, go to Cost of Waiting to Buy and Rent vs. Own.

If you have some specific concerns that is keeping you from deciding today, let’s get together on the phone, an online meeting or somewhere face-to-face so that you can get the facts about what it takes to buy a home now.

Filed under: Blog by Chris Clark
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Stepped-up basis is an incredible benefit to people who inherit property.  Not only do they receive the property itself, the basis or cost value of the property becomes the fair market value at the time of the decedent’s death.  This avoids recognizing the gain between the decedent’s cost and what it is worth when it is inherited.

If a person had purchased a home for $100,000 and 20-years later when they died, it was worth $500,000, there would be a potential gain in the property of $400,000.  However, because of a tax provision called step-up tax basis, the person inheriting the property will have a basis of the fair market value at the time of death.

The recipient could sell the property for $500,000 and have no taxable gain on the sale.

A formal appraisal is the most reliable and defensible estimate of fair market value at the time of the decedent’s death.  There will be a fee of several hundred dollars for the appraisal.  Another alternative is to get a broker’s opinion of value in writing.  It may be reasonable to get three opinions to see if they are similar.  They should rely on comparable sales to justify their position.  Either method is acceptable to IRS.

There is discussion from the current President about the possibility of eliminating the step-up in basis that allows families to leave assets to their heirs without having to pay capital gains tax.  Some people consider it to be a tax loophole for the ultra-rich but it can impact ordinary people who inherit property and do not want to have to sell it.

An example would be a family farm that when inherited by the heirs may not be able to afford to pay the capital gains tax due at time of transfer and they could be forced to sell the property or borrow the money to pay the tax, assuming that was possible.

Federal estate tax is paid from the deceased’s remaining estate, not by the heir.  If the decedent’s estate is approaching the limit before estate taxes are due, currently $11.7 million, professional tax advice should be considered because there could be additional provisions in play.  More information on this can be found on IRS.gov.

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The question is “financially speaking, are you better off owning than renting in the long term?”

Renting a home has advantages.  It is usually a short-term commitment from year to year and the landlord is responsible for the repairs.

Owning a home with today’s low mortgage rates, the total house payment could easily be less than what the rent would be on a comparable home.  Once you assume ownership, you will have the responsibility of the repairs and possibly, a homeowner’s association fee.

Many times, an initial benefit of owing a home includes the ability to deduct property taxes and qualified interest on the mortgage.  With the increase of the standard deduction and a limit of $10,000 on state and local taxes, it is estimated that 90% of homeowners do not itemize their deductions to consider property tax and mortgage interest.  This comparison will not consider them.

There are two very significant benefits that contribute to a home being an excellent investment and they are principal reduction due to normal amortization of the mortgage and appreciation of the property.  While the property goes up in value and the unpaid balance decreases, the owner’s equity grows, increasing their net worth.

Renters do not benefit from either of these, but their landlords do.  That is the reason for the saying “whether you rent or buy, you pay for the house you occupy.”  Tenants pay for the home for their landlord.

*Projections based on 3% appreciation; $350,000 sales price with 10% down payment and a 3.5%, 30-year mortgage.

With each payment made on a fully amortized loan, the principal balance is reduced.  While appreciation is generally expressed in an annual rate, homes go up in value incrementally throughout the year so considering the monthly appreciation is appropriate in this comparison.

In this example, the payment is less than the rent proving the initial idea that it costs less to own a home.  After factoring in the effect of the principal reduction and the appreciation, even when you consider the maintenance and HOA fees, the net monthly cost of housing is considerably less than renting.

The largest part of the savings inures to the equity of the home which directly impacts a homeowner’s net worth.  While the money may not be easily accessed, it has real value and available in a cash-out refinance or when the home is sold.

If you curious about how your numbers would be reflected in a similar comparison, go to the Rent vs. Own.  Please let me know if you have any questions.

Filed under: Blog by Chris Clark
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A home warranty is a service contract that protects your home’s appliances and some systems from repairs or possible replacements.  A convenient benefit of a home warranty is that when you report an item, they will assign a service provider to evaluate whether it should be repaired or replaced without the owner having to act like a middleman.

Homeowner’s insurance is required by most mortgage lenders when there is an outstanding loan.  This coverage protects the structure and the dwelling and the homeowner’s personal property from named occurrences like theft, natural disaster, or accident.  Homeowner’s insurance does not cover the systems and appliances for repairs or replacements due to normal wear.

The fees for home warranties can vary based on deductibles and how much of the risk the homeowner is willing to accept.

Additional items can be included to the standard coverage to include pool, spa, additional refrigerators, septic tanks, and other items.  There may also be some named items that are not covered that could include sprinkler systems, window air conditioning units or other specific items.

Contracts usually are for a one-year period, may have a waiting period and usually will not include pre-existing conditions.  The premium or fee is paid in advance.

Many homeowners learned about this type of service when they bought a home.  It was provided by the seller and probably gave some element of peace of mind.  Home warranties can be purchased even when the home is not being sold and by the current owner.  Even rental property owners are using this type of coverage to manage the repairs and replacement expenses.

American Home Shield, Blue Ribbon Home Warranty,  Choice Home Warranty, Select Home Warranty, First American Home Warranty.

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Credit plays a huge role in getting a mortgage because it is a variable that helps the lender determine the likelihood that the loan will be repaid on a timely basis.  Credit bureaus evaluate people’s credit worthiness using a FICO score.  The higher the score the better the borrower’s credit.

The mortgage rate charged to a borrower depends on their credit score.   There is an inverse relationship between credit score and interest rate changed.  The higher the score the lower the rate and the lower the score, the higher the rate.

Two separate buyers with the same income, purchasing the same price home may both be approved by the lender, but they may be charged different interest rates based on their credit scores.

You could save thousands of dollars over the life of a loan by improving your credit score by just a few points.  A $350,000 mortgage at 3.5% has a principal and interest payment of $1,571.66.  By improving your credit score to qualify for a 3% rate, it would save $96.04 a month.

Over the life of the mortgage, that would save $34,575 in interest.  Improving your credit score to shave 0.25% off the rate would make it worthwhile.

Credit utilization is the percentage of total credit used compared to the total credit available.  If you have a $2,500 balance on a credit card with $10,000 available credit, your utilization rate is 25%.  Ideally, it should be 10% or below.  This ratio accounts for 30% of a person’s FICO score.

Credit utilization is calculated using the balance on the monthly statement so paying it off in full every month could still result in a high CU score.  Some credit counselors suggest paying down the balance before the end of month statement comes out.  A trusted mortgage professional can make specific recommendations like how to improve your credit utilization.

Your credit score can be adversely affected if your credit limits are lowered.  You may have the same monthly outstanding balance you have had for years but it now becomes a larger percentage of your available credit and your score goes down.  In the example used earlier, if the available credit was lowered to $5,000 and your balance is $2,500, the credit utilization is now 50%.

Payment history is the largest contributor and counts for 35% of an individual’s FICO score.  It is an indication of your likelihood of paying on time and as agreed for your debt, especially mortgages, credit cards, student and car loans, among others.

A big shock to some borrowers is to find out that while they may have never actually incurred a late fee because of a grace period, their score could be dinged because it was not paid on time of the actual due date.

Foreclosures, deeds in lieu of foreclosure and bankruptcies will affect a borrowers payment history as long as they appear on the credit report.

Americans are entitled to a free annual credit report by law from the major credit companies: Experian, TransUnion and Equifax.  AnnualCreditReport.com is the source for these federally authorized reports.   During the Covid-19 pandemic, they are offering free weekly reports.

Even if you are not buying a home or getting a mortgage currently, it is a good routine to check your credit report periodically to discover signs of identity theft early.

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