Month: April 2015

House-Hunting Tips for VA Buyers

Veterans Affairs home loans offer big-time benefits for qualified buyers, from no down payment or mortgage insurance to more flexible and forgiving requirements.

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But this is also a specialized loan program aimed at helping veterans and military members purchase homes that are safe, sound, and sanitary. That means some properties will be a better fit for VA loans than others.

Here’s a look at three key tips for VA buyers preparing to start the house hunt.

1. Get a VA-savvy agent

One of the most critical steps VA home buyers can take is to contact a military-friendly real estate agent who has experience with VA loans.

Agents familiar with VA loans recognize the unique needs of veterans and military families. They also understand the short buying window that often comes with Permanent Change of Station orders for active-duty service members.

VA-savvy agents are also committed to giving back to the men and women serving their country. This combination of dedication and knowledge makes these agents a vital part of any VA borrower’s home-buying journey.

2. Look for move-in-ready properties

A good rule of thumb for buyers is to consider those three “S’s” and look for homes that are safe, sanitary, and structurally sound. These properties are more likely to pass the VA appraisal and save buyers a few headaches down the road.

Fixer-uppers can be tough given the VA’s minimum property requirements. These are broad-based concerns like ensuring the property has adequate heating, roofing, and safety features. Major issues would need to be repaired before the loan could close.

VA buyers should also consider properties that meet the VA’s outline for acceptable uses, and be wary of manufactured homes and homes in disrepair.

3. Understand risks and rewards of distressed properties

When it comes to purchasing foreclosures, home buyers should be aware of the trade-off between potential savings and potential frustration. Buyers may save a good chunk of change purchasing a foreclosure, but if things fall through, you might be out several hundred dollars in appraisals and inspections. Foreclosures can also take months to close.

The other consideration is that some distressed properties are in better shape than others. Foreclosures are typically sold “as-is,” meaning banks and lenders aren’t likely to make or even allow repairs before closing. VA buyers who choose to pursue a foreclosed property should proceed with caution and patience.

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10 Home-Buying Costs You Need to Know About

If you’re a first-time home buyer, you might get a little queasy when the last line of your good-faith estimate comes in at several thousand dollars. And after the color returns to your face, you might also be a little more than perplexed by some of those fees.

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Knowing what you’re paying for—like these 10 common costs—can ease that check-writing pain.

1. Earnest money

To prove you’re “earnest” in your purchase commitment, expect to plunk down 1% to 2% of the total purchase price as an earnest money deposit. This amount can change depending on market factors. If demand in your area is high, a seller could expect a larger deposit. If the market is cold, a seller could be happy with less than 1%.

Other governing factors like state limitations and rules can cap how much earnest money a seller can ask for.

2. Escrow account

An escrow account is basically a way for your mortgage company to make sure you have enough money to cover related taxes and mortgage insurance. The amount you need to pay varies by location, lender, and loan type. It could cover costs for a few months to a year.

Escrow accounts are common for loans with less than a 20% down payment and mandatory for FHA loans, but it’s not required for VA loans.

3. Origination

The origination fee is a hefty one. It’s the price you pay the loan officer or broker for completing the loan, and it includes underwriting, originating, and processing costs.

The origination fee is a small percentage of the total loan. A typical origination fee is about 1%, but it can vary. Use your good-faith estimate to shop around.

4. Inspection

You want to be assured your new home is structurally sound and free of surprises such as leaks or pests living in the walls. Those assurances come with a price.

Home inspection: This is critical for home buyers. A good inspector will be able to notify you of structural problems, flooding issues, and other potentially serious problems. Expect to pay $300 to $500 for a home inspection, although cost varies by location.
Radon inspection: An EPA-recommended step, this inspection will determine whether your prospective home has elevated levels of the cancer-causing agent radon. A professional radon inspection can cost several hundred dollars.
Pest inspections: Roaches are one thing. Termites are a whole different story. Expect to pay up to $150 for a termite inspection.
5. Attorney

Some states, such as Georgia, require an attorney to be present at closing. In some other areas, this is optional. If you use a lawyer, expect to cover the costs, which vary by area and lawyer.

It’s typical for mortgage companies to have a lawyer on their end, although they should cover the bill.

6. Credit check

Just because you can get your credit report for free doesn’t mean your lender can (and it will actually pull all three). You have to reimburse the lender, usually around $30.

7. Extra insurance

If you live in a hazard-prone area, you might need to purchase extra insurance, like for flood.

8. Appraisal

Your lender won’t loan you money for a home without knowing what its fair market value is. An appraisal will cost $200 to $400, depending on location and property size.

9. Title company

You pay this to the title company to make sure the property’s title is free and clear. Your lender will recommend a title company, but you can also shop around for one.

10. Survey

It’s not required in all instances, but your lender may require a professional surveyor to determine exactly where your property lines are drawn. Prices vary widely, but expect to pay at least $100.

Remember: You have bargaining power. Shop around to get a feel for what rates and fees apply in your area. If you aren’t sure what a lender is charging, ask for an explanation—the charge might not be set in stone. If you’re unhappy with a charge, negotiate.

Is a Short Sale Right for You?

If you’ve been unable to keep up with your mortgage payments, it might seem like your only option is foreclosure. There is, however, another option.

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You may be able to do a short sale on your home before foreclosure. Here are the advantages and disadvantages to consider before deciding on a short sale.

What is a short sale?

A short sale is when a property is sold at a price lower than the amount the homeowner owes on the mortgage, and the mortgage lender agrees to the “short” payoff. Banks and lenders have specific rules on which properties qualify for a short sale. If you decide on attempting a short sale in lieu of a foreclosure, call your lender. You will need official approval, as the lender is agreeing to a discounted payoff.

Keep in mind that a short sale, like a foreclosure, is a serious financial and credit reporting situation. A real estate attorney and tax accountant may advise which path is better to follow. In addition, your accountant should advise you of any possible income that may be taxable from a short sale.

Pros and cons

The advantages of a short sale:

-Your loan will be considered paid in full.
-You’ll avoid foreclosure.
-A short sale has a smaller impact on your credit.
-After a short sale, you may be able to buy another home sooner than you would with a foreclosure.

The disadvantages of a short sale:

-You take full responsibility for the sale of your home, which can be time-consuming.
-If you find a buyer quickly, you may have to move sooner than expected.
-All proceeds from the short sale go to the lender.
-Impact on your credit

A foreclosure puts a serious black mark on your credit history that will last for seven years and hamper your ability to get loans and credit in the future. There is also a time limit after a foreclosure in which you will not be allowed to buy another home.

A short sale doesn’t have the same impact as a foreclosure, but your credit will still be damaged and you may struggle to find a lender that is willing to give you another mortgage soon after a short sale.

Getting help

If you’re unsure whether a short sale is right for you, speak to a real estate attorney. A real estate attorney can review your situation and help guide you to the best solution. You can also speak to your lender. Your lender has specialized loan officers who are able to review and guide consumers at risk of foreclosure.

Buying a Home That Was a Rental

A home that used to house tenants can be a great deal for a home buyer—they often sell for less than owner-occupied homes. But there are reasons why these homes may command less than top dollar.

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There are several things to weigh when considering buying a home that the owner didn’t occupy.

Why sell, why now

The reasons may be fairly innocuous, such as the owner became burned out from managing the property as a rental, dealing with the off-hour phone calls, and responding to tenant demands.

The owner might be moving or perhaps the market has risen, and now seems like the right time to cash in.

Sometimes the issue is cash flow. If a tenant hasn’t paid the rent, the owner may struggle to cover the mortgage. Sometimes the owner cannot afford to make the repairs the house requires.

If the owner has rented out the house for many years, he or she might not have any depreciation left for a tax deduction and could be eager to do a 1031 Exchange for another property. Taking its name from Section 1031 of the Internal Revenue Code, a 1031 allows a taxpayer to sell income, investment, or business property and replace it with a “like-kind” property, without having to pay capital gains taxes.

Why does the reasoning matter? Because it could indicate how well the property was cared for and whether or not the owner is motivated and willing to negotiate.

A cash-strapped owner may be less inclined to maintain the property. And since the owner hasn’t lived there, he or she may not even be aware of any problems.

Wear and tear

Even if the owner has done regular maintenance and made frequent visits to the property, the tenants may not have cared for the property like an owner would. You’ll want to make sure you complete a thorough property inspection. You should request past inspection reports, too.

You’ll likely want to investigate any history of insurance claims. Talk to your insurance agent or discuss a CLUE (Comprehensive Loss Underwriting Exchange) report with your Realtor, for a five-year claim history on the property.

If the house shows signs of extra wear and tear, factor fixes into your budget. Ask the seller for repairs or credit you money toward closing costs. It’s not a deal if you’ll have to spend more on repairs than you’d pay for another, similar home in better shape.

Vet the neighborhood

Drive through the area at various times of day. Speak with the neighbors and learn more about the other houses on the street.

Some factors to consider:

Are there families in the area?
Are there multirental units with student renters?
What’s the average selling price?
Have home prices decreased or increased lately?
These factors may affect the resale value of the property, especially when it comes to the overall curb appeal of a neighborhood, when other rental properties may not be kept up as well as yours.

This also plays to your own peace of mind. If you have young children, a busy street with a large apartment complex may raise safety concerns. If you have to park on the street, this too could make life troublesome sometimes.

Look alone

Make sure you tour the house without the tenants present. If they still live in the house, they may not like the idea of being ousted from their home and could try to sabotage the sale by exaggerating minor issues or making up problems with the house. Or, they may discourage you from opening closets or looking in cabinets.

As a potential buyer, you should be able to ask a Realtor questions, discuss what you see, and make your own observations without pressure from tenants or the owner. This is why homeowners are usually scarce during open houses. Buying a rental home should be no different in this regard.