Do Pools Add Value to Home Appraisals?
What makes something worth more to one person and not so much another? You might ask the Peanuts character Linus. It’s Halloween and the all-time classic “It’s the Great Pumpkin” is set to visit our screens.
You all know the story, while everyone else is out trick-or-treating, Linus doesn’t place much affection for walking from house to house filling up sacks with candy. Instead, Linus, along with the canine sidekick Snoopy, sits in a pumpkin patch waiting for the “Great Pumpkin” which of course never arrives. Linus just doesn’t place much value in filling up a sack with candy. Different folks place value in different things.
Are you a homeowner? Are you thinking about putting in a swimming pool? Are you shopping for a home and one of your criteria is the home must have its own in-ground pool?
If this is you, then you have placed value in a swimming pool. But what will adding a swimming pool to an existing property do to its value?
It does, but only to those who also want a swimming pool. An article in the National Association of Realtor magazine points out the average cost to install, equip and fill up a swimming pool starts somewhere near $30,000.
In addition, there are ongoing maintenance and operating costs to consider including operating the pump and heater and another $600 to clean and maintain the pool. And you should also talk to your insurance agent to make sure your liability coverage is enough to protect you in case of a pool accident.
So far, it doesn’t sound very much like a pool adds value. But it can and does in most case. Somewhat, anyway.
According to the same article, a pool might boots your property value by as much as 7.00%. If your home is currently worth $321,000, then the value might increase to $350,000. That’s very close to what you would initially spend.
But remember, not all homebuyers want a pool. Who wouldn’t want a swimming pool to enjoy in the hot summer months?
Perhaps buyers with young children or infants. Still other buyers see a swimming pool and don’t see having a pool party with friends but see a maintenance issue.
Pools can be a bit high maintenance and one reason why pool maintenance companies are in business. However, there are reasons why you should definitely consider adding a swimming pool.
If in your neighborhood most other homes have swimming pools, not having one might actually detract from your home’s value. If the swimming pool is the right size and doesn’t take up the whole back yard and there is still plenty of lawn then the pool would be a desired amenity.
If however no other homes in the neighborhood has a swimming pool, there won’t be any other recent sales of homes in the area that have pools and it might be a bit difficult to compare your home with someone else’s.
Buying a Home With a Reverse Mortgage
It might seem a bit counterintuitive when you consider that the entertainer Cher is 70 years old. She’s currently finishing out a show in Las Vegas called “Living Proof: Farewell Tour.” Counterintuitive because she’s been performing this very same show for more than 10 years now. She started her Farewell Tour when she was 60.
What’s also counterintuitive is a Reverse Mortgage. A standard mortgage is a loan where the homeowners pay back the mortgage monthly until it’s retired.
A reverse mortgage is a way to convert homeowner equity into cash and the buyers don’t have to pay it back. At least as long as they’re living in the property. But many don’t know this special program also offers a way to buy a home with a reverse mortgage. How can that happen?
A standard reverse mortgage is for homeowners 62 and older to convert a portion of the equity in their primary residence into cash. The reverse lender will provide a lump sum, a line of credit or a combination of both.
The funds are distributed tax free and there are no monthly payments. Interest accrues on the funds distributed and the loan is due and payable when all reverse borrowers leave the property. Homeowners can then use the distributed funds to buy another primary residence.
The funds from the initial reverse mortgage will typically cover around 50% of the purchase price of the new property with the remaining funds coming from the buyer’s retirement or savings account. The maximum loan-to-value for a reverse mortgage depends upon the age of the youngest borrower.
The older the age, the more that can be accessed. And because a reverse mortgage must be a standalone and not combined with another first lien, the property being purchased, on average will need another 40-50% of cash from the buyers.
With a reverse to buy a home, there is no traditional mortgage qualifying. There are no debt ratios to consider and employment verification, only that the buyers can demonstrate the ability to pay property taxes, insurance and maintenance. Buying a new home with no monthly payments? It’s a reverse mortgage in play.
The Home buying Process Timeline
If you’re a Harry Potter fan, you’re also a follower of the Fantastic Beasts and Where to Find Them. This series was originally set to be a trilogy, it’s being rumored there will in fact be five films, not three with the first release coming out this next November. This much anticipated fantasy flick mostly takes place in New York City back in 1926 as the cast searches for and documents a world of magical creatures. Like we said, if you’re a Harry Potter fan, this spinoff is sure to please. Yet the process comes with no shortage of surprises, most of which hijacks the star named Jacob as some of the magical beasts escape. The process of documenting and discovering did not go as planned. But the process of buying a home should be without wrinkles, at least if you know what to expect and when. Here is a primer on the home buying process and a typical timeline.
Most sales contracts will have a settlement date set at the escrow company 30 days from the date the contract is executed by the seller and buyer. That gives the lender and other third parties time to gather the remaining documenting needed to close the loan. But before the contract is signed, the buyers should already have their preapproval letter in hand. This letter documents the buyers have applied for and documented their loan application and all that is needed is a property address. Once that address is found, the clock begins to tick.
Once the loan application and sales contract is delivered to the lender, the lender orders various third party services needed. While the lender orders these services, the buyer should immediately order a property inspection. The inspection should arrive within a couple of days, maybe three. Should the inspection show any major defect or issue that is unresolvable, the buyers can cancel their offer and get a refund of their earnest money check. If the inspection comes back clean, the process continues.
The appraisal will probably arrive within about a week, depending upon local market conditions. In a market where home sales are humming, an appraisal might take a little longer. The lender orders title insurance as well as a flood certificate. Ideally, within 10 days to 2 weeks, the loan is ready for the underwriter.
The loan is reviewed by the underwriter to make sure the loan and the documentation included conform to the guidelines set forth by the mortgage program. If it does, then closing papers are ordered. If there are still some questions about the application or additional information is needed, the loan processor or loan officer is contacted to resolve any issues. The loan papers are electronically delivered to the escrow agent and the buyers scheduled a day and time to sign their closing papers. The sellers also schedule a time. Once signed, the documents are sent back to the lender to make sure the escrow officer properly followed the lender’s instructions. If so, the lender provides the escrow agent with a special number that releases the mortgage funds. The loan is then recorded as a sale at the county courthouse.
Homeowners’ Insurance 101
If it seems like Will Ferrell is everywhere these days, you’re not alone. Will is such a hot Hollywood commodity he’s always shooting a film. Since 1995, he’s been in more than 50 movies, early as a supporting actor but later the featured star. It seems that Will Ferrell is in fact everywhere, at least in the movie theatres, in all sorts of roles. You wouldn’t be surprised seeing him sell insurance, he’s certainly had enough varied roles from Christmas Elf to a Race Car Driver. And while he’s a great actor, he’s probably not geared to sell homeowner’s insurance. There’s more to it than you might think.
Homeowners insurance has multiple levels of protection but the basic policy that lenders require covers what is known as “hazards.” Protection against loss in case of a fire is certainly a hazard. So is wind and hail. If a tree falls onto the structure, the insurance policy covers the repairs. If lightning strikes, that’s covered as well. There can also be additional coverage specifically named in the policy such as protection against loss due to a hurricane. What a standard policy does not protect against is from a flood or earthquake. These are separate and are added as a “rider” which is additional coverage for flood and earthquake.
Personal belongings are also covered in case of theft, fire or other named hazard. This coverage amount varies up to a certain percentage of the total amount of insurance coverage or the policy dictates full replacement. Insurance policies also protect homeowners with liability coverage. Let’s say you’re having a dinner party and one of the guests slips and falls on your sidewalk. Your dinner guest could hold you liable for bodily injury and sue you. Liability coverage protects you in such an event.
In addition to the insurance premium you will pay, you will also be responsible for your deductible in the event of a claim. The deductible is the amount you must pay before the insurance kicks in.
While getting your home insured is certainly a good idea, you won’t be able to get a mortgage without it and lenders will want the minimum coverage at least in the amount of the mortgage. Should the property be destroyed by a named hazard, the mortgage company is paid. Your lender will also review your pending insurance policy making sure it meets to their standards. Most do, but lenders will review nonetheless.
Why Is It Important to Work With a Real Estate Professional?
You may have read recently NASA’s assertion that a mission to Mars will still occur, but perhaps not in the way first imagined. NASA has been sending spacecraft to orbit and ultimately land on Mars, but just this week NASA seemed to change course and asked private companies what sort of spacecraft they could build that would orbit Mars and ultimately land a craft there. NASA reached out to the private business community for more input, new ideas and different approaches to manned spacecraft. Notice they asked professionals for advice. After all, if you’re going to Mars, you want someone with a little experience building such technical equipment, right?
In a similar manner, while you may not be flying to Mars anytime soon but you are thinking of buying real estate, shouldn’t you do what NASA scientists do and seek out the professionals? In short, yes. When buying or selling real estate, don’t fly solo. If you’re buying your first home, you might not be aware that real estate agents don’t charge you a dime to help find and negotiate a sales contract for you. That’s right, you don’t pay your agent anything. The owners of the home you’re buying pay the listing agent and your agent a commission. Your agent typically splits the commission of the agent selling the home. Based upon your needs and wants for your first home, your agent knows the right neighborhoods that meet your criteria. The agent also knows how to craft the perfect offer that won’t be too high or too low and even negotiate to have the sellers help out with some or all of your closing costs.
When selling a home, while some owners think they might save some money by selling home on their own without using an agent, may not realize the mistake they’re making. For Sale By Owner, or FSBO homes, don’t have the marketing clout that professional real estate agents do. They don’t have access to the local Multiple Listing Service, or MLS, the database real estate agents use to market homes for sale. Real estate agents are specialists in what they do. They’re experienced. They train and the represent you in this sometimes complicated transaction. When it’s time to buy or sell real estate, it’s also time to contact a professional real estate agent.
What Is a Foreclosure Property and Should I Be Targeting One for My New Purchase?
We’re in the throes of football season and it seems the collisions are getting worse, despite the NFL’s $100 million dollar attempt to reduce or eliminate concussions. Colleges eject players when they are penalized for “targeting” but the NFL does not. While the NFL doesn’t have a so-called targeting penalty, they do have a rule against helmet-to-helmet contact. If you saw Broncos vs. Panthers game recently, you probably saw a target by Von Miller on Cam Newton. An obvious helmet-to-helmet targeting that Miller got away with. But targeting isn’t always a bad thing, especially when you get off the gridiron. In fact, when you target a foreclosure, you just might walk away with a real bargain.
When banks foreclose on properties, it’s a last resort mechanism. The lender gives up on trying to collect past due mortgage payments, recovers the property and sells it at an auction. There are real estate investors who attend such auctions which typically take place at the county courthouse where the property is located. Should you be one of those investors? Sure, but there needs to be some homework beforehand.
At minimum you need to make a physical inspection of the property. In situations where the owners can’t keep up with the mortgage payments they are often behind on necessary maintenance and repairs, too. When buying at a foreclosure auction, you’re competing head-to-head with some pros. If you’re not sure of the condition of the property, perhaps auctions aren’t your best move.
Instead, contact the lenders directly and review their Real Estate Owned, or REO inventory. These are homes the lender has foreclosed upon that did not sell at an auction or the lender didn’t put the home up for auction at all and placed the home directly into its REO department. Homes that are considered REO have been inspected with repairs made where needed. And just as important, any title issues regarding past due property taxes or other non-dischargeable liens have been addressed. And lenders are motivated to get these homes out of their inventory which can translate into a better deal. If you want to target foreclosed homes, make it a safe play. You can certainly go to an auction but buying from an REO department might be the safe bet.
What Is A HOA and What Are the Benefits?
Have you ever run across an acronym that is just plain funny? Maybe intentional or maybe not, but we’ve all run across these collection of letters that spell out one thing and mean something completely different, right? Let’s take a look at a few, for example. “BING.” BING means Bing It’s Not Google. How about BMW = Big Money Waster! But there is also an acronym common the housing and mortgage industries- HOA. And no, it doesn’t stand for Hold On Already! It’s the acronym for Home Owner’s Association and is an important facet when buying a condominium, townhome or a home in a planned unit development. How so?
The HOA is responsible for enforcing the conditions, covenants and restrictions, or CC&Rs that owners must follow as well as managing the property. In a condominium for example, the individual owners own the areas inside the individual unit but equally own the common areas. These common areas are such things as swimming pools, workout facilities and sidewalks. The HOA is funded by a monthly homeowners’ association dues and these amounts can vary from project to project but monthly amounts from $200 to $400 are common.
A properly managed HOA helps secure the value in the property by properly maintaining the common areas as well as making sure individual owners are following the rules. For example, there may be a restriction keeping the walkways cleared of debris or personal items such as a bicycle parked in front of an individual unit or empty boxes piled up on the back deck.
The HOA is also responsible for maintaining insurance. The insurance policy is funded by the monthly HOA dues and covers the building, amenities and liability issues. Individual owners can buy individual insurance that covers personal items in the interior of their units. In a neighborhood managed by an HOA, it might prohibit a property owner from painting a house pink with a purple roof. Or making sure there aren’t any RVs parked in the yard.
Before you buy a property managed by an HOA, request a copy of the CC&Rs and make sure there isn’t anything in there that you can’t live with. Most associations provide copies of the CC&Rs for free but sometimes there’s a small charge. The bottom line- know and review before you make an offer.
Real Estate Investor Questions Answered
It’s October. The month when ghosts and goblins appear in neighborhoods everywhere on the night of October 31, ringing doorbells and asking for candy. Sometimes the costumes are obvious. A pirate. A witch. A ghost. But sometimes you have to ask, “What are you supposed to be?”
Getting into real estate investing can also be a bit scary for the first timer. And there are questions. For those budding real estate investors, here are some of the questions you most likely have and might be afraid to ask. But don’t be. It’s not as scary as you think.
How much do I need for a down payment? Most conventional loan programs ask for at least a 20% down payment with a slightly better interest rate with a down payment of 25%. You can also expect typical closing costs associated with getting a mortgage, regardless if you plan to live in the property.
Are the rates higher for a rental property? Yes, but not by much. With a 30 year fixed rate loan, you might expect the interest rate to be about 0.25% higher than one for a primary residence.
Is a vacation home considered a rental? No, a vacation home or a second home is not considered a rental property and rates are a bit better as well as a lower minimum down payment. If the property is rented out for more than two weeks per year, it’s considered an investment property however.
Can I use the rental income to help me qualify? Yes, but only if you’ve owned rental properties in the past for more than two years. Lenders want to see that you can handle the additional monthly payments along with associated property taxes, insurance and maintenance. After the first rental, you can then use rental income from the property to help qualify.
Who pays the utilities? That’s completely up to you. Your lease agreement should clearly spell out who is responsible for what such as electricity, water, gas and cable. Most experienced landlords like to have the tenants be responsible for all utilities yet some pay for them as an incentive to rent the unit.
How do I know if it’s a purchase is a good deal or not? Your real estate agent can help you with that one who will help craft the right offer. With a rental, you want to make sure the unit has a history of occupancy with no extended periods of vacancy as well as the rent more than covering the mortgage payment, taxes, insurance and maintenance. You want a positive cash flow each month, not an additional expense.