Owning
How much will I spend on maintenance expenses?
Should I add on or buy a bigger home?
Are there gov't programs for rehab?
What kind of return is there on remodeling jobs?
Where do I get information on remodeling?
How do building codes work?
What are some resources for info on home improvements?
What are some guidelines to follow when trying to find a contractor?
When are building permits needed?
Where can I get a list of architects?
Uses For Home Equity
When is the best time to refinance?
Where do I get information on refinancing?
Can I refinance after bankruptcy?
When does foreclosure begin?
How does a home go into foreclosure?
What kind of home insurance should I get?
What is guaranteed replacement cost insurance?
Can a co-owner force the sale of a shared property?
How much will I spend on maintenance expenses?
Experts generally agree that you can plan on annually spend 1 percent of the purchase price of your house on repairing gutters, caulking windows, sealing your driveway and the myriad other maintenance chores that come with the privilege of homeownership. Newer homes will cost less to maintain than older homes. It also depends on how well the house has been maintained over the years.
Should I add on or buy a bigger home?
Consider these questions before making a choice between adding on to an existing home or moving up in the market to a bigger house:
- How much money is available, either from cash reserves or through a home improvement loan, to remodel the current house?
- How much additional space is required? Would the foundation support a second floor or does the lot have room to expand on the ground level?
- What do local zoning and building ordinances permit?
- How much equity already exists in the property?
- Are there affordable properties for sale that would satisfy housing needs?
Ultimately, the decision should be based on individual needs, the extent of work involved and what will add the most value.
Are there gov't programs for rehab?
The U.S. Department of Housing and Urban Development's Section 203 (K) rehabilitation loan program is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible.
The 203(K) loan is usually done as a combination loan to purchase a fixer-upper property "as is" and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan.
Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.
For a list of participating lenders, call HUD at (202) 708-2720.
If you are a veteran, loans from the U.S. Department of Veterans Affairs also can be used to buy a home, build a home, improve a home or to refinance an existing loan. VA loans frequently offer lower interest rates than ordinarily available with other kinds of loans. To qualify for a loan, the first step is to apply for a Certificate of Eligibility. Another program is the Fedeal Housing Administration's Title 1 FHA loan program.
Resources:
"Rehab a Home With HUD's 203(K)" brochure, U.S. Department of Housing and Urban Development, 7th and D streets S.W., Washington, DC 20410.
What kind of return is there on remodeling jobs?
Remodeling magazine produces an annual "Cost vs. Value Report'' that answers just that question. The most important point to remember is that remodeling a home not only improves its livability for you but its curb appeal with a potential buyer down the road.
Most recently, the highest remodeling paybacks have come from updating kitchens and baths, home-office additions and extra amenities in older homes. While home offices are a relatively new remodeling trend, for example, you could expect to recoup 58 percent of the cost of adding a home office, according to the survey.
Where do I get information on remodeling?
Try these sources:
National Association of the Remodeling Industry, 4301 N. Fairfax Drive, Suite 310,Arlington, VA 22203; (847) 298-9200.
- "Rehab a Home With HUD?s 203(K)," published by the U.S. Department of Housing and Urban Development, 7th and D St., S.W., Washington, DC 20410.
- "Cost vs. Value Report," by Remodeling magazine, 1 Thomas Circle, N.W., Suite 600, Washington, DC 20005. $8.95 per copy; call (202) 736-3447 for credit card orders.
- "The Do-able Renewable Home," by the Coordination and Development Department, American Association of Retired Persons, 601 E St., N.W., Washington, DC 20049.
How do building codes work?
Building codes are established by local authorities to set out minimum public-safety standards for building design, construction, quality, use and occupancy, location and maintenance. There are specialized codes for plumbing, electrical and fire, which usually involve separate inspections and inspectors.
All buildings must be issued a building permit and a certificate of occupancy before it can be used. During construction, housing inspectors must make checks at key points. Codes are usually enforced by denying permits, occupancy certificates and by imposing fines.
Building codes also cover most remodeling projects. If you are buying a house that has been significantly remodeled, ask for proof of the permits involved before you purchase to avoid future liability for fines.
Resources: "The Ultimate Language of Real Estate," John Reilly, Dearborn Financial Publishing, Chicago; 1993.
What are some resources for info on home improvements?
If you're getting ready to embark on a home improvement project involving contracting help, "Ready, Set, Build: A Consumer's Guide to Home Improvement Planning Contracts" lays out a road map for selecting the right contractor, obtaining competitive bids up to what to include in a contract. There also is information on consumer rights, liens and financing.
The book is available for $9.95 through Consumer Press and Women's Publications, Inc., Dept. SR01, 13326 Southwest 28th St., Fort Lauderdale, FL 33330-1102; (954) 370-9153.
Resources:
- Profiting From Real Estate Rehab, Sandra M. Brassfield, John Wiley & Sons Inc., New York; 1992.
- Remodeling magazine's annual "Cost vs. Value Report", available for a nominal fee from the magazine; call (202) 736-3447 to order a copy.
What are some guidelines to follow when trying to find a contractor?
While hiring contractors recommended by friends is usually a safe route, never hire a construction professional without first checking him or her out. If your state has a licensing board for contractors, call to find out if there are any outstanding complaints against that license holder. Also, call your local Better Business Bureau to see if there are any complaints on file.
If you are satisfied with the answers you find there, interview the contractor candidates. Ask what kind of worker's compensation insurance they carry and get policy and insurance company phone numbers so you can verify the information. If they are not covered, you could be liable for any work-related injury incurred during the project. Also be sure that the contractor has an umbrella general liability policy.
If they pass the insurance hurdle, next check some of their references. A good contractor will be happy to provide as many as you want.
Finally, don't let yourself be rushed into making a decision no matter how competitive the market may seem. Also, never pay a deposit to a contractor at the first meeting. You may end up losing your money.
When are building permits needed?
Building codes are established by local authorities to set out minimum public-safety standards for building design, construction, quality, use and occupancy, location and maintenance. There are specialized codes for plumbing, electrical and fire, which usually involve separate inspections and inspectors.
All buildings must be issued a building permit and a certificate of occupancy before it can be used. During construction, housing inspectors must make checks at key points. Codes are usually enforced by denying permits, occupancy certificates and by imposing fines.
Building codes also cover most remodeling projects. If you are buying a house that has been significantly remodeled, ask for proof of the permits involved before you purchase to avoid future liability for fines.
Resources:
"The Ultimate Language of Real Estate," John Reilly, Dearborn Financial Publishing, Chicago; 1993.
Where can I get a list of architects?
If you need an architect, contact a local chapter of the American Institute of Architects or the national organization itself at 1735 New York Avenue, N.W.; Washington, DC 20006; (202) 626-7300. Also contact friends or colleagues who have recently worked with an architect for referrals. Take the time to interview several before choosing an architect.
Uses for home equity
One of the great aspects of homeownership is that you continually increase your wealth by building equity in your home and reducing your tax bill at the same time. After owning your home for a few years, you may have acquired equity that you can put to use. Even if the property has only appreciated by a few percentage points per year, significant equity can build up quickly.
You want to ensure that you retain enough equity to cover real estate commissions and other expenses when you sell your home.
You can put your home's equity to work for you by refinancing for more than you currently owe, a cash out refinance. Home equity lines (HELOC) are another common means of tapping into a home's value.
The first way most homeowners think of using their equity is to pay off high-interest debt. While that is one option, there are other ways that you can invest that equity.
Here are some additional ways you can use your home equity:
Trade Up Using your equity as a down payment for a larger home could make financial sense. If you currently own a $200,000 home now and it appreciates by 5% each year, your annual gain is $10,000. In a $250,000 home, the same growth rate would provide you with a gain of $12,500. After just 5 years the more expensive home would be worth $319,000 compared to your current home at $255,000, an increase of $60,000.
You may not be able to count on a gain of 5% each year. It could be higher or lower, depending on the state of the economy and market conditions. Even a 2% appreciation will still add up over time. Using additional equity to trade up will allow you to put a significant amount of money down on your next home. This could allow you to own the home you thought you never could afford.
Downsize With recent changes in tax laws, homeowners may sell a home every two years and walk away with tax-free profits up to $250,000 (for singles) and $500,000 (for married couples). Another way to use your equity is to scale down, purchase a smaller, less expensive primary residence, and use the extra cash for investments, debt reduction or even purchasing an investment property.
Second Home Maybe now is the time to purchase that home on the beach, at the lake or in the mountains. If you know where you want to retire, study that market now. You may want to purchase a home now while prices are still affordable and interest rates are low. If you do, you could rent the home, many homeowners discover they can usually cover their annual property expenses by renting during key times.
Investment Properties Many investors feel comfortable with the security of real estate. Not everyone has the extra money to play the stock market profitably, but landlords can enjoy income every month.
Some investors have found it beneficial to purchase a property in the area where their college age children are going to school. Their child can help manage the property and share the housing with other students to defray costs. The young adults learn responsibility and property management skills, and you have someone to watch over your investment.
Shared Equity Another way to use your equity is to lend it to your adult child as a down payment on his or her first home. You can maintain a co-ownership interest while your child makes the mortgage payments. At the time of sale, the equity can be split between you and your son or daughter.
Remodel If you enjoy where you are living, but desire a few upgrades, consider taking cash out for remodeling or adding on to your current home. The interest paid on most second mortgages and equity lines is tax deductible, just as it is with your first mortgage.
When is the best time to refinance?
It depends on how long you plan to hold on to your house and if you have to pay anything to refinance. In addition, it also depends on how far along you are in paying off your current mortgage.
If you are going to be selling your house shortly, you probably will not recoup any costs you incur to refinance your mortgage. If you are more than halfway through paying your current mortgage, you probably will gain little by refinancing. However, if you are going to own your home for at least five years, that's probably long enough to recoup any refinancing costs you incur and to realize real savings on lowering your monthly payment. If it is going to cost you nothing to refinance, you can gain even more.
Many lenders will allow you to roll the costs of the refinancing into the new note and still reduce the amount of the monthly payment. Also, there are no-cost refinancing deals available. In any case, it pays to consult your lender or financial advisor, or run the numbers yourself, before you refinance.
Where do I get information on refinancing?
For information on refinancing, the following booklet may be helpful:
"A Consumer's Guide to Mortgage Refinancings;" Federal Reserve Bank of San Francisco, Public Information Department, P.O. Box 7702, San Francisco, CA 94120; call (415) 974-2163 to order.
Can I refinance after bankruptcy?
Refinancing may be prudent but could be difficult after a bankruptcy. If you're considering bankruptcy, you may want to go to your current lender first and explain the situation. If you have been current on your payments, the lender may be accommodating and refinance your loan, easing your financial situation.
When does foreclosure begin?
Lenders will initiate foreclosure proceedings when homeowners become delinquent in their mortgage obligations, usually after three payments are missed. The lender will then notify the buyer in writing that he or she is in default. The lender can request a trustee's sale or a judicial foreclosure, in which the property is sold at public auction.
A borrower can cure the default by paying the overdue amount and the pending payment after the notice of default is recorded, usually no later than a few days before the property's sale.
Some sales allow the successful bidder to take possession immediately. If the former owner refuses to vacate the premises, the court can issue an unlawful detainer that allows the sheriff to come out and evict them.
Borrowers should do everything they can to avoid foreclosure, which is one of the most damaging events that can occur in an individual's credit history.
How does a home go into foreclosure?
Foreclosure proceedings usually begin after a borrower has skipped three mortgage payments. The lender will record a notice of default against the property. Unless the debt is satisfied, the lender will foreclose on the mortgage and proceed to set up a trustee sale.
What kind of home insurance should I get?
A standard homeowners policy protects against fire, lightning, wind, storms, hail, explosions, riots, aircraft wrecks, vehicle crashes, smoke, vandalism, theft, breaking glass, falling objects, weight of snow or sleet, collapsing buildings, freezing of plumbing fixtures, electrical damage and water damage from plumbing, heating or air conditioning systems, according to the Insurance Information Institute, a Washington, D.C.-based nonprofit group for the insurance industry.
Such policies are "all-risk" policies, which cover everything except earthquakes, floods, war and nuclear accidents. A basic policy can be expanded to include additional coverage, such as for floods and earthquakes and even workers' compensation for servants or contractors.
Home-based business-coverage, an increasingly popular rider, does not cover liability associated with the business. Insurance experts recommend that homeowners obtain insurance equal to the full replacement value of the home. On a 2,000-square-foot home,for example, if the replacement cost is $80 per square foot, the house should be insured for at least $160,000.
For personal items, homeowners can increase their coverage beyond the depreciated value of items such as televisions or furniture by purchasing a "replacement-cost endorsement" on personal property. Some experts recommend an inflation rider, which increases coverage as the home increases in value.
What is guaranteed replacement cost insurance?
Guaranteed replacement insurance is a more comprehensive policy.
It tends to cost more, but it promises to cover the complete costs -- less deductible -- of replacing a destroyed house. With these sorts of policies, limits on the policies are not as common, because complete coverage is more explicit.
Can a co-owner force the sale of a shared property?
In some states, a co-owner often can force the sale of a shared property by filing a so-called partition action. In such a situation, if the severance is granted, the property would be sold and the owners would split the proceeds proportionate to their interest in the property.
You should check your title for any references to such a severance action. You may need to consult a real estate attorney.
