Patty McMillen

Keeping Your Home in Good Shape

So, you did it! You bought a home. Now, it’s time to take care of your investment.

The good thing about home ownership is that the money you put into your home builds

equity (value). The bummer is that you need to spend the money, and savings for a new

water heater is really boring compared to, well, almost anything else.

One of the best ways to make sure you don’t get caught with an expense you can’t

afford is to create a savings account where you put money aside for home repairs and

expenses. How much should you put away? Let’s estimate.

If you bought a house for $250,000, you’ll need about $3,750 per year (estimate

about 1½ percent of the purchase price). Expenses will include insurance: homeowners,

flood, and earthquake. Homeowners insurance is required, and it will cost about $500 per

year. If your home is in a flood plain, you’ll have to purchase flood insurance, and it costs

approximately $800-1000/year. Earthquake insurance is optional, but if I lived on the side of

a hill or along a known fault line in a masonry house, I’d consider it. It costs about $500 per

year with a 15 percent deductible. If you do the math, the earthquake insurance may not be

worth it, but I’m sure not going to be the guy who tempts fate and tells you to forgo the

insurance! Thanks to Mark Davis Insurance who provided these estimates at a moment’s

notice.

Now that insurance is accounted for, we need to consider long-term expenses to

maintain the structure. At some point, you’ll need to repair or replace the paint (inside and

out), flooring (carpet, linoleum, wood), roof, and appliances (water heater, heating/air

conditioning). You also may have some issues to take care of that came to light through

inspections during the escrow process.

How quickly or how often you’ll need to maintain your home depends on how hard

you are on it. Children typically increase wear and tear on a home. As the father of several, I

can personally attest to this. Pets can also speed up the need for new flooring, for example.

In addition to the long-term maintenance, you’ll want to do annual upkeep, too.

Clean rain gutters, caulk window frames, make sure downspouts move water away from your

foundation, replace air filters on central air systems (every 4 to 8 weeks), and clean chimneys.

Annual upkeep will save you money (and keep your family safe).

Some repairs can wait, and others can’t (or shouldn’t). A faulty electrical outlet above

a sink should be fixed as soon as possible. A leaky faucet is unlikely to improve, so you

might as well save yourself the irritation of listening to it drip and wasting the water. A

drippy faucet may cause a bigger plumbing problem, and you always want to find those

sooner than later.

Depending on whether you’re handy with tools and the scope of a job, you may

want to consider hiring a contractor to do certain repairs. If you need a list of contractors

with valid licenses and current workers’ compensation and liability insurance, call your real

estate agent. They can provide you with a list. If you’re debating about whether to take on a

project yourself, here’s my suggestion: if it deals with electricity or gas, hire an expert.

Skimping here can cost lives. If you feel comfortable doing the work and have the time to do

it, by all means, take it on. Be aware that some work may require permits from the City or

County.

When money is tight, you may think that choosing the lower quality product that

saves a few bucks is a good idea. Think again. If you have your house painted, for example,

you are mostly paying for the labor. If you choose the highest quality paint, you won’t have

to hire painters again for a long time. If you need to replace your water heater, different

heaters come with different warranties. As a property manager, I can tell you that if they say

it’s a five-year water heater, it is. For the additional cost of the better quality product, it is

usually a savings over the long term. Prevention doesn’t cost; it saves.

Next time, I’ll talk a about preparing your home for sale. If you have questions in the

future, please don’t hesitate to call me, Patty McMillen 707-467-3637.

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There is no difference in a foreclosure/shortsale or deed-in-lieu, they all affect your credit score, they are considered “not paid as agreed accounts”

The difference in credit score impact observed by real estate professionals and their clients is mainly determined by the history and frequency of delinquencies leading up to the foreclosure, shortsale or deed-in-lieu.

One 30-day delinquency can subtract 60-110 points, and the longer a seller is delinquent the worse damage to their credit score.

A foreclosure can drop a credit score by 150 points or more and will remain on a seller’s record for seven years.  The worst is a bankruptcy, which can drop a credit score by as much as 240 points and remain on file for 7 to 10 years.

Short Sales and REOs – Buying and Selling in an Upside Down Market

You may have heard about people being “upside down” on their mortgage. When people owe more than the value of their home it can lead to a short sale. If they cannot afford their mortgage payments anymore, it can lead to an REO (Real Estate Owned) sale.

A short sale occurs when a home is sold for less than is owed on it – for example, if the buyer owes $275,000, but the home will only sell for $250,000. An REO occurs when the property is already foreclosed on, and the lender (who now owns the property) is the seller. A short sale is preferable to a foreclosure for several reasons. I’ll explain both sales in more detail, and I think you’ll see why.

If you’re a seller, a short sale is better because it’s less damaging to your credit (and your privacy) than a foreclosure. Clearly, you won’t be too motivated to sell your home since you’re not making any money on the deal, but at least you’re not digging a deeper hole financially. Be aware that this must be an “arm’s length” sale – you can’t sell to your sister or son or best friend.

Another word of advice, don’t try to make an under-the-table deal with the buyer to get some cash. It’s called fraud, and it can get you in big trouble. Recently, a buyer agreed to buy an heirloom oriental rug for $60,000 (one that was worth about $500). The buyer and seller got caught and sent to jail.  Sometimes the bank will allow the seller to get some cash out of the sale—as long as all parties agree, you’re good to go.

REOs are the end product of a foreclosure, which is a public process (must be published in the newspaper), and they are devastating to a person’s credit. If you’re a seller, try to avoid foreclosure if at all possible. Adding insult to injury, a foreclosure can result in a deficiency judgment against the seller, where they not only take your house but require you to pay the unpaid portion of the loan. Rough deal.

As a buyer, short sales are also preferable to REOs, generally speaking. In a short sale, the seller is obligated to complete a Transfer Disclosure Statement (TDS). This document discloses physical problems with the property as well as other known problems (e.g., a neighbor’s dog has bitten several people or a neighbor has been cited for several noise violations as a result of his garage band jamming until the wee hours of the night). In an REO, the bank isn’t expected to know about these issues and is exempt from the TDS requirement.

Again, looking at this from the buyer’s perspective, a significant downside to REOs is that buyers frequently must work with the lender’s escrow company and use the lender’s sales contract. Many of the lenders that have found themselves stuck with properties to sell are banks or federal lenders like the Federal National Mortgage Association, referred to as Fannie Mae. As a rule, these are bureaucratic organizations that are not customer-centric The process can get burdened with intractable inspection time frames, and doesn’t allow for contingencies.

Really, the only advantage to the REO is that anything that was going to get taken from the house has already been taken. Sometimes, when a buyer views a home before a short sale, they are horribly surprised later to find that everything that could be removed from the house has been.

Short sales and REOs often involve emotional trauma for the person who lost his or her home. As a result, I’ve seen houses with the following things removed – no exaggeration: wood stoves, “built-in” hot tubs, kitchen cabinets, wall-to-wall carpet, toilets, light fixtures and more. This goes way beyond taking the light bulbs to be frugal. This is an emotional response to the loss of a treasured home.

Apart from that, short sales are definitely preferable—whether you’re a buyer or a seller. Either way, I’d highly recommend going through the process with a Realtor by your side. In REOs, banks know the value of listing with a broker. They want to work with a competent Realtor that’s familiar with state and local real estate law. You should have a similar expert on your team.

Common indexes used for Adjustable Rate Mortgages (ARMs) over an 11-year period (1996-2006). Shown: 1-year constant-maturity Treasury (CMT) securities, the Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR). To determine the interest rate on an ARM, lenders add a few percentage points to the index rate, called the margin. (Photo credit: Wikipedia)

Mortgage News for Tuesday May 7, 2013

Mortgage Rates Continue Steady Drift Higher
Mortgage rates rose again today, continuing the steady move higher seen yesterday. In the bigger picture, Friday’s jobs report did the most severe damage, taking rates much higher on that single day than yesterday and today combined. Without any meaningful data to motivate movement, bond markets (which include the mortgage-backed-securities or MBS that directly influence rates) have been adrift so far this week–continuing to trade defensively–still rattled by Friday’s move.
Conventional 30yr Fixed ‘best-execution’ remains at 3.5% today, which is an eighth higher than the 3.375% achieved last week. That means that the actual interest rate quote you’d receive (or have received) isn’t likely to have changed today, but the costs involved with obtaining that rate moved higher for most lenders. Depending on your scenario, this could mean increased closing costs or a decreased amount of lender credit.
The week on Wall Street continues to be subdued in terms of market moving data tomorrow although there’s incrementally more potential for volatility. Namely, the 10yr Treasury auction in the afternoon may have an impact on MBS, which could in turn affect mortgage rates. The fact that we haven’t seen a firmer bounce toward higher rates has been somewhat reassuring so far this week, but it’s too soon to assume that the post-Jobs-Report move higher has fully run its course yet.

Mortgage Interest Rates*
Rates as of Monday May 7, 2013

Rates Loan Fee
30 Year Fixed Conventional 3.50% 1%
30 Year Fixed FHA/VA 3.25% 0%
USDA Rural 3.25% 0%
FNMA Home Path (95% LTV) 4.25% 1%

Rates Are A Market Snapshot And Are Subject To Adjustments Depending On Credit Scores, Loan To Values, Occupancy, etc.

Rates Are Subject To Change Without Notice

Seal of the United States Federal Housing Finance Agency. (Photo credit: Wikipedia)

The Federal Housing Finance Agency (FHFA) has announced the extension of the Home Affordable Refinance Program (HARP) by two years to December 31, 2015. The program was set to expire December 31, 2013.

The HARP program has proven to be an important tool for customers, especially underwater homeowners to achieve financial savings through interest rate reductions in a streamlined refinance situation.