Nolo’s Real Estate Tips for Home Buyers

For anyone who was counting on getting FHA help with lining up a home mortgage -- via the FHA loan program, in which borrowers who present higher risks than others, most likely due to low credit scores, may qualify for a loan backed by the FHA -- that plan is starting to look a little more tenuous.

The FHA has tightened up its standards, including:

• requiring down payments of at least 10% for anyone whose credit score is less than 580
• cutting the allowable amount of seller financing to 3% of the transaction price, and
• requiring buyers to pay a higher mortgage insurance fee at closing.
  

For a good summary of these provisions and their implications, see Al Heavens's article in the Philadelphia Inquirer, "On the House: FHA alters borrowers' guidelines."

If you're a home seller, don't panic. The changes don't address all borrowers, but only those who were having trouble finding and closing on a loan in the first place. Qualified buyers are still out there, and in some regions of the United States, eager to find a home. Research your local market before drawing any conclusions on whether now is a good time to put your home up for sale. 

This doesn't seem to have made the headlines yet, but I know of at least a few home staging businesses that have gone under of late. Fewer people are selling their homes, so fewer home sellers are hiring stagers.
 
I found out about one such bankruptcy the most direct way possible -- I was in the process of buying a house in which the stager's furniture and decorations were being claimed by the bank foreclosing on the stagers's loan, and everyone was worried about whether the stager's property's fate would be decided in time for the closing.

That actually worked out nicely for me -- we ended up buying all the property from the bank for a very reasonable amount ,and moving into a fully furnished home!  But I may forever feel a twinge of sympathy as I look around at various objects that the stager had painstakingly collected, presumably over years of being in business. In other cases, I've seen ads for entire warehouses of stagers' furniture and property up for sale, cheap.

I'm not a fan of every stager's work, so in part I see this as a market correction rather than a tragedy. But having also recently seen the wonderful work that a home stager did in preparing my house for sale (that would be Ken McHale Design, in Berkeley), I'd encourage sellers to help keep the good ones afloat by hiring them -- and not pulling sneaky maneuvers like bringing them in for a free consultation knowing that you have no intention of paying them for anything more, a common complaint among stagers!

In a tough economy, a house that looks its best really can rise above the general market malaise, and a good stager can work magic in this regard.   

Today we have a guest blog from George Devine, author of For Sale By Owner in California and co-author of How to Buy a House in California. George is also an adjunct professor in the School of Business and Professional Studies at the University of San Francisco.

 

When asked how I'd describe the real estate market as we begin 2010, the word that comes to mind is "caution." Both buyers and sellers are waiting to see what will happen next, and trying to avoid making impulsive or risky decisions.

 

If the current state of the economy and home prices weren't enough to make people cautious, anyone with friends or a newspaper can find instances of how overly eager buyers and sellers got themselves into trouble just a few years back.

For example, when Alan and Jill found their dream house in 2006, and figured  they could stretch their finances just far enough to make the payments, they decided to accept the inspection reports that had already been provided by the sellers and their agents. After all, they reasoned, why spend another several hundred dollars to reinvent the wheel?

 

Almost three years after closing, the home is worth 25% less than what Alan and Jill bought it for and they are saddled with a money pit in terms of needed repairs. Everybody is suing everybody else. Alan and Jill allege the structural pest control inspections were really cover-ups, and both they and the sellers claim their agents failed to protect them.

 

This kind of thing creates a lesson for present-day buyers who - usually with help from protective agents - now more commonly insist on "another set of eyes," by having their own inspections done. For a few hundred dollars, they're buying peace of mind, and possibly opening the door to negotiating an adjustment to the purchase price. With the market still slow, sellers have little choice but to go along with the buyers' wishes in this regard.

It's the biggest purchase of your life, wrapped up personal aesthetics and visions of how you'll live, now and in the future. So is it any wonder some couples find it difficult to agree on a house, or get annoyed at the other one's approach to the hunt?

Click here for an interesting analysis in the Boston Globe's real estate blog of how to make the most of different personality styles.

As long as you're house hunting, how about a little house dreaming? Prices on those luxury properties are lower than they've ever been, which can make the dreams seem almost real.

Fancy a castle? Check out www.castles-for-sale.com/buy/. Some of them cost less than a two-bedroom, one-bath house in San Francisco did just a couple of years ago! (But the heating bills will kill ya.)

Or how about your own island? See Private Islands Online. I see a little one in Scotland for only 65,000 Euro. (Then again, it looks like one wave could wash away anything you build there.)

And for general luxury everywhere, don't miss www.luxuryrealestate.com/. Let's see, should I search for "chateaus" or "estates?" What I could do with a few million dollars . . . .  

Even an economic downturn means good news for some people, and first-time homebuyers are turning out to be big beneficiaries of this recession. The National Association of Realtors says that new buyers accounted for 44% of 2009 home sales -- a rate that hasn't been topped since 1991.

Hindsight being what it is, I can already imagine the conversations over lunch, as people just entering the housing market today congratulate themselves on having waited so long ("We knew prices had to come down some time!") And all the while, they've been building up their savings for a down payment.

Plus, they're eligible for a nice $8,000 tax credit if the sale closes by this December. (For a nice Q&A regarding the details of this credit, see Edith Lank's August 15th column in the Chicago Daily Herald.) 

For profiles of buyers and details on how first-timers can take advantage of current market conditions, check out the SmartMoney article by Brad Reagan in their September, 2009 issue.

Thanks to the Wall Street Journal's cheapskate for eloquently expressing a point I've tried to make many a time -- in fact, every time I talk about real estate to a reporter -- but usually get blank stares in response to: The reason you buy a home is not to become a real estate mogul, it's to settle down in a place that's all yours, and that you hopefully enjoy. 

But enough from me, already: Here's the article.

I love "best" lists, because they're usually:
1) short and snappy.
2) based on a decent amount of research, and
3) give you a sense (maybe artificial) that the world can be ranked in an orderly way.

And this seems to be the season for best lists. For example, Forbes magazine has named its ten best retirement spots. Yes, Florida is on there, but not in the first three, which include:
1) Montgomery County, Pennsylvania
2) Nassau County, New York, and
3) Pima County, Arizona.

U.S. News & World Report magazine has named its 2009 ten best places to live in the U.S. based on factors like strong economies, low costs of living, access to healthcare and education, and recreation. Its top three are:
1) Albuquerque, New Mexico
2) Auburn, Alabama, and
3) Austin, Texas.
(Apparently, use of the letter "A" in the name was a criterion as well.)

And not to be outdone, Kiplinger's magazine has named the ten top U.S. cities for stable employment and new career opportunities. Start packing your bags for:
1) Huntsville, Alabama
2) Albuquerque, New Mexico, or
3) Washington, D.C.

Hey, Albuquerque made two out of the three lists! Maybe I should start packing.

It seems like every media outlet in the country is now talking about the opportunity that low home prices create for first-time buyers.

On KQED radio this morning, I heard a report on how military families in Southern California are able to afford homes for the first time in about a decade -- and getting mortgages cheaper than their rent.

USA TODAY tells us, in an article by Stephanie Armour, that first-time buyers are finding bargains and helping to perk up home sales.

And CBS news reports that Florida buyers interested in waterfront property are flocking to foreclosure boat tours!

With all this news coverage, these hints of a trend could turn into a self-fulfilling prophecy. People will see that others are buying homes and figure they'd better not wait any longer until prices rise, causing more people to get into the market, causing prices to rise, and so forth. I'm just watching, not advising...

That's right, I'm now the owner of a new (but old, made of recycled wood), Audubon-specification-compliant wren house.

Actually, I think I spent more time with this choice than with the house I'm living in. As with human houses, the particular bird houses I was checking out were all unique, made by Berkeley Rustic Birdhouses. I had to carefully consider price range, size (the entry, in particular, can't be too big if you want to attract wrens), aesthetics, and -- trying to get into the mindset of a small bird here -- which one might feel like "home." Sound familiar?

Mounting it became another lesson in home ownership -- there's nothing so valuable as a friendly neighbor with power tools! (Thanks, Joe.)

Now I'm suddenly shifting into the mindset of a home seller. Will any birds take a look? Will they peer inside in delight and say, "This is it!" or just look for signs to the next open house? I'm told it could take a year or more (for one thing, the birds need to feel sure I'm not going to move this new object tomorrow), but of course I want some to move in right now...