3 reasons to make smaller down payments

My friend Jay Vorhees at JVM Lending put together some thoughts on why you should make smaller down payments. I thought this was an interesting idea, so here is his blog reprinted, with my thoughts at the end! Read on:

We recently had a borrower with ample income and about $70,000 of liquid assets try to squeeze into a $600,000 home with 10% down. She wanted us to put as much down as possible to minimize her housing payment. We instead talked her into putting 3.5% down and using FHA financing for the three reasons discussed below.

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  1. Pay off consumer debt: When buyers have a lot of consumer debt, we always encourage them to make smaller down payments and then use the remaining cash to pay off consumer debt. The monthly savings from paying off consumer debt almost always far exceed the potential savings from having a smaller mortgage. In addition, mortgage interest rates tend to be much lower than consumer debt interest rates and most mortgage interest is tax-deductible, while consumer debt is not.
  2. Save cash for the “unexpected”: Many buyers vastly underestimate the amount of cash they will need for unanticipated expenses once they buy a home, especially if they had been renting. These costs include moving costs, new furniture needs, new appliances, minor home improvements of all types (window treatments, floor coverings, etc.), higher utility bills, and higher yard and home maintenance costs.
  3. Take advantage of low rates: When rates are this low, it is much more affordable to put less down and to borrow more in any case.

These are good thoughts by Jay. However, a buyer is at a disadvantage if multiple offers are made. It is more likely, in that scenario, that you will lose out to someone with more money down and they may remove some or all of their contingencies. Each situation is unique and all options should be discussed so a buyer understands the pros and cons and can make an informed decision!

People staying in homes much longer – is this a problem?

My friend Jay Vorhees at JVM Lending recently posted a blog about how people staying in homes longer creates an inventory shortage. Here are his thoughts below.

“Fewer homes for sale is a big reason why even ultralow mortgage rates, record levels of home equity and a strong job market haven’t jump-started the sluggish housing market.”

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The above quote is from this recent WSJ article – People Are Staying In Their Homes Longer – A Big Reason for Slower Sales.

According to the article, homeowners are now staying put for an average of 13 years, or 5 years longer than they stayed as recently as 2010. This, of course, puts a huge damper on inventory levels.

Below are several reasons why people remain in their homes longer now:

Baby Boomers are living longer and are much healthier

Because of this, baby boomer-homeowners are less likely to downsize as soon as they would have in years past.

Property tax exemptions

Many homeowners have special property tax exemptions that they cannot take with them when they move, so they stay put in order to preserve them.

Too expensive to move up

Many homeowners who bought years ago and now want to move up cannot afford to do so because there has been so much appreciation in the housing market.

Don’t want to give up low rate

This was not mentioned in the article and it is not as much of a factor now, but it was a significant factor last year when rates were much higher. Many homeowners with very low fixed rates (in the low 3% range) do not want to give them up. And moving when rates are higher forces them to give up their low rates.

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Capital gains taxes

This is a much bigger factor than most people realize. The WSJ article uses a Danville, CA couple as an example. They bought their home in 1987 for $440,000 and it is now worth $1.8 million. If they sold, they would have to pay capital gains against almost $1 million of capital gains (after their exemption). If you are single or divorced and have the house then you only get $250k of capital gains write off vs. $500k.

This is an even bigger factor for investors. I recently blogged about my nephew renting a $2 million home for $4,250 per month in San Francisco. That works out to less than a 2.5% return against a $2 million asset. I realize that is over-simplified, as there is much more that goes into a full real estate investment analysis (appreciation, cash out of pocket, debt service, maintenance, depreciation, taxes, etc.) but there are millions of landlords across the country who are sitting on poorly performing properties solely to avoid capital gains taxes. We see this constantly when we are pre-app roving borrowers.

Kristin’s note: The state is trying very hard to figure out our housing shortage by focusing on ADUs – “additional dwelling units,” better known as in-law units. Consistent laws have been made across the state, but, come January, a few of the current laws will be changing to make it even easier for somebody to build an ADU in their backyard. For example, you used to have a parking garage space for the ADU unit and the owner had to occupy at least one of the living spaces. Stay tuned for a future blog about those upcoming changes.

Arlene Lane – closed

I recently closed a sale at 45 Arlene Ln. Two wonderful families offered on the home – one needed to sell their home, and one wanted to close in 21 days. My client chose the family whose house was already in contract. Parkmead is such a wonderful neighborhood, with great schools, ideal for families; and this house boasted a .49 acre flat lot with a pool and 3,000+ sq. ft. The neighborhood has a 4th of July Parade, Chili/Mac & Cheese Cook-Off, a very festive Halloween with over 300 Trick-or-Treaters, plus a summer BBQ at Dewing Park, our local swim club.

The new owners have two kids, know people in the neighborhood, and are super excited to be living there! The seller I was representing moved to Santa Barbara to be closer to her mother and her son.

My seller struggled a bit with who to choose. After 20-some years in your home, the desire to have one more Thanksgiving, was more appealing than rushing out. After a conversation with her son, practicality prevailed and it went smoothly thereon. This home was listed at $1,500,000 and sold for $1,465,000.

A closing on 7007 Mariposa

I recently sold a home at 7007 N. Mariposa in Dublin. One cool thing about it is that this is the fourth property I have either helped sell or buy for this same family.

Each time they bought, I said, “you will be moving in four or five years!” They have a growing family so a move-up buyer makes sense. This home I just sold had only a small side yard and no driveway, but as you can see by the pictures, they had a beautiful home that went quickly. So off they went to find the unicorn house that has it all.

They are now in contract on new construction and I have a feeling they will be staying in this one for a long time. I’m so happy I was able to help them out again. Though one of the kids was sad to leave, I believe they will love their new home and their new baby brother or sister due to arrive next year Congrats to all!

5 Tips from Ty Pennington

You all remember Ty Pennington from Extreme Makeover: Home Edition, right? Well, I recently read a short blog about his five tips to make a home’s exterior look brand new, regardless of how old the actual home is! Without further ado, here are Ty’s tips:

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1. Paint

Nothing packs as much impact as a fresh coat of paint. My favorite new trend-black siding! No need to tear off and do a full replacement. If your vinyl siding is in good shape, paint it!

2. Clean

We tend to put off cleaning the windows, but don’t! Clean windows make your house look well-loved and cared for.

3. Repair

Cracked and missing concrete is not just an eyesore, it’s a safety concern. While it may be costly to pour a new driveway or sidewalk, it will pay you back in reducing that safety risk.

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4. Fertilize

It’s autumn, and that means it’s time to prep for summer! Fertilizing your grass now will help fill in thin spots and grow deep roots so your lawn survives winter. Plant your bulbs now if you are considering selling in the spring.

5. Tuckpoint

If you have a brick house, protect it from moisture intrusion by having it professionally tuckpointed. That said, there are very few brick homes in our area (more stucco).

To read the entire piece from Ty, check out his extended tips here.

What constitutes a “bedroom?”

Jay Vorhees of JVM Lending raises an important question in a recent blog: what constitutes a “bedroom” in a real estate context? I’ve always told my clients that if it has a closet, it’s a bedroom – but I learned there’s actually a lot more to it! Read on, from Jay:

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My wife Heejin spoke in front of a brokerage recently and an agent approached her afterward to complain about a transaction we closed over three years ago. The agent was still upset because the appraisal came in low. We researched the transaction and found out that the county records and the MLS had the bedroom count wrong.

The agent was adamant that the home was a 3-bedroom house, as per county records, but it was actually only a 2-bedroom home, necessitating the use of more similar and lower-priced 2-bedroom comps. The ostensible “third bedroom” was only 42 square feet – far too small to constitute an actual bedroom.

Superstar appraisal-blogger Ryan Lundquist, of course, addressed this issue in one of his excellent blogs – Four Requirements for a Room to Be a Bedroom. Here are a few simplified takeaways (I recommend reading Ryan’s entire blog for more detail):

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  1. Entrance/Exit: A bedroom needs to have a door to the main house and a window to the outside.
  2. Ceiling Height: At least 50% of the ceiling needs to be 7 feet high. Hence, a sloping attic ceiling is okay in most cases.
  3. Size: A bedroom needs to be at least 70 square feet, with no side being less than 7 feet. Hence, a 6 by 12-foot room is not a bedroom.
  4. Closets Not Required (Usually): Many agents and buyers mistakenly believe that a “bedroom” must have a closet, but if often depends on local real estate norms, per Ryan. The last point is my own, and not Ryan’s.

County records and MLS info are sometimes incorrect, too. My above story involving the upset agent is a great example. County records say the house has “three bedrooms,” when it definitely only has two.

This is also another reason why we need skilled human beings to appraise homes. AI/computers will believe county records every time, but that is a topic for another blog.

(Kristin’s Thoughts) Another thing to note: if you don’t pull the permits, the tax records won’t reflect the addition of a bedroom, but an appraiser may use it if it is functional as a bedroom.

4 things not to do when putting your house on the market

RIS Media re-posted an older blog recently, and its advice still rings true. There are plenty of things you SHOULD do when putting your house on the market. But what about the things you shouldn’t do? Read on for more:

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So you’ve decided to put your home on the market. Congratulations! Hopefully, you’ve brought a rockin’ realtor on board to help list your home and together you’ve done your due diligence on what to ask for. As you start checking things off your to-do list, it’s also important to pay mind of what not to do. Below are a handful of things to get you started.

Don’t over-improve.
As you ready your home for sale, you may realize you will get a great return on your investment if you make a couple of changes. Updating the appliances or replacing that cracked cabinet in the bathroom are all great ideas. However, it’s important not to over-improve, or make improvements that are hyper-specific to your tastes. For example, not everyone wants a pimped out finished basement equipped with a wet bar and lifted stage for their rock and roll buds to jam out on. (Okay, everyone should want that.) What if your buyers are family-oriented and want a basement space for their kids to play in? That rock-and-roll room may look to them like a huge project to un-do. Make any needed fixes to your space, but don’t go above and beyond—you may lose money doing so.

Don’t over-decorate.
Over-decorating is just as bad as over-improving. You may love the look of lace and lavender, but your potential buyer may enter your home and cringe. When prepping for sale, neutralize your decorating scheme so it’s more universally palatable.

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Don’t hang around.
Your agent calls to let you know they will be bringing buyers by this afternoon. Great! You rally your whole family, Fluffy the dog included, to be waiting at the door with fresh baked cookies and big smiles. Right? Wrong. Buyers want to imagine themselves in your space, not be confronted by you in your space. Trust, it’s awkward for them to go about judging your home while you stand in the corner smiling like a maniac. Get out of the house, take the kids with you, and if you can’t leave for whatever reason, at least go sit in the backyard. (On the other hand, if you’re buying a home and not selling, then making it personal is the way to go, especially when writing your offer letter. Pull those heartstrings!)

Don’t take things personally.
Real estate is a business, but buying and selling homes is very, very emotional. However, when selling your homes, try your very best not to take things personally. When a buyer lowballs you or says they will need to replace your prized 1970s vintage shag carpet with something “more modern,” try not to raise your hackles.

And all of this is sage advice, choosing the right realtor to work with will streamline that process, talk you off the ledge and help you navigate the offer(s) and in the end if you hired right, will give you peace of mind.

Landscaping tips to improve home value

I wanted to go back to a blog I saw a few weeks ago. It’s an RIS Media blog about landscaping and how you can make the most out of your yards when trying to sell. Read below:

Landscaping is one of the most important ways to increase your property’s value quickly. In fact, a gorgeous landscape design can increase the value of your home by at least 5 to 11 percent—and maybe more. The best part about landscaping is that even though it’s one of the most valuable home improvements you can make, it’s also one of the easiest. If you’re wondering how to turn your landscape into one of your home’s most valuable assets, here are some tips to get you started.

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1. Match Landscape to Your Home’s Style

The best way to get an excellent return on investment with landscaping is to make sure it fits with your home’s style. For instance, if you own a Victorian home, a Japanese garden will be sorely out of place and may even lower your home’s value rather than add to it. In this instance, you’re much better off with a country or cottage-style landscape that blends in with the old-fashioned formality of your home.

The same holds true for more modern home styles, such as the prairie or industrial style. If your home falls into one of these categories, you’ll want to stay away from square, formal gardens or a profusion of airy blooms. Instead, create a more modern landscape by relying on plenty of greenery and natural-looking beds that fit the contours of your property.

2. Design With a Strategy in Mind

You’ll need to have a good strategy. That means you shouldn’t clutter the entire yard with various high-maintenance plantings, but you also shouldn’t have plain grass with no landscaping. A study by the Virginia Tech Department of Horticulture found that a good foundation planting along with a couple of well-designed points of interest can increase your home’s value by up to 42 percent.

By that same token, you should encourage diversity among your plantings without taking it too far. The ideal landscape has a good mixture of shrubs and perennials, but it doesn’t have one of every kind of plant that you can find at the garden center. Instead, it has a uniform look with just enough diversity to make it interesting, but not so little that it becomes boring.

3. Achieve Seasonal Balance

A profusion of spring blooms won’t interest potential buyers who look at your home during other parts of the year. Think about ways to make your landscape attractive all year — blooming bulbs for spring, annual beds around the house during the summer, shrubs with brightly colored leaves in the fall, and evergreens for the winter. Even though most buyers will be looking at your home during one season, they’ll notice the balance you’ve created and they’ll think about how beautiful the home will be as the seasons change.

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4. Plant Trees

A few simple trees can make an enormous difference to the sale price of your home. In one study, simply living on a tree-lined street added between 10 to 15 percent to the sale price compared to neighborhoods with fewer trees. So why are trees worth so much? Trees remove carbon dioxide and pollution from the air, so people view them as an eco-friendly option. The shade helps keep neighborhoods and homes cooler and more pleasant, which in turn cuts air conditioning costs. Trees are also a stress reliever — people enjoy relaxing in their shade or gazing at the leafy view.

5. Edge Your Lawn

Few things look nicer than a healthy, vibrant, carefully maintained lawn — except for a lawn that is all of those things and neatly edged. The confined look of an edged lawn gives it an easy-to-maintain look. In other words, no weed whipping or weeding required.

Edging along driveways, sidewalks and garden beds also shows prospective buyers how meticulous you have been concerning the property’s upkeep. They’ll know that if you’re willing to keep the edges of your yard looking nice, the rest of the property is likely in pristine condition, too.

Of all improvements to boost home value, landscape is one that will get you the largest return on your investment.  Just make sure that you design your landscape with a plan, and don’t let that design become so complex that the mere thought of all the maintenance chases away your buyers.

A quick comment: I heard Jay Vorhees at JVM Lending telling me this after I made a comment on one of his blogs. The neighbor down the street had a bunch of Juniper bushes, which did not give great curb appeal and the house sat on the market. Had they removed those bushes and done some generic landscaping, that house would have probably sold for $100k more as a similar one did come on the market with a nicely landscaped front yard and sold in less time and for about $100k more!

Way too much concern over credit inquiries

Our friend Jay Vorhees at JVM Lending put forth a good blog recently about credit inquiries. As a member of USAA and Capitol One, I get free credit monitoring, which is a super helpful tool. Read on for more:

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Over 500 borrowers come to JVM every month seeking mortgages. And way too many of them are far too concerned about credit inquiries. It is our strongest borrowers who are often the most concerned, which is ironic because they are the least affected by credit inquiries, but also why they have high credit scores.

This is because credit inquiries only affect a strong borrower’s credit score by a few points at most. And even that impact disappears after a few months. It is true that “hard inquiries” remain on a credit report for a few years, but they stop impacting credit scores long before they drop off a credit report.

Further, the credit bureaus or scoring models treat multiple inquiries from different mortgage lenders over a 30-day period as a single inquiry. It is only when borrowers apply for a large number of credit cards or apply for a large amount of credit from different types of credit providers over a short period of time that the scoring models become concerned.

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A single inquiry from one mortgage provider will hardly impact a strong borrower’s credit at all. And even if it does, the impact will only be a few points and it will disappear in a few months.

For readers who would like to learn more, Credit Karma has a more detailed discussion about credit inquiries here. As an aside, I also recommend signing up for the Credit Karma App. It is a great way to keep tabs on your credit and credit score. Or, like me open a Capitol One Credit Card (as long as you don’t have too many credit cards already and then you will be able to keep tabs on your credit scores for FREE!

Two Notes:

  1. Your scores from these reports are usually a bit different than the way a lender will see your scores. I recently had a client work to build up his credit to 705, but when they ran his credit for a loan it was in the high $600s.
  2. My girlfriend just went in with her son on an investment property where he will be living in it and they have roommates who will be paying rent (my youngest is one of the renters). She called me to inquire about going FHA as her lender recommended. I was very surprised because she was putting more than 20% down. I told her she shouldn’t be going FHA. Come to find out her son had no credit and thus he had a very low credit score and a lender will always take the lowest of two credit scores. Make sure your kids start to establish credit by having a gas card or a credit card that they pay on time.


A recently closed home finishes the American dream

I have a great story to tell you today about one of my clients. This client closed on a house last Friday, which is a big deal for anyone, so congratulations are in order. However, they also closed on a long-awaited chapter of the American dream.

The Tolentino family had been renting in Richmond for almost 20 years in the same house. As a veteran, Eulogio finally decided to use his VA benefits to purchase a big home in Pittsburg. I met them through a referral from USAA when they had been working with another agent, but they felt they were not being fully represented.

They were motivated to see some houses, so my team member, Lilly, went and showed them some newer construction in Pittsburg and they decided to write an offer. They came back to the office and we all sat down and discussed the process and what they would need. Their previous agent never explained that if they were getting money out of a 401K, they might need to know how long it will take and then put in an offer after they had the money in hand.

After much discussion, they decided they could not write on this house as offers were due that day. They then set their sights on some new construction, got all their ducks in a row, and now are the proud owners of a brand new house!

Eulogio is a native Filipino who moved to the United States and served our country. I can’t think of a better example of what the United States stands for and the diversity that inhabits this country. It is what the USA was built on. A big congratulations for achieving the American dream and owning a piece of land in the country he defended.

I’m so happy for the Tolentino family and proud to have helped them achieve their dream! This moment is more than well-deserved.