Nolo’s Real Estate Tips for Home Buyers

New FHA Loan Guidelines

Mon, 08 Mar 2010 13:34:37 -0800

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.

Are Garage Sales Worth It?

Tue, 16 Feb 2010 13:56:33 -0800

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.

Bought a New House -- But Can't Afford to Dress It Up!

Mon, 08 Feb 2010 13:27:46 -0800

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.

Home Stagers a Casualty of the Down Economy

Tue, 02 Feb 2010 15:53:02 -0800

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.

Lenders Asking Every Question in the Book

Tue, 26 Jan 2010 15:43:20 -0800

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.

Why Home Buyers and Sellers Remain Cautious

Wed, 13 Jan 2010 09:19:56 -0800

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.

Home Sellers Beware of Buyers Who Believe in Internet Price Estimates

Fri, 08 Jan 2010 16:13:35 -0800

The January 2010 issue of Smart Money magazine has a fascinating article on the impact that Internet sites such as Zillow have on negotiations over home prices.

When websites such as Zillow first rolled out their databases of comparable home prices -- where you can simply type in an address and get a "Zestimate" of the house's worth -- most industry experts thought it was cute, but essentially irrelevant.

No database that pulls together public sales records can, after all, incorporate knowledge of street desirability, views, charm, and other such factors that play into a buyer's willingness to pay more or less for a, say, "2 bedroom 1 bath." And pricing houses isn't an exact science, but depends on buyer psychology -- what the market will bear.

But what if buyer psychology is being molded by websites showing comparable values, so that the online data becomes a self-fulfilling prophecy? That's in essence what the Smart Money article is suggesting, with stories of deals going awry because the buyer insists that the house is worth no more than its Zestimate -- or being suspicious when the Zestimate is far higher than the list price.

What's a home seller to do? Start by looking at how your house fares on the online databases, then at what you can do to change it. Zillow does allow sellers to enter certain data about their home, such as renovations and home features, and add some descriptions to entice buyers. (You need to register, then enter your home address to get to its "detail page," then look for the tabs allowing you to edit the data.) I just did it for my house -- with no immediate changes to my Zestimate, but they warn that it may take some time. I'll check back in when I find out!

Is Buying California Earthquake Insurance Worth the Money?

Mon, 28 Dec 2009 09:12:32 -0800

It's that time of year again -- when homeowners' insurance is up for renewal. And for Californians, that means it's also time to reconsider whether to pay around a thousand bucks in order to buy earthquake insurance. (It's a question for people in many other states, too, but for reasons discussed below, a more troubling issue here in California.)

Given that a major earthquake is expected anytime in the Golden State, and that an earthquake is capable of rattling a home into rubble within a few short minutes, you'd think buying insurance would be a no-brainer -- especially for me, whose level of risk tolerance extends no further than penny slot machines.

But I've noticed a curious trend. People I talk to within the real estate and construction industries -- the very industries I thought would insist on such coverage -- often tell me they haven't bought it. In fact, fewer than 15% of Californians buy quake coverage. What's going on?

There are, in fact, two rational arguments against buying such coverage in California:

The deductibles are very high, usually 10% to 15% of the insured value of your home. So if your home is insured for up to $300,000, you could be on the hook for $45,000. In a medium sized earthquake, you might sustain that much damage and have to pay it all yourself.
The California Earthquake Authority (CEA), which is the only source for such insurance, is not government-backed. In a major earthquake, it might just run out of money. So an earthquake that's big enough to get a homeowner past the deductible will probably have done a lot of damage to surrounding homes , and we'll all be running after the same dollars. (Well, maybe not all, given how few people are insured these days. But plenty of people nonetheless.)

Coincidentally, I've been getting bids for some foundation work recently. It's not cheap, but making sure that one's home has a solid foundation is an eminently practical way of dealing with earthquake risk. One of the contractors told me, in essence, "I replaced my own home's foundation so that it's as solid as they come, and now I don't buy earthquake insurance. I figure any quake that's big enough to damage my home will have completely destroyed all the homes around me, in which case there really won't be any insurance money left."

So there we have it. Me, I haven't decided about the insurance yet -- but I will be getting that foundation dealt with.

Loan Modification Tips for Those Having Trouble Paying the Mortgage

Sat, 19 Dec 2009 08:41:07 -0800

Don't miss this transcript of a radio interview with Bob Diamond, real estate attorney and developer, about the realities of loan modifications -- namely, how to make a request that the overburdened lender will actually pay attention to, and why it's truly in both the borrower's and lender's best interests to work out a modification rather than descend into foreclosure.

Be prepared for some bursts of rage, however, as you read about lenders' slippery tactics for avoiding dealing with consumers -- like Bank of America's continuing to have a working fax line for submissions, while not telling people that it essentially tosses the faxes without looking at them or recording them in its system. Good grief.

All Homebuyers Need to Check Their Credit Scores

Wed, 16 Dec 2009 14:02:20 -0800

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!)

When Selling a Home, Details Matter

Sat, 05 Dec 2009 11:26:38 -0800

I visited my first foreclosure open house recently. What a disaster -- sloping floors, peeling linoleum, a bad smell coming from the refrigerator (which was an imposing item itself, all black with a giant "Oakland Raiders" sticker on it), a hole in the living room floor, and so forth.

But the image that really sticks with me is the wadded up packet of ketchup (like you'd get from a fast food outlet) sitting on the kitchen counter. It would have been the easiest thing in the world for the agent to pick up and throw away.

True, it wouldn't have made a penny of difference to the home's (negligible) value, but I wouldn't have gone away with such an extreme a feeling of "No one involved in this transaction gives a darn." Which is why I say that details matter.

First-Time Homebuyers' Tax Credit Extension: IRS Tips

Wed, 25 Nov 2009 09:49:47 -0800

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.

Green Tips for Home Moving

Thu, 05 Nov 2009 08:39:40 -0800

The "Green Guru" (Susan Cosier) of Audubon Magazine fielded an interesting question this month: A reader was curious about how to move in an environmentally friendly way.

Here's a quick summary of her fine suggestions:

Look for moving companies that have incorporated green practices. For names, try the website of GreenMoversUSA. The website's owner, Mark Ehrhardt of Brooklyn-based Movers Not Shakers, uses biodiesel trucks and reusable plastic packing containers.
Apropos of the above, buy some plastic containers of your own for moving. (I find they're plenty handy after you've moved in, too.)
If using cardboard containers, give them away for reuse afterwards, perhaps by advertising them in the "free" section of Craigslist.
For packing materials, avoid styrofoam peanuts. Instead, choose recyclable or biodegradable materials like newspaper, cornstarch-based packing peanuts, or popcorn.
If you're packing your own truck, fill it up to avoid multiple trips. This may involve pretending you're putting a puzzle together. Put the boxes on the bottom, before the furniture.

That's all -- but I'd be curious to hear whether readers have come up with other ideas!

Movers Have Cell Phones, Too!

Tue, 27 Oct 2009 15:43:05 -0800

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.

Selling in a Market Thick With Foreclosures?

Mon, 19 Oct 2009 15:24:42 -0800

If you're selling a home with lots of competition from foreclosures, you probably feel like you've got some unfair competition -- they can sell for cheaper than you can or want to go. However, Amanda Gengler of Money magazine's October, 2009 issue makes an important point for home sellers in this situation: It's better to try distinguishing yourself from the competition, not undercutting it.

Foreclosures are often in crummy condition -- trashed, even. If you spruce your house up to where it's attractive and move-in ready, you're likely to find a buyer who'd rather not deal with the mess and hassle of a foreclosure. Read her full article here.