Time and time again, home-buyer wannabes state that the reason they are still fence-sitting is that they don't want to end up in the same trouble the last generation of homeowners did.
Well, there's a very slim chance of that happening, given the changes in the market climate: Homes are at rock-bottom prices (not sky-high), and mortgage guidelines are so conservative it is nearly impossible to even find one of the zero-down, quick-to-adjust, stated-income mortgages of yesteryear.
With that said, though, there is a handful of rules today's home buyers and homeowners can follow to dramatically minimize the chances they will ever face losing their homes:
1. Never a borrower or a lender be. OK, so maybe NEVER is strong, but you'd be surprised at how many foreclosed homeowners actually bought their homes with conservative loans and at low prices many years ago, but got into trouble taking new mortgages and pulling cash out at the top of the market (then not being able to refinance or make the adjusted payment at the bottom).
Today's home buyers can avoid this fate by starting out their homeowning careers with some ground rules in place around borrowing against their homes.
A good (albeit conservative) place to start is this rule: Decide not to borrow against your home equity for anything but well-planned home improvements.
Here's another one: Whatever you do, don't borrow against your home to lend money to someone else. I've seen dozens of homeowners over the years borrow to make an "investment" in a friend's business or to lend money to a child or a parent. Borrowing against your home's equity to make an investment in a business you know nothing about is a complete gamble with your home. Don't do it.
2. Stop financial codependency. Related to the rule of thumb about borrowing to lend is this change of the bad habit of financial codependency.
This comes up most often when homeowners borrow money against their home or tap into their emergency cash cushion (leaving themselves unable to make their mortgage payments if they lose their job, etc.) to help an adult child make their own mortgage payments or bail them out of another crisis situation.
It also comes up where one spouse supports another spouse's habit of overspending, debting, underearning, gambling, or even substance abuse, and ends up going into a financial hole as a result. Over time, these cases can create the temptation or even desperation to further leverage your home, and can run through a savings account, leaving the homeowner exposed and vulnerable in the face of a temporary disability, job loss or recession.
There are a number of powerful books on the market about how to cease being codependent, but many people struggle to recognize they even have this issue until it's too late. Here's a hint: If you regularly use money to protect a loved one from the natural consequences of their behavior, you are engaging in codependent behavior.
3. Stay conscious. Going on money autopilot, without occasional check-ins, is the root of many financial woes. Many money experts recommend automating your monthly payments so that your recurring bills are paid on time, every time. And almost any homeowner will vouch that there are few bills that seem to come up as frequently as your mortgage!
The problem is that once you automate your payments, it's very easy to fall into the habit of simply ignoring your actual statements -- and they may contain information that flags issues before they snowball into serious problems.
One homeowner recently realized that through no fault of her own, and despite never having missed an auto-payment, her home was facing foreclosure -- all because the bank had somehow erroneously started crediting her payments to someone else's mortgage account!
Also, financial autopilot mode can support habits like overspending and overdebting; the minimum payments may always get made without much attention from you, but the overall balances will rear their ugly heads and possibly pose a threat to your ability to pay your mortgage, in the event you ever face a job loss, medical bills or other financial crisis.
4. Do your own math before you buy. Only you can know the full extent of your non-housing-related financial obligations and values. Things like catch-up retirement savings, tithing and charitable giving, private school tuition, medical costs and the like can take big chunks out of your monthly budget that your mortgage pro is not accounting for when he or she tells you how much of a mortgage you're qualified to borrow.
So, before you ever speak with a mortgage broker, it's up to you as a responsible buyer and adult to get a very clear understanding of your own personal income and expenses, assets and priorities, and to use that knowledge to decide how much you can afford to put down and to spend monthly for a home.
Fortunately, an increasing number of are buyers doing this, and actually choosing to buy a home that costs much less than they are technically qualified for.
5. Don't buy a house to fix a family or psychological problem. Beware of "pulling a geographic" -- moving to a new neighborhood or town to try to run from your problems and bad habits.
Experts caution against expecting the move to solve the problem on the grounds that, in the words of mindfulness guru Jon Kabat-Zinn, "wherever you go, there you are." If you have bad habits in Chicago, moving to L.A. doesn't purge the bad habits -- only working on the actual dysfunction itself will do that.
There's a real estate-specific version of pulling a geographic, which we'll call "pulling a residential." This is where people buy a home or buy a new home in an effort to cure a deeper family or psychological issue; sort of like that old (and equally bad) idea of having a baby to try to save your marriage.
If your children are fighting because they lack personal space, that's one thing. But if there are deeper issues going on with your children, your family or your relationship (even your relationship with yourself), do not fantasize that owning a home or moving up is going to automatically solve them.
In fact, the opposite is often true: The larger the financial and maintenance obligations that come with a home, the more a mortgage and property taxes can add strain to already troubled relationships.
Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com.
Monday, April 2, 2012
NAR: 2012 home sales will be strongest in past 5 years
The NATIONAL ASSOCIATION OF REALTORS® is predicting existing-home sales will jump 7 to 10 percent in 2012 to the highest level in five years, based on an "uneven but higher sales pattern" so far this year.
Pending home sales fell a seasonally adjusted 0.5 percent from January to February, which was up 9.2 percent from the same time a year ago, NAR said in releasing its latest Pending Home Sales Index.
NAR also reported a similar trend for existing-home sales, which were down 0.9 percent from January to February, but up 8.8 percent from a year ago.
The pending sales data released today provides a glimpse into more recent trends, because it tracks homes that were under contract in February -- deals that will in most cases be finalized within one or two months.
NAR said 31 percent of REALTORS® experienced contract failures in February, in some cases because buyers' mortgage applications were rejected or because appraisals came in below the negotiated price.
In the Northeast, NAR's index slipped a seasonally adjusted 0.6 percent from January but was up 18.4 percent from a year ago.
The Midwest saw a month-over-month gain of 6.5 percent and a 19 percent gain from a year ago.
Pending home sales fell 3 percent in the South from January to February, but were up 7.8 percent from a year ago.
In the West, the index declined 2.6 percent from January to February and was 1.8 percent below the index rating in February 2011.
In its latest economic forecast, NAR predicts existing-home sales will total 4.65 million in 2012, up 9.1 percent from last year. That forecast assumes that the U.S. economy will grow at a 2.3 percent annual rate and add 2.7 million jobs this year.
Pending home sales fell a seasonally adjusted 0.5 percent from January to February, which was up 9.2 percent from the same time a year ago, NAR said in releasing its latest Pending Home Sales Index.
NAR also reported a similar trend for existing-home sales, which were down 0.9 percent from January to February, but up 8.8 percent from a year ago.
The pending sales data released today provides a glimpse into more recent trends, because it tracks homes that were under contract in February -- deals that will in most cases be finalized within one or two months.
NAR said 31 percent of REALTORS® experienced contract failures in February, in some cases because buyers' mortgage applications were rejected or because appraisals came in below the negotiated price.
In the Northeast, NAR's index slipped a seasonally adjusted 0.6 percent from January but was up 18.4 percent from a year ago.
The Midwest saw a month-over-month gain of 6.5 percent and a 19 percent gain from a year ago.
Pending home sales fell 3 percent in the South from January to February, but were up 7.8 percent from a year ago.
In the West, the index declined 2.6 percent from January to February and was 1.8 percent below the index rating in February 2011.
In its latest economic forecast, NAR predicts existing-home sales will total 4.65 million in 2012, up 9.1 percent from last year. That forecast assumes that the U.S. economy will grow at a 2.3 percent annual rate and add 2.7 million jobs this year.
Who's responsible for defects discovered after closing?
Home buyers who buy during the dry season can be in for an unpleasant surprise when the roof leaks or the basement floods after the first rain. Who is responsible for damage caused by water intrusion and for making the necessary repairs to prevent it from happening again?
It's possible that you are responsible if information about potential water intrusion was disclosed to you before you closed the sale and you accepted the property in its "as is" condition regarding this.
For example, if there are trees overhanging the roof gutters, and the sellers and your home inspector told you the gutters need to be kept free of debris, you probably won't get very far asking the sellers to repair roof leaks if it turns out they were caused by your lack of maintenance. When gutters get clogged, water can back up and run into the house.
The first thing you should do if you discover a defect after closing that you think is either a new condition or something you're sure has happened in the past is to look through the inspection reports and disclosures, if there were any, to see if you were made aware of this before you bought.
Plenty of paperwork is generated during today's home-sale transactions, but many buyers and sellers are prone to recycle most of it as soon as the sale closes. It's a good idea to reduce the amount of paper, but not the critical information you'll need for tax purposes, such as your settlement statement and documentation of the property's condition.
Ideally, the purchase contract and addenda, any disclosures and all inspection reports should be burned to a CD for your records before recycling the paper copies.
What should you do if you clean the gutters but the roof still leaks during the next rain? Did you have the roof inspected before you bought? Was maintenance recommended? Did you have the work done? If so, call the roofer. If the seller hired a roofer to maintain the roof, make sure you have documentation that identifies the work that was done, and contact that roofer.
Dealing with defects discovered after closing is not always black and white.
For example, let's say the sellers told you that they occasionally found a small amount of water in the basement after a heavy rain.
In fact, the basement floods when it rains so that it can't be used for storage, and the flooding is rusting the bottom of the furnace and the hot water heater. A fix for a problem like this could be expensive if it requires a new drainage system.
HOUSE HUNTING TIP: Your purchase contract should detail how disputes will be dealt with if they can't be solved by the parties involved or with the help of their real estate agents.
Some contracts call for disputes to be mediated before they are either resolved through arbitration or in court. In any event, you should contact a knowledgeable real estate attorney for answers to any questions regarding who's responsible for defects disclosed after closing.
Be sure to hire the best inspectors you can find in your area. Disclosure requirements vary from state to state. Also, many buyers buy bank-owned or estate-sale properties where there typically aren't thorough disclosures because the owners didn't occupy the property and may be exempt from providing disclosures.
A good home inspector would see signs of flooding in the basement, such as bubbling paint on the foundation walls, rust on the bottom of the furnace, and water stains, unless they have been intentionally covered up by the seller. If the home inspector recommends hiring a drainage specialist to look at the property, be sure to follow through with this.
THE CLOSING: It's best to resolve property defect issues before closing, if possible.
Dian Hymer is a nationally syndicated real estate columnist and author.
It's possible that you are responsible if information about potential water intrusion was disclosed to you before you closed the sale and you accepted the property in its "as is" condition regarding this.
For example, if there are trees overhanging the roof gutters, and the sellers and your home inspector told you the gutters need to be kept free of debris, you probably won't get very far asking the sellers to repair roof leaks if it turns out they were caused by your lack of maintenance. When gutters get clogged, water can back up and run into the house.
The first thing you should do if you discover a defect after closing that you think is either a new condition or something you're sure has happened in the past is to look through the inspection reports and disclosures, if there were any, to see if you were made aware of this before you bought.
Plenty of paperwork is generated during today's home-sale transactions, but many buyers and sellers are prone to recycle most of it as soon as the sale closes. It's a good idea to reduce the amount of paper, but not the critical information you'll need for tax purposes, such as your settlement statement and documentation of the property's condition.
Ideally, the purchase contract and addenda, any disclosures and all inspection reports should be burned to a CD for your records before recycling the paper copies.
What should you do if you clean the gutters but the roof still leaks during the next rain? Did you have the roof inspected before you bought? Was maintenance recommended? Did you have the work done? If so, call the roofer. If the seller hired a roofer to maintain the roof, make sure you have documentation that identifies the work that was done, and contact that roofer.
Dealing with defects discovered after closing is not always black and white.
For example, let's say the sellers told you that they occasionally found a small amount of water in the basement after a heavy rain.
In fact, the basement floods when it rains so that it can't be used for storage, and the flooding is rusting the bottom of the furnace and the hot water heater. A fix for a problem like this could be expensive if it requires a new drainage system.
HOUSE HUNTING TIP: Your purchase contract should detail how disputes will be dealt with if they can't be solved by the parties involved or with the help of their real estate agents.
Some contracts call for disputes to be mediated before they are either resolved through arbitration or in court. In any event, you should contact a knowledgeable real estate attorney for answers to any questions regarding who's responsible for defects disclosed after closing.
Be sure to hire the best inspectors you can find in your area. Disclosure requirements vary from state to state. Also, many buyers buy bank-owned or estate-sale properties where there typically aren't thorough disclosures because the owners didn't occupy the property and may be exempt from providing disclosures.
A good home inspector would see signs of flooding in the basement, such as bubbling paint on the foundation walls, rust on the bottom of the furnace, and water stains, unless they have been intentionally covered up by the seller. If the home inspector recommends hiring a drainage specialist to look at the property, be sure to follow through with this.
THE CLOSING: It's best to resolve property defect issues before closing, if possible.
Dian Hymer is a nationally syndicated real estate columnist and author.
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