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 isn't an idle question on my part -- having just bought and moved into a new house with almost no advance planning, I've got piles of things that seem just a little too valuable to drop off at Goodwill (where I've already taken carloads of stuff).

So, I'll probably give them a try on Craiglist, and then have a garage sale one of these Sundays -- knowing full well that I'll probably get no more than $10 for any of the items in question.

If I work out how many hours I'll likely spend, first on posting the items online, answering emails or calls, meeting potential buyers, and then, for the garage sale,  attaching price tags, setting up, sitting outside in hopes of customers, and finally cleaning up afterwards, it's probably not worth the time at all. A savvy friend of mine likes to say that anything you can't sell for at least $50 bucks isn't worth the hours of effort (and sometimes aggravation) you'll put in. Probably sound advice -- which for some reason I probably won't take.

At least a garage sale might be a fun way to meet the new neighbors! And a few extra dollars wouldn't hurt right now, either.

In the meantime, I was interested to see Kiplinger's magazine provide a list -- in its March, 2010 issue -- of what items that might be sitting around in people's attics are selling best these days (particularly on eBay or Kovels.com).

According to them, boys' toys from the '50s and '60s are a good bet, along with art pottery, sterling silver from famous makers, Griswold cast-iron skillets and other kitchen ware from the '30s to '50s. But don't try selling Hummel or Royal Doulton figurines -- the market is saturated.

Wouldn't you know it? The only one of those things that I own is a Hummel figurine.   

I didn't think of myself as someone who Likes to Shop.

But there's nothing like being told you can't do something to make you (that is, me) want to do it. And having just  spent every dollar I had -- and a few I didn't -- to buy a house,  now is definitely not the time to do any shopping.

I saw a survey that said that, for people having to be extremely frugal, dining out was the hardest thing to give up. That actually hasn't been true for me -- we'd stopped doing much restaurant dining a long while ago, in order to save up for this purchase. For a treat, there's always Vietnamese food. (My apologies to all the underpaid cooks and waitstaff who I'm indirectly exploiting at the Bay Areas' wonderful Asian restaurants).

But I'm discovering the awful sense of conflict that comes up when the need to NOT SHOP coincides with being in maximum nesting mode -- just moving in, envisioning new curtains, new furniture, new rugs, and more. I'm spending time on websites, dreaming if not drooling.

Fortunately, there are ways to have fun dressing up a house for very little money -- especially during a recession.  I bought a little wastebasket  for a mere $4.61 at a Going Out of Business sale yesterday.  (I'd even found the penny on the ground -- yes, things are getting obsessive around here.)

And there's Craigslist, which is as great as it is addictive. I scored some free landscape pavers from a nice woman who was moving. They're now just waiting for my grand back yard plans. Of course, you've got to act fast on those freebies -- I responded within 20 minutes, and was the first in a line of interested people. And you've got to be ready for some misfires -- like the futon whose owner truthfully promised it had hardly been used, not knowing that it had been mildewing during all that time it was rolled up in the corner.

 I've also been scouring thrift shops in hopes of the perfect wide, flat plate to serve as a bird bath on our patio. Haven't found it yet, but the quest is engaging.

In fact, when you come right down to it, I'm spending an inordinate amount of time in this post-house purchase phase . . . shopping.  

 

I've been reading for months about how lenders have become nitpicky in the extreme when it's time to approve a mortgage loan. Gone are the days when a home buyer could prequalify and be assured that the rest would be smooth sailing.

But there's a difference between reading about something and living it. And having just bought a home -- the second one I've owned (gotta sell that first one now) -- I can say I've lived the mortgage applicant's experience in painful sensurround.

Maybe I was naive, but I thought having a great credit score (the legacy of having been insanely frugal even before it was chic) and making a big down payment would protect me from some of the most suspicious lender queries. Wrong.

First off, they wanted to know where every cent of money was coming from, apparently to make sure we weren't disguising any other loans from friends or family. An investment account? Ok, then how did that large-ish deposit get there? A transfer from my personal checking account? Let's see the bank statement. Getting gifts from parents? Better provide not only a gift letter and proof that they really have the money, but proof that it was in their account for at least ninety days, lest Mom and Dad have been borrowing money from someone else! (Mom and Dad, for the record, were not amused.)

Then they called my employer so often to ask whether I was still working there that the H.R. Director practically begged for mercy.

But here's the one that still has me in a state of mystification. Our lender -- and this is a big established bank, by the way -- wanted a signed letter from us explaining why we were moving a mere 1.24 miles from our previous residence. Huh? The obvious fact that the new house has one more bedroom, one more bathroom, and is in a nicer neighborhood didn't occur to them? Is there something inherently suspicious about moving within the same city? (I'm just happy I don't have to switch dentists.) And if there were some nefarious reason for such a switch (which my imagination has still failed to come up with), would I be dumb enough to say it in a letter in which I could -- and did -- explain that we wanted the extra space?

 But, all's well that ends well (I hope). The loan was approved, and I can move onto dealing with the other craziness of moving and selling . . . more on that to come.

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.

The headline of Sandra Block (of USA TODAY)'s recent column says it all: "Home buyers need good credit scores even with 20% down payment." Credit is tight, tight, tight, and even people who assumed they could sail in and get a loan before may have trouble now.

Block also offers some sound advice for raising credit scores, including the latest word on whether to close little-used credit card accounts.

And given that even making a 20% down payment is difficult without some family help, it's worth checking out this Wall Street Journal article by June Fletcher, which succinctly discusses issues like whether it's better to arrange a gift or a loan, and what happens if the giver doesn't file a tax return. (Big penalties despite the fact that no gift tax needs to be paid during one's lifetime!)

If you're not in the habit of receiving IRS tax tip newsletters (no, they're not my favorite emails either), you might have missed these ten helpful tips from the IRS regarding the new, extended first-time homebuyers' credit. It's got lots of goodies -- not only a deadline extension, but a raise on the income limits, and an opening up of eligibility to some  people who are actually already homeowners. Here ya go:

• You must buy - or enter into a binding contract to buy a principal residence - on or before April 30, 2010. 
• If you enter into a binding contract by April 30, 2010 you must close on the home on or before June 30, 2010. 
• For qualifying purchases in 2010, you will have the option of claiming the credit on either your 2009 or 2010 return. 
• A long-time resident of the same home can now qualify for a reduced credit. You can qualify for the credit if you've lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the new home is purchased and the settlement date is after November 6, 2009. 
• The maximum credit for long-time residents is $6,500. However, married individuals filing separately are limited to $3,250. 
• People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after November 6, 2009. The full credit is available to taxpayers with modified adjusted gross incomes up to $125,000, or $225,000 for joint filers. 
• The IRS will issue a December 2009 revision of Form 5405 to claim this credit. The December 2009 form must be used for homes purchased after November 6, 2009 - whether the credit is claimed for 2008 or for 2009 - and for all home purchases that are claimed on 2009 returns. 
• No credit is available if the purchase price of the home exceeds $800,000. 
• The purchaser must be at least 18 years old on the date of purchase. For a married couple, only one spouse must meet this age requirement. 
• A dependent is not eligible to claim the credit. 

I thought our book Nolo's Essential Guide to Buying Your First Home had a pretty complete list of what to do when planning a move -- but this recent article in The New York Times mentions something we forgot:

Ask for the cell phone numbers of the people actually driving off in the moving van with your stuff, and give them your cell phone numbers! Who knows what mini-disasters this might avert . . . .

The article also gives some handy costs breakdowns on everything from cardboard boxes to truck rentals to tipping the guys loading the truck.

I never thought I'd see the day when an IRS agent (who introduces himself as "Prince") would take to YouTube to promote a tax credit, but here it is. He doesn't really say much, but you can still help him become the next YouTube hit!

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 . . . .