As of Jan. 1, 2010, the Department of Housing and Urban Development (HUD) required lenders to provide mortgage borrowers with a new three-page Good Faith Estimate (GFE) to protect consumers who are applying for a mortgage.
The intent of the GFE is to educate consumers about the key terms and costs of a mortgage, both at origination and ongoing. A loan originator completes the form, giving the borrower a summary of the loan particulars and information necessary to shop rates and to be sure they're comparing like-type mortgages.
Although there's grumbling, mostly from mortgage brokers, lenders and closing/escrow agents, the format and information included in the new GFE is a step in the right direction. There are, however, some quirks.
For example, the GFE doesn't provide a complete and accurate account of the borrower's costs. Page two provides an itemization of loan origination and settlement costs. The origination charge is itemized as one lump sum; it's not broken down.
So, you don't know how much you're paying the appraiser for the appraisal, the loan originator for the origination fee, or other miscellaneous fees.
Another shortcoming is in the way transfer taxes are disclosed. The entire amount of any transfer taxes is entered on the GFE, even if the sellers pay part or all of it. This could inflate the buyer's estimated settlement costs.
To get around having to generate a GFE for buyers before they have committed to a given loan originator, some mortgage originators have developed worksheet quotes for buyers to use if they want to shop rates. HUD is adamant that these worksheets can't be used instead of a GFE. Furthermore, they provide the borrower no protection.
HOUSE HUNTING TIP: The new federally mandated GFE provides protection for borrowers against being charged extra fees at closing that weren't disclosed on the GFE. An informal worksheet provides no such protection.
Origination and settlement fees are grouped into three different categories. The first category is fees that can't increase between the time the GFE is issued and closing. Included in this category are the lender or mortgage broker's origination fee, transfer taxes and adjustments to loan origination charges after the borrower locks in an interest rate.
Loan originators who miscalculate, causing fees to run higher at closing, have to make up the difference out of pocket. To cover themselves, some loan originators pad the Category one figure.
The second category of fees can increase up to 10 percent at closing and includes such things as government recording charges and title insurance -- if the title insurer is identified by the lender, not by the borrower. This is done to encourage lenders to shop for the most cost-effective coverage for the consumer.
The third category of fees can change at settlement and includes homeowners insurance and title insurance coverage if the borrower, not the lender, identifies the title insurer.
The new GFE also includes a tradeoff table that shows what the interest rate would be if you paid a higher origination fee vs. a lower origination fee: the higher the fee, the lower the rate; the lower the fee, the higher the rate.
Finally, there's a loan-shopping chart to use the mortgage information provided by one lender to compare with other lenders. There is no obligation to use a loan originator who completes a GFE for you. A loan originator can't refuse to provide a GFE to a prospective borrower who asks for one.
As soon as a prospective borrower provides essential application information, such as Social Security number, property address, etc., the originator is to provide a GFE.
THE CLOSING: Lenders are required to provide a GFE within three days of receiving the borrower's application.
by Dian Hymer
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author.
Monday, August 2, 2010
Water audits prepare you for the future
Despite a very wet season this past winter, the increase in rainfall didn’t make up for many years of below-average water levels. In 2009 California Governor Arnold Schwarzenegger declared a state of emergency in an effort to manage the drought crisis. Since then, many water companies have put into place mandatory water rationing with financial penalties for homeowners who don't comply. Before you find yourself paying more for your water, be prepared for the future by conducting a water audit (don't worry, you don't have to find all your water bills from the past two years).
A water audit analyzes a home's water use and identifies ways to make it more efficient. A water audit's primary focus is to check for leaks in plumbing fixtures, appliances, toilets, faucets, hoses, and sprinklers (as well as ponds, fountains, and pools, where applicable). A water audit also can determine if older appliances and faucets need to be replaced with newer energy-efficient products, which can save both water and money on your monthly utility bills; Simply installing a low-flow showerhead you can save 8,000 gallons of water a year per person.
Beyond doing a physical check for water leaks, a water audit also looks at how much water you can save in daily tasks. Do you take long showers? Do you use the dishwasher and clothes washer only when they are full? Do you turn off the water when you are brushing your teeth? According to the American Water Works Association (AWWA), the average indoor water use per person is 94 gallons of water per day. Simply adjusting everyday habits can cut back on water usage by as much as 30 percent. That’s more than 30 gallons a day per person.
With global warming and droughts plaguing the West, water rationing will become mandatory by most utility companies. California's state water department forecasts that the Sierras, which are one of California’s main water sources, will have 25 to 40 percent less snow by 2050. A water audit saves money, saves water, and prepares you for an inevitable future. To find out how your household's water use compares to the rest of the country, go to H2O Conserve's website (www.h2oconserve.org) or the Water Use It Wisely site (http://www.wateruseitwisely.com/100-ways-to-conserve/home-water-audit.phptry) for their user-friendly H2O calculators. They will show how much water you use and give tips on ways to conserve. For more information on water audits, visit the AWWA website (www.awwa.org).
By Michelle D. Alderson
A water audit analyzes a home's water use and identifies ways to make it more efficient. A water audit's primary focus is to check for leaks in plumbing fixtures, appliances, toilets, faucets, hoses, and sprinklers (as well as ponds, fountains, and pools, where applicable). A water audit also can determine if older appliances and faucets need to be replaced with newer energy-efficient products, which can save both water and money on your monthly utility bills; Simply installing a low-flow showerhead you can save 8,000 gallons of water a year per person.
Beyond doing a physical check for water leaks, a water audit also looks at how much water you can save in daily tasks. Do you take long showers? Do you use the dishwasher and clothes washer only when they are full? Do you turn off the water when you are brushing your teeth? According to the American Water Works Association (AWWA), the average indoor water use per person is 94 gallons of water per day. Simply adjusting everyday habits can cut back on water usage by as much as 30 percent. That’s more than 30 gallons a day per person.
With global warming and droughts plaguing the West, water rationing will become mandatory by most utility companies. California's state water department forecasts that the Sierras, which are one of California’s main water sources, will have 25 to 40 percent less snow by 2050. A water audit saves money, saves water, and prepares you for an inevitable future. To find out how your household's water use compares to the rest of the country, go to H2O Conserve's website (www.h2oconserve.org) or the Water Use It Wisely site (http://www.wateruseitwisely.com/100-ways-to-conserve/home-water-audit.phptry) for their user-friendly H2O calculators. They will show how much water you use and give tips on ways to conserve. For more information on water audits, visit the AWWA website (www.awwa.org).
By Michelle D. Alderson
Seven rules for room additions
If you're happy with your home and your neighborhood but are craving a little more space, maybe adding on is a better alternative to moving out. Room additions can be a terrific alternative for many homes, adding space for a growing family and adding resale value at the same time.
But be forewarned. A good room addition involves a whole lot more than just slapping on some additional square footage. Here are some important rules to keep in mind as your planning gets under way:
1. Know why you're adding on: This is the first rule, and it happens before you lift a hammer. Why do you need to add on? And no fair cheating and saying, "I need more space!"
Do you need another bathroom? Bedroom space? A laundry room or mud room? An improved kitchen flow? More space to entertain? Better accessibility due to health issues? More storage? A larger garage or hobby area? The only way the addition will meet your needs is to know what those needs are in the first place.
2. Good additions never look like additions: This is the other top rule of room-addition planning. When you're done, the addition -- no matter what its size or where it's located -- should never look like an addition. The architectural styles of new and existing need to blend.
The exterior materials need to blend as well, or at least complement each other. To the extent possible, use the same type of windows, roofing, doors, siding and other materials. If the original home has wood windows, using new vinyl windows in the addition screams "add-on" and lowers the appeal and the value. Don't overlook the need to blend landscaping and hardscaping as well.
3. Out, up, down, or a combination: The how and the where of a room addition is always a fun and exciting challenge for everyone involved. Some homes are situated on larger lots and lend themselves very nicely to adding out. Others seem best suited to adding up by building on a second or even a partial third floor.
Some houses are even laid out in such a way that it's possible to excavate under them and add new living space in the form of a daylight basement. Or it could be that a combination of two or even all three of these options makes the most sense for your particular home.
Keep your mind open to the possibilities. Work with a good contractor and a good designer and you'll be amazed at what you can come up with.
4. Don't let the interior become an afterthought: I've seen a surprising number of additions that look great from the outside but seem to have no thought put into them on the inside. Flooring doesn't match. Trim doesn't match. Sometimes even the interior floor heights don't match. Remember that how the interior of your addition looks and flows on the inside is just as important as how it looks and flows on the outside.
Use the same materials or the same style of materials. Match up ceiling, floor, and wall levels. Here again, no matter how you view the addition, inside or out, it should never look like an addition.
5. Create convenient access: This is another afterthought in a lot of additions. Let's say you have a three-bedroom, one-bathroom house, and you want to add a second bathroom. Typically, that's an addition that's going to have a good payback.
But then you build the addition so that the only access to the second bathroom is through the kitchen. You now have a three-bedroom, two-bath house, but since the layout is lousy, you've actually gone backwards in terms of desirability and resale value.
Are you going to create a beautiful second-floor master suite that can be accessed only by a tiny spiral staircase from the family room? Is the only way into your great new kitchen via a convoluted hallway that leads through the laundry room?
When planning your addition, never lose sight of how you're going to access the new spaces, and make sure that access is both convenient and inviting.
6. Don't overwhelm your lot: Granted, room additions are expensive. So when you're doing one, and all those workers are onsite, there's a temptation to get as much square footage as you can. But don't cram your lot full of house. Remember that open space is important as well, both to you and your family, and, later on, to potential buyers.
This is a good time to go back to Rule No. 1 and reconsider the "why" part of your room addition. Don't add space just to add it -- stay focused on your overall goals.
7. Understand the legalities: There are lots of rules and regulations that come into play regarding room additions. These include property line setbacks, zoning restrictions, and restrictions imposed by homeowner associations and architectural review committees.
In some historic areas, your addition may have to comply with certain historic guidelines. In other areas, there may even be solar shading restrictions that limit the height or the orientation of your roof line. Be sure you check into all of this before you get too far along with your planning.
By Paul Bianchina
But be forewarned. A good room addition involves a whole lot more than just slapping on some additional square footage. Here are some important rules to keep in mind as your planning gets under way:
1. Know why you're adding on: This is the first rule, and it happens before you lift a hammer. Why do you need to add on? And no fair cheating and saying, "I need more space!"
Do you need another bathroom? Bedroom space? A laundry room or mud room? An improved kitchen flow? More space to entertain? Better accessibility due to health issues? More storage? A larger garage or hobby area? The only way the addition will meet your needs is to know what those needs are in the first place.
2. Good additions never look like additions: This is the other top rule of room-addition planning. When you're done, the addition -- no matter what its size or where it's located -- should never look like an addition. The architectural styles of new and existing need to blend.
The exterior materials need to blend as well, or at least complement each other. To the extent possible, use the same type of windows, roofing, doors, siding and other materials. If the original home has wood windows, using new vinyl windows in the addition screams "add-on" and lowers the appeal and the value. Don't overlook the need to blend landscaping and hardscaping as well.
3. Out, up, down, or a combination: The how and the where of a room addition is always a fun and exciting challenge for everyone involved. Some homes are situated on larger lots and lend themselves very nicely to adding out. Others seem best suited to adding up by building on a second or even a partial third floor.
Some houses are even laid out in such a way that it's possible to excavate under them and add new living space in the form of a daylight basement. Or it could be that a combination of two or even all three of these options makes the most sense for your particular home.
Keep your mind open to the possibilities. Work with a good contractor and a good designer and you'll be amazed at what you can come up with.
4. Don't let the interior become an afterthought: I've seen a surprising number of additions that look great from the outside but seem to have no thought put into them on the inside. Flooring doesn't match. Trim doesn't match. Sometimes even the interior floor heights don't match. Remember that how the interior of your addition looks and flows on the inside is just as important as how it looks and flows on the outside.
Use the same materials or the same style of materials. Match up ceiling, floor, and wall levels. Here again, no matter how you view the addition, inside or out, it should never look like an addition.
5. Create convenient access: This is another afterthought in a lot of additions. Let's say you have a three-bedroom, one-bathroom house, and you want to add a second bathroom. Typically, that's an addition that's going to have a good payback.
But then you build the addition so that the only access to the second bathroom is through the kitchen. You now have a three-bedroom, two-bath house, but since the layout is lousy, you've actually gone backwards in terms of desirability and resale value.
Are you going to create a beautiful second-floor master suite that can be accessed only by a tiny spiral staircase from the family room? Is the only way into your great new kitchen via a convoluted hallway that leads through the laundry room?
When planning your addition, never lose sight of how you're going to access the new spaces, and make sure that access is both convenient and inviting.
6. Don't overwhelm your lot: Granted, room additions are expensive. So when you're doing one, and all those workers are onsite, there's a temptation to get as much square footage as you can. But don't cram your lot full of house. Remember that open space is important as well, both to you and your family, and, later on, to potential buyers.
This is a good time to go back to Rule No. 1 and reconsider the "why" part of your room addition. Don't add space just to add it -- stay focused on your overall goals.
7. Understand the legalities: There are lots of rules and regulations that come into play regarding room additions. These include property line setbacks, zoning restrictions, and restrictions imposed by homeowner associations and architectural review committees.
In some historic areas, your addition may have to comply with certain historic guidelines. In other areas, there may even be solar shading restrictions that limit the height or the orientation of your roof line. Be sure you check into all of this before you get too far along with your planning.
By Paul Bianchina
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