Yajnesh Rai

Buying a Fixer Upper | How to Buy a Fixer Upper | Fixer Upper Costs

In 2012, Alessandra Pollina and her husband, Ondre, were looking for a property that would need no more than some cosmetic changes and upgrades. But because the price was right, they ended up with the ultimate fixer-upper: a two unit, single-family-style home that was already gutted to the studs.

They were excited about its potential, not to mention the one-half acre of land the house is sitting on. “That’s unusual for Boston,” Pollina says. “It’s the biggest backyard ever.”

Four years and many renovations later, Pollina estimates her home in the Dorchester neighborhood is worth (drum roll, please) an epic56% more than it was when she bought it. Wow, talk about a return on investment.

The moral? A fixer-upper isn’t necessarily something to eschew. If the right things are wrong with a house, you could not only turn it into your dream home, but also earn serious equity (wealth building!) in the process.

Oh, and don’t assume you need to be a DIY master to make it worthwhile, either. Time and patience may be all you need.

Here’s how to tell if that fixer-upper is a keeper — or if you should keep walking.

First, Evaluate the Price

If it’s a fixer-upper, it should come at a fixer-upper price. Duh, but that’s a reminder NOT to fall in love too quickly with a home that the listing says “just needs a little TLC.” Do your homework first, and if the price is right, then fall in love.

Find out what similar homes in the neighborhood sell for and how tricked out they are (with amenities and materials). A REALTOR® can help you figure that out. And that will tell you how much money you can invest in the home before you over-improve for the neighborhood, a mistake you want to avoid if you plan to sell in the future.

Wendell De Guzman, a Chicago real estate investor who renovates at least two houses a month, recommends treating the remodel like a business, not a hobby. Determine your budget based on the market value of homes in your neighborhood, because you’re not going to sell for more.

“It doesn’t matter how much money you can put into the house,” Guzman says. “You’re limited by the market value of what nearby houses are selling for.”

Next, Start Evaluating What Improvements Are Needed

The best fixer-uppers offer lots of opportunities for “instant equity,” which means if you sold the home tomorrow you’d pretty much get that money back, unlike other projects which you may never get your money back on. ( REALTOR® TipA swimming pool won’t help you when it comes time to sell. You’ll spend any gain on insurance and upkeep. On the other hand, you can’t put a dollar value on an afternoon with family and friends. Read More In Do Swimming Pools Add Value to Homes? Swimming pool, anyone?)

Some can be as simple as painting or landscaping, which you can accomplish with sweat equity, De Guzman says. In fact, the Pollinas started their rehab with high-value, low-effort landscaping, since it’s the first thing people see. They raked, brought the grass back to life, planted fruit trees and a veggie garden, and enjoyed the reaction: “People are so surprised and impressed,” Alessandra says.

Other tasks — the Pollinas focused on the kitchen next — may require the work of professionals and cash to pay them. It’s those projects you want to carefully evaluate against the home’s price.

Which Hire-a-Pro Projects Add Instant Equity?

Fact: While most home improvements add some equity, some are consistently at the top of the heap. Another thing those equity champions have in common: They usually require the help of a pro, but the cost can be instantlyworth it.

Based on data gleaned from the NATIONAL ASSOCIATION OF REALTORS®’ “Remodeling Impact Report” (RIR), if these four projects are on your fixer-upper’s list of must-haves, then you may have found your dream equity-builder:

1. New roof: A new roof may not be the remodeling project of your dreams — until you realize it could actually payyou. You’ll spend about $7,600 to install it (based on a national average determined by contractors responding to the RIR survey), but when you sell, it could recoup 105% of that or $8,000, according to REALTORS® surveyed.

2. Hardwood floors: It costs about $2,500 on average nationally to refinish hardwood floors. If you bought a house that already had refinished hardwood floors, you could pay about $2,500 more for the home. But if you’re looking at a fixer-upper (at the right price) that needs the floors redone, that’s like getting the floors for free! New hardwood floors are also a good choice at a cost of about $5,500 to install, and could recoup $5,000 of that at resale.

3. Insulation: A fixer-upper offers a great opportunity to replace or add insulation. New insulation costs about $2,100 on average nationally, and can recoup $2,000 at resale — as if saving 10% to 50% on your energy bill wasn’t compelling enough.

4. New siding: Droopy, old siding can be great news on a fixer-upper. Vinyl siding costs about $12,000 to install on average nationally, and recoups about $10,000 when you sell. Getting a fixer-upper for a price that more than covers the cost of siding installation is, well, priceless.

While those four are pretty safe bets — homeowners who responded to the RIR survey gave them high happiness and satisfaction marks, too — almost any project can be worth it with a fixer-upper if the price is right. For example, a complete kitchen renovation can cost $60,000 and recover only about $40,000 when you sell. But if the fixer-upper is discounted enough, think how amazing it would be to cook in a kitchen you designed yourself.

Evaluate Your Ability to Deal with Disruption

Whether you’re a DIY Jedi or content to let the pros handle the remodel, if your patience is shorter than your potential home’s to-do list, a fixer-upper may not be a good choice.

Renovating a bathroom alone can take two to three weeks. Add hardwood flooring, a new kitchen, and siding, and you’re looking at a whole summer’s worth of rehab.

When considering a fixer-upper, evaluate the limits of your emotional energy as well. Inevitable project pitfalls and delays can be wearing. Only if you have the time, patience, and emotional endurance for a fixer-upper will it be a good fit for you. And only you can determine that.

But if you can budget your time and money — and employ the right fixer-upper strategies — you might find yourself with a double reward: A home that’s worth far more than you paid, and the joy of knowing you helped get it there.

Zero-Down Loans Making a Comeback | Realtor Magazine

Your buyers may soon be able to bring less to closing. They were blamed for precipitating the housing crisis years ago, but major lenders are giving no- and low-down payment loans another shot.

Several major lenders are reportedly offering loans with just 1 percent down. Navy Federal, the nation’s largest credit union, offers its members zero-down mortgages in amounts up to $1 million. NASA Federal Credit Union markets zero-down mortgages as well. Quicken Loans, the third highest volume lender, offers 1 percent down payment options, as does United Wholesale Mortgage. And the Department of Veterans Affairs has offered zero-down loans to eligible borrowers for many years.

Also, Movement Mortgage, a large national lender, has introduced a financing option that provides eligible first-time buyers with a nonrepayable grant of up to 3 percent. As such, applicants can qualify for a 97 percent loan-to-value ratio conventional mortgage, which is basically zero from the buyers and 3 percent from Movement. For example, on a $300,000 home purchase, a borrower could invest zero personal funds with Movement providing $9,000 down. The loan also allows sellers to contribute toward the buyer’s closing costs.

So far, the delinquency rates on these low- to zero-down payment loans have been minimal, according to lenders. Quicken Loans says its 1 percent down loans have a delinquency rate of less than a one-quarter of 1 percent. United Wholesale Mortgages told The Washington Post that it has had zero delinquencies from the borrowers on its 1-percent down loan since debuting it last summer.

For Movement’s new loan product, the lender will originate the loans and then sell them to Fannie Mae, which remains under federal conservatorship. Fannie officials released the following a statement: “(We’re) committed to working with our customers to increase affordable, sustainable lending to creditworthy borrowers. We continue to work with a number of lenders to launch test-and-learn that require 97 percent loan-to-value ratio for all loans we acquire.” They add that there “is no commitment beyond the pilots,” which are “focused on reaching more low- to-moderate income borrowers through responsible yet creative solutions.”

During the housing crisis, zero-down loans were among the biggest losses for lenders, investors, and borrowers. However, housing experts say the latest versions are different from years ago. Applicants must now demonstrate an ability to repay what’s owed. They also must have stellar credit histories and scores, and lenders require a lot more documentation to prove borrowers are in good standing. Also, many of the programs are charging higher interest rates. For example, Movement’s rate for its zero-down payment option in mid-June was 4.5 percent to 4.625 percent, compared with 4 percent for its standard fixed-rate mortgages.

Some critics say that the borrowers who really could benefit from such options aren’t able to qualify for them. Paul Skeens, president of Colonial Mortgage Corp. in Waldorf, Md., told The Washington Post that “it seems like people without excellent credit scores and three months of [bank] reserves don’t qualify.”

Fed Votes to Raise Key Interest Rate Again | Realtor Magazine

On Wednesday, the Federal Reserve took a largely expected move to raise its key interest rate one-quarter percentage point. This marks the second of three hikes that is expected to occur this year.

“The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation,” according to the Fed’s statement.

While mortgage rates aren’t directly tied to the Fed’s key interest rate, rates are still influenced by the movement. Mortgage rates are predicted to start rising, and many homeowners and prospective homeowners are already bracing for an uptick.

In a recent survey of home buyers and owners by Berkshire Hathaway HomeServices, 55 percent of millennials reported discouragement about buying a home due to rising rates. Some 68 percent feel pressured to buy a home before rates increase further.

“The latest rate hike is partly justified from ongoing economic expansion and also a steadily falling unemployment rate,” says NAR Chief Economist Lawrence Yun. “However, the Federal Reserve should be mindful of the lower than expected rate of inflation and the consequent low interest rates on long-dated bonds, like 10-year Treasury and 30-year mortgage rates. An inversion in interest rates of short-term fed funds being higher than long-term bond yields can easily pull down the economy into a recession. We are getting closer to that inversion point.”

5 Most Common Home Buyer Regrets | Realtor Magazine

Half of recent home buyers say that if they could repeat the homebuying process, they’d do something differently, according to a survey by financial website NerdWallet.com. Respondents indicate that their biggest source of regret when buying a home was not preparing enough financially for homeownership. Here are some of the most common reasons for buyer regret, according to the survey.

1. Purchasing a home that’s too expensive. Millennials and Generation X members were more likely than baby boomers to say they overspent on their home purchase, according to the NerdWallet survey. A 2015 MacArthur Foundation survey also found that more than half of consumers had to make sacrifices in order to afford their mortgage or rent. About 20 percent said they took an extra job, 17 percent stopped saving for retirement, and 14 percent accumulated credit card debt, according to the MacArthur survey.
2. Purchasing a home that doesn’t fit their needs. About 5 percent of respondents to the NerdWallet survey say their home didn’t align with their homeownership goals. Housing experts recommend avoiding common homebuying mistakes like forgoing a home inspection, ignoring commute time, or choosing the wrong neighborhood. Also, consumers need to know what amenities they need. That’s not always easy: 7 percent of buyers say the amenities and features they valued most changed after buying a home.
3. Not putting enough money down. Low-down-payment loans can help buyers without robust savings get into a home, but some may later regret not saving more before taking on the costs of homeownership. Twenty-eight percent of millennials and 27 percent of Gen Xers say they wish they had saved more before buying their house, according to the NerdWallet survey.
4. Not being organized. Many home shoppers say they wish they had gathered paperwork before the mortgage application process and developed a system for keeping it organized. That includes W-2 or tax return forms, profit-and-loss statements for business owners, brokerage statements, proof of Social Security income, and evidence of child support payments. Home shoppers also need proof of their assets, such as documentation of down-payment gifts and copies of bank statements, as well as information on outstanding debts.
5. Not shopping around for a loan. Half of borrowers take the first mortgage that’s offered to them, according to a survey by the Consumer Financial Protection Bureau. But shopping around for a mortgage with an interest rate that is even half of a percentage point lower can result in tens of thousands of dollars in savings over the life of the mortgage. Home buyers should compare more than interest fees, including the cost of private mortgage insurance and the loan’s APR (which is the interest rate, points, fees, and other charges all rolled into a yearly rate).

Things to know before buying a home in an HOA community | AZ Big Media

An English proverb says: “measure twice, cut once.” Not only does this advice apply to carpenters, but it aptly applies to individuals looking to buy a home in a home owner’s association community. Homeowner associations have been established through cooperation between the local municipalities and the real estate developers. Prior to the advent of HOAs, towns or cities would assess and collect property taxes from each homeowner and in exchange they would take care of the streets, parks, trash collection etc. Homeowners would also be bound by the provisions of the city’s code that regulate landscaping and the condition of the property.

In the 1960s real estate developers began to develop HOA communities. Since then HOA communities have exploded across the nation. Currently, more than 68 million Americans live in HOA communities – which is 53 percent of all households in the nation. In these types of communities, the developer creates a nonprofit corporation to manage the community and to take over many of the duties that were traditionally performed by cities. Before selling any homes, the developer records Covenants, Conditions and Restrictions (CC&Rs). By purchasing a home in the community a person automatically becomes a member of the nonprofit corporation and is automatically bound by the CC&Rs. The day-to-day operations of the HOA are run by the HOA board of directors. The HOA Board is made up of volunteers from the community.

HOAs have been given great power by state legislatures. Essentially, the HOA steps into the shoes of the city in many respects. For example, the HOA Board has the authority to collect monthly or quarterly assessments (i.e. taxes) and to regulate, penalize and fine homeowners for violating the CC&Rs and the other rules and regulations of the community. Because of its inherent power, the HOA will have a big impact, good or bad, on a homeowner’s life. But when buying a home, many people are so busy inspecting and performing their due diligence on the home itself, they spend little to no time conducting any due diligence on the HOA that will govern their life and the use of their property as long as they live in the community.

A wise buyer would spend some time making sure the community is a good fit for them before purchasing the home by checking up on the following:

Community Documents

Prior to close of escrow a buyer receives a large stack of documents from the HOA which includes copies of the CC&Rs, Rules and Regulations, and Bylaws. These are often very lengthy and are filled with “legalese” so you may need an attorney to help you understand what you are getting into. For example, these documents indicate whether or not you can have a boat or an RV at your home, a basketball hoop or a swing set. They can even restrict what types of plants, trees or rocks you can have in your yard. They may require you to paint your house every so often or they may prevent you or your guests from parking on the street. You should become very familiar with the all the rules, requirements and restrictions in the community to make sure they are compatible with your lifestyle. If you violate any of these provisions, or if you fail to pay the dues and assessments, the HOA may fine you and put a lien on your home. You should talk to members of the community to find out how the HOA Board interprets and enforces the rules and regulations of the community.

Financials

You should also review the financial information you receive from the HOA prior to close of escrow to understand the financial condition of the HOA. The HOA collects dues and assessments from its members and must budget and use those funds to take care of the common areas of the community. If you buy the home, you will be a member of the nonprofit corporation that manages the community and you will benefit or be punished by how financially solvent the HOA is. For example, if you are looking to buy a home in a community with lots of amenities such as a clubhouse, swimming pools, tennis courts and parks, you want to make sure that the HOA has enough money in reserve to be able to repair and replace all of these things when they eventually wear out or break down. If not, the HOA would have to make a special assessment to cover these large expenses and each homeowner would have to pay their pro rata share, which could be quite large. Some communities pay a professional to prepare a formal Reserve Study. You should ask if the community has one. A Reserve Study evaluates the amenities and common areas and then recommends how much money the community should have in reserve to make sure it is able to repair and replace them over time. By reviewing the Reserve Study you can determine if the community has adequate funds in reserve. And if the community does not have a formal reserve study that says something about the community as well. Make sure you are comfortable with the financial condition of the HOA before you purchase the home.

Litigation

Finally, you should check the local court records to see how litigious the community is. However, not all lawsuits are bad. Sometimes an HOA must file a lawsuit to collected dues and assessments from a homeowner that is not paying his or her fair share of the community expenses. But if a community is overly litigious it can negatively impact the community and its members. For example, the more times the HOA is sued, the more it will pay for insurance. And the higher cost of insurance is then passed on to its members. Also, excessive litigation may indicate poor communication and dispute resolution skills within the community. Prolonged litigation can also cause significant division and discord within the community. All lawsuits are public records so you can access them for free. You can also ask questions of community members to better understand the dynamics in the community.

Buying a home in an HOA community is a big decision. People are often drawn to HOA communities because of the wonderful amenities they offer such as pools, tennis courts and parks. But they often fail to perform adequate due diligence to make sure that the personality and culture of the community fits their lifestyle. Prospective buyers can avoid a lot of stress, frustration and cost by simply taking the time to perform a little due diligence on the community before deciding to purchase the home.

Fannie to Loosen Mortgage Requirements | Realtor Magazine

Government-sponsored financing giant Fannie Mae will ease its requirements next month, raising its debt-to-income ceiling from 45 percent to 50 percent on July 29. The move could pave the way for a larger number of new buyers to qualify for a mortgage, particularly millennials who may be saddled with student loan debt.

The debt-to-income ratio compares a person’s gross monthly income with his or her monthly payment on all debt accounts, including auto loans, credit cards, and student loans. It also factors in the projected payments on the new mortgage. Lenders see applicants with lower debt-to-income ratios as less at risk of defaulting.

Fannie Mae, Freddie Mac, and the Federal Housing Administration have exemptions that allow them to buy or insure loans with higher ratios than the federal rules, which are set at a maximum of 43 percent. The FHA allows debt-to-income ratios of more than 50 percent in some cases.

In a recent study, Fannie Mae researchers looked at more than a decade and a half of data from borrowers with debt-to-income ratios in the 45 percent to 50 percent range. They found that a significant number of these borrowers had good credit and were not prone to default.

“We feel very comfortable” with the increased debt-to-income ratio ceiling, says Steve Holden, Fannie Mae’s vice president of single-family analytics. “What we’re seeing is that a lot of borrowers have other factors” in their credit profiles that reduce the risks associated with slightly higher debt-to-income ratios. For example, these borrowers may make higher down payments or have cash reserves of 12 months or more.

Many lenders say they’re happy to see Fannie loosen up their debt-to-income guidelines a bit. Joe Petrowsky, owner of Right Trac Financial Group in Hartford, Conn, calls the move “a big deal” for potential buyers who are currently being rejected for mortgages: “There are so many clients that end up above the 45 percent debt ratio threshold.”

But that doesn’t mean that anyone with a debt-to-income ratio of below 50 percent will be approved. Borrowers will still be closely vetted by Fannie’s underwriting system to examine their complete application, including income, down payment, credit scores, and more.

More Americans Think Selling Is a Good Idea | Realtor Magazine

Selling is sounding more appealing. The percentage of Americans who reported now is a good time to sell zoomed to a record high in May, according to Fannie Mae’s latest Home Purchase Sentiment Index, based on a survey of about 1,000 Americans on their views about the housing market. Meanwhile, the net share of Americans who say now is a good time to buy fell 8 percentage points and reached a record low last month.

“High home prices have led many consumers to give us the first clear indication we’ve seen in the National Housing Survey’s seven-year history that they think it’s now a seller’s market,” says Doug Duncan, Fannie Mae’s chief economist. “However, we continue to see a lack of housing supply as many potential sellers are unwilling or unable to put their homes on the market, perhaps due in part to concerns over finding an affordable replacement home. Prospective homebuyers are likely to face continued home price increases as long as housing supply remains tight.”

Overall, Fannie Mae’s Home Purchase Sentiment Index dropped 0.5 percentage points in May to a reading of 86.2. Three of the six index components posted larger net decreases than the three components that posted increases. The index, however, is still up 0.9 percentage points compared to a year ago.

Here are some additional insights from the latest index reading:

• 27%: The net share of Americans who say now is a good time to buy a home, an 8 percentage point month-over-month decrease and a new survey low.
• 32%: The net percentage of those who say now is a good time to sell, a 6 percentage point month-over-month increase, and a new survey high.
• 40%: The net share of Americans who say that home pries will go up, a 5 percentage point drop in May.
• 71%: The net share of Americans who say they are not concerned about losing their job, a 6 percentage point drop month-over-month.
• 18%: The net share of Americans who say their household income is significantly higher than it was 12 months ago, up 5 percentage points month-over-month.

Fed: More Regular Rate Hikes Coming | Realtor Magazine

The Federal Reserve says that an increase in interest rates is coming soon, and quarterly hikes are likely in the future—a fundamental shift of its policy over the last few years, The New York Times reports. While the Fed has been very cautious regarding signs of economic weakness, the bank is “now willing to shrug off at least a little bad data,” according to the article.

Federal Reserve board member Lael Brainard, who advocates caution when it comes to increasing rates, according to the Times, told an economic group on Tuesday that its benchmark interest rate is likely to increase soon. It’s a sign that there is little opposition on the Fed’s board to the increase. The Fed raised rates in December and March.

While the June increase seems likely, John Williams, president of the Federal Reserve Bank of San Francisco, said this week that he considers three rate hikes this year a sensible plan, suggesting the Federal Reserve will continue to consider each increase on its own merits rather than automatically increasing the rate every quarter.

Mortgage Rates Are Still Dropping | Realtor Magazine

Home buyers may want to rush to lock in: The 30-year mortgage rate hit its lowest level in nearly seven months this week, Freddie Mac reports.

“The 10-year Treasury yield fell 3 basis points this week,” said Sean Becketti, Freddie Mac’s chief economist. “The 30-year mortgage rate moved in tandem with Treasury yields, falling 5 basis points to 3.89 percent. Mixed economic data and increasing uncertainty are continuing to push rates to the lowest levels in nearly seven months.”

Freddie Mac reports the following national averages with mortgage rates for the week ending June 8:

• 30-year fixed-rate mortgages averaged 3.89 percent, with an average 0.5 point, down from last week’s 3.94 percent average. Last year at this time, 30-year rates averaged 3.60 percent.
• 15-year fixed-rate mortgages averaged 3.16 percent, with an average 0.5 point, dropping from last week’s 3.19 percent average. A year ago, 15-year rates averaged 2.87 percent.
• 5-year hybrid adjustable-rate mortgages averaged 3.11 percent, with an average 0.5 point, holding the same average as last week. A year ago, 5-year ARMs averaged 2.82 percent.

Unhurried job growth may keep mortgage rates low

Mortgage rates won’t rise much in the second half of this year if the economy keeps jogging along at its current pace.

That’s good news if you have a nice-paying job and you’re looking to buy a home. You can shop for a mortgage, knowing that interest rates are unlikely to skyrocket. Home prices, on the other hand, are going up quickly in most places. So maybe you want to move quickly after all.

What’s up with jobs?

The economy added a net 138,000 jobs in May, according to the Labor Department. That was less than expected. The initial job-creation estimates for March and April were reduced by a total of 66,000. Average hourly earnings are up 2.5 percent in the last 12 months.

The job growth numbers are kind of a bummer. And why haven’t wages risen faster?

That’s why I say the economy is jogging, not running. Nevertheless, the Federal Reserve is still expected to raise short-term interest rates when it meets June 13 and 14. By increasing the federal funds rate, the central bank aims to slow the economy a smidgen to keep inflation under control. A rate hike also gives the Fed some room to cut interest rates in the future when the economy goes into recession.

Will Fed hike rates in December?

But what about later in the year? Most observers expect the Fed to increase rates this month and then again in December. Now some doubt is creeping in about the probability of a year-end rate hike.

Curt Long, chief economist for the National Association of Federally-Insured Credit Unions, says “the slowing pace of job growth combined with still-muted wage growth may lead some officials to downgrade their expectations for further policy tightening in the second half of the year.”

If a December Fed rate increase is seen as increasingly unlikely, that expectation might keep mortgage rates from rising much. That would be positive for people who comparison-shop for mortgages late this year.

What about the Fed’s assets?

A deferred rate hike is not the only thing that could keep mortgage rates tethered low to the ground. The Fed is expected to begin shrinking its balance sheet late this year — an action that would indirectly push mortgage rates higher. But this month’s meh jobs report “certainly calls into question their plans to begin shrinking the Fed’s balance sheet later this year,” says Alan MacEachin, chief corporate economist for Navy Federal Credit Union.

This scenario wouldn’t spell great news for the overall economy. But if you’re going to shop for a mortgage sometime this year, you don’t have to worry about a rapid rise in rates.

Home construction a bright spot

Today’s most optimistic take was delivered by Lawrence Yun, chief economist for the National Association of Realtors. He notes that construction jobs are expanding at twice the overall rate of job growth. It’s an indication that more new houses will be built. New homes for sale “will steadily show up as we proceed through the year,” Yun says.

I hope he’s right. We need more new homes, especially if they’re affordable for first-time homebuyers.