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Larry & Kathy Reichle

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Late Boomers: How Seniors are Affecting the Housing Market

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The baby boomers are entering their golden years and are poised to become the largest generation of retirees in the country’s history. Through their sheer numbers, boomers have impacted the nation’s economic trends. Now, as more of them enter their retirement years, this generation’s housing preferences will help determine the housing options available to younger people entering the market.

Not only are baby boomers the largest generation, but they also have different lifestyle preferences than previous generations. Baby boomers are working longer and delaying the home downsizing many have been expecting. While some observers think baby boomers are contributing to the inventory crunch by staying in place, others believe boomers are holding on to their homes to time the market and that a massive sell-off is on the horizon.

To better understand this demographic group, Trulia took a close look at the housing situation of seniors 65 and over now and a decade ago, as well as how senior households stack up in different metros. Of course, not all boomers are seniors yet—we define baby boomers as individuals born between 1945 and 1964, making them between 54 and 73 this year. However, we focus on changes in senior housing preferences over the last decade to offer insight into how boomers, who are starting to become seniors en masse, differ in their housing choices compared to previous generations.

We found that:

  • Senior households are delaying downsizing. They’re working longer and their kids are living with them more often compared with seniors a decade ago.
  • Senior households with no younger generations living with them—which include empty nesters— on average have two more bedrooms than people in their homes. Households under 65 on average only have one extra bedroom.
  • Places where housing inventory is most needed—the most unaffordable metros in the nation—aren’t the places where seniors are holding onto inventory. Like the rest of the population, seniors rent in these places at much higher rates and also have younger generations living with them more often. Unless they kick out the kids, they won’t be able to downsize.
  • Metros that have the most senior households that could potentially downsize—that is, those households that own their single family home and have no younger generations living with them—are among the most affordable in the nation. That may be evidence that boomers holding onto their homes is not driving up prices.

Delayed Gratification

Aging boomers are staying in place longer. As households move into their retirement years, some of them are downsizing—moving from owning to renting and from single family to multifamily homes. But, on average, boomers are staying in place longer than previous generations. Some observers worry they are taking up valuable home inventory in high-demand markets that would otherwise be snapped up by younger homebuyers. Of senior households, 83.4% live by themselves, with no younger generations. On average, this group has two more bedrooms than people living in the house—perhaps representing empty nesters whose kids have since moved out. That compares with just one extra bedroom for households under 65.

Characteristics of Senior Households
% of Senior Households 2005 2016
In Labor Force 15.9% 19.3%
Living Alone 85.2% 83.4%
Living with Younger Generation(s) 14.4% 16.1%

 

Baby boomers are staying in place longer because the life events that might cause them to downsize are being delayed. Seniors in recent years have adopted significantly different lifestyles than seniors even a decade ago. For one, they’re working longer. The proportion of household heads 65 and over who are still in the labor force rose to 19.3% in 2016 from 15.9% in 2005. What’s more, the kids are moving out later. Senior households living alone represented 83.4% in 2016, ticking down from 85.2% in 2005. In 2016, 16.1% of senior households had younger generations living with them, up from 14.4% in 2005. These factors mean senior households aren’t considering downsized housing options until later in life. In 2005, more senior households were moving into multifamily than single family housing by age 75. In 2016, this inflection point had shifted to age 80.

Senior Living by Metro

The areas where home supply is limited and affordability is low might appreciate an infusion of inventory from downsizing seniors. However, when looking at the nation’s top 100 metros, we don’t see evidence that boomers holding on to inventory is eroding affordability. Like the general population, seniors in expensive and unaffordable metros rent at much higher rates. Unaffordability also translates to higher levels of multigenerational living. The correlation between unaffordability and the percentage of senior households that could potentially downsize—those that live by themselves and own a single family home—is stark. The higher the income required to purchase the median home, the lower the proportion of senior households that could downsize (with a correlation coefficient of -0.73).

The metros with the highest portion of senior households in a position to downsize are in more affordable metros, including Knoxville, Tenn., Colorado Springs, Colo., and Dayton, Ohio. However, even in these metros, inventory has fallen steadily for the past several years. In Knoxville, inventory decreased 12.4% year over year during the second quarter of 2018, rounding out 12 straight quarters of falling inventory. With this prolonged inventory drought across the nation, these metros may very well welcome an increase in boomers listing their homes.

Power in Numbers

Although seniors appear to be delaying downsizing until later in life, as a group, households 65 and over are still downsizing at roughly the same rate as in years past—which is to say not that often. In 2016, 5.5% of households 65 and over moved, pretty evenly split between moves to single family (2.7%) and multifamily (2.4%) homes. In 2005, these percentages were virtually the same, with 5.5% of senior households moving, including 2.5% into single family and 2.5% into multifamily homes.

Still, because the boomer generation is so much larger than previous generations, that 5.5% moving rate translates into very different raw numbers across the years. There were about 7 million more senior households in 2016 than 2005, meaning 386,000 more senior households moved in 2016.

Of course, the ability of senior households to downsize depends on the availability of homes to downsize into. The acute shortage in starter home inventory can make it difficult for retirees to move to smaller homes. Not only are seniors not responsible for making inventory-scarce metros unaffordable, they’re feeling the inventory pinch themselves. Gen X-ers and millennials, especially in expensive coastal metros, are going to need more than downsizing boomers to alleviate the inventory crunch they are facing.

Methodology

We used 2005 and 2016 5-Year American Community Survey data for labor rates, household generation composition, moving rates, unit structure type, number of bedrooms, and tenure. Our analysis only looks at households that are not in “group quarters”, which would include retirement homes and nursing facilities. This means that our downsizing estimates are likely understated. Affordability is based on our inventory metrics from the second quarter of 2018, defined as the share of the median income needed to purchase the median priced home.

By Alexandra Lee

How to Say Goodbye to Renting and Hello to Home Ownership

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Becoming a first-time homeowner takes a lot more than a desire to buy a house. It takes a lot of effort on your part to save up a down payment — which is usually a pretty good sized chunk of change — research neighborhoods, get pre-approved for a loan and other steps. Fortunately, it is quite possible to say goodbye to renting and hello to homeownership, especially when homeowners-to-be consider the following tips:

Focus on the Down Payment

In order to leave the land of rent, you are going to need a down payment — plain and simple. While it is common to put down 20 percent, some lenders now allow a much smaller amount, and first-time home buyer programs may go as low as 3 percent. While a smaller down payment may sound enticing, a 5 percent down payment on a $200K home is still $10,000 — not exactly a small sum. If saving money does not come naturally for you, don’t worry. With some relatively minor lifestyle changes you can speed up the down payment savings process. Come up with a savings plan to determine how much you need to set aside every week or month and then find ways to “find” that money in your budget. Using the $10,000 example from before, if you are determined to buy a home in two years, you’ll have to come up with about $415 a month to stash into your down payment account. Take a close look at your monthly bills and determine what you can pare down or eliminate — maybe you are paying $75 a month for a gym membership you rarely use, or you pay $40 extra for premium satellite channels that no one watches. These services can be cancelled and the money can go directly into your savings account. Eat out less, have Starbucks twice a week instead of every day and if you need to, consider a side hustle on the weekends to reach this magical monthly amount of $415.

Avoid Identity Theft

Unfortunately, the chances of becoming a victim of identity theft increase when you are buying and moving into a new home. The stacks of documents that are part of buying a home and that are filled with your personal information may accidentally fall into the wrong hands, and once you move, mail may not be routed correctly and thieves may steal your mail and your identity from your old mailbox. Prevent this situation from happening by purchasing an identity theft protection program; find a trusted companythat will help safeguard your personal data. In addition to letting you know when a bank pulls your credit report and asking if you have authorized this inquiry, certain services will monitor your financial activity and alert you if anything is amiss.

Check Your Credit Report

When you start the pre-approval process for a loan and then move on to the Big Kahuna of applying for an actual mortgage, your credit report will be pulled numerous times. Your credit score will then be used to determine if you are approved for a loan, and what type of interest rate you will get. Please do not wait until you have the down payment saved and you are champing at the bit to go look at houses to check your FICO score — check your credit as early in the process as you can. If you have a credit card that has been issued through your bank, give them a call and see if they can run your report for you for free; in the cases of some credit cards, they also offer a free monthly FICO score check. Read through the report and check for any errors; this includes credit lines you never opened and delinquent payments that you know were made on time. Dispute any mistakes that you find and look for ways to boost your credit score, like paying down credit card bills and setting up automatic bill pay so you are never late with your payments.

Homebuyers Encouraged,”But Still On Edge” While Sellers Face Reality Check

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KIRKLAND, Washington (August 6, 2018) – “Home sellers throughout the Seattle region are experiencing a reality check and the days of multiple offers are days of the past,” was how one director with Northwest Multiple Listing Service summarized the market upon reviewing the statistical report for July.

New figures from Northwest MLS show year-over-year improvement in inventory (up 6.5 percent), but modest drops on both pending sales (down slightly more than 7 percent) and closed sales (down 3.4 percent). Despite those drops, prices rose 8.64 percent across the MLS service area that spans 23 counties.

Several industry leaders commented on the steadily improving supply. The number of active listings system-wide totaled 16,773 at the end of July, the largest volume since September 2016. System-wide there is 1.8 months of supply, the highest level since October 2016.

“In Seattle and King County supply is at the highest level since first quarter 2015, which has me thinking about the longevity of seller luxuries like offer review dates, pre-inspections, and escalation clauses,” remarked Robert Wasser, owner of Prospera Real Estate and an officer of the Northwest MLS board of directors. “People are taking notice of the evolving real estate landscape — even my mom tells me she’s noticing more for sale signs!”

“There continues to be better news for buyers,” agreed Mike Grady, president and COO of Coldwell Banker Bain. He noted the inventory in King County has doubled since March from 0.8 months to 1.5 months of supply, but added “While this is significant, we are still well below a balanced market of 4-to-5 months of inventory.”

King County’s number of active listings surged nearly 48 percent from a year ago, rising from 3,465 active listings to 5,116. Snohomish County also had double-digit increases, up nearly 15.8 percent, but 15 counties reported less inventory than twelve months ago.

“It has been a long time coming, but we finally have some solidly good news for buyers in the Puget Sound area,” commented OB Jacobi, president of Windermere Real Estate. He noted the number of single family homes (excluding condos) for sale in King, Pierce and Snohomish counties in July was up 10.4 percent compared to June and up 20.5 percent year-over-year. “The increase in listings is clearly having a calming effect on prices while also giving buyers in the region somewhat of a reprieve from the frantic market of months past,” added Jacobi.

In his comments about sellers experiencing a reality check, broker Keith Bruce suggested Seattle is experiencing a self-corrective shift in the market. “Many sellers are reaching for their dictionaries to understand the words ‘price reduction’ and ‘increased market time.'”

“Sellers need to put away their dictionaries, take a collective deep breath and enjoy the ride. Listing brokers need to be as honest as possible with sellers and not promise multiple offers or huge price escalations,” suggested Bruce, adding “We are still a seller’s market. Much more inventory is needed to meet the overall demand for quality homes in Seattle.”

“Seller gridlock has loosened close to the job centers,” stated J. Lennox Scott, chairman and CEO of John L. Scott Real Estate. “While we are experiencing record sales activity for the higher end and luxury markets in year 2018, a record number of new listings is coming on the market in these price ranges. This has resulted in more opportunities for home buyers and lower premium pricing from the spring market.”

Northwest MLS data shows a 32.5 percent increase in the number of homes that sold for $2 million or more so far this year compared to the first seven months of 2017 (up from 477 to 632 closings of homes and condos in this price segment).

George Moorhead, designated broker at Bentley Properties, is noticing an increase in the number of price reductions for actively listed homes as inventory increases, “even in the hotspots in Seattle and the Eastside. We are seeing a continued shift from move-up and luxury home buyers to more first-time buyers, which is consistent with the flattening trends we are seeing in today’s market.”

MLS director John Deely said the change in the market “is more accentuated this year by the historically low inventory that we have been experiencing over the past several years. What now seems like a meteoric increase in inventory is in part caused by the many potential sellers who have been on the sidelines that are now coming to the market,” added Deely, the principal managing broker at Coldwell Banker Bain’s Lake Union office.

MLS statistics show pending sales declined from 11,800 a year ago to last month’s total of 10,965 for a drop of about 7.1 percent. New listings eclipsed pending sales by a margin of 1,233 units, easing some of the pressure on inventory.

“Even with an improving buyers’ market, our agents are telling us that buyers seem to have taken a bit of a break: instead of 20 buyers looking at new homes on day one, there were only 10 is the comment we’re hearing,” noted Grady. “While we may be lifting the pedal from the metal, we remain very much in the left lane, exceeding the posted speed limit by a significant amount,” he remarked.

Scott agreed, saying “For homes priced below a million dollars, the sales intensity for new listings has come off the extreme frenzy in the spring to just frenzy.”

Closed sales slipped about 3.4 percent from a year ago, declining from 9,707 completed transactions to 9,379. Nevertheless, the median selling price increased $33,000 (about 8.6 percent) from a year ago, although three counties experienced declines. The median price on last month’s completed sales of single family homes and condominiums was $415,000. Compared to June, the median price dropped $10,000.

Prices for single family homes only (excluding condos) rose about 8.4 percent, with a dozen counties reporting double-digit gains. Condo prices increased about 10.2 percent. In King County where more than half the condo sales occurred, price jumped about 12 percent from a year ago.

“It’s not such a crazy, go-go market, but it’s still a great time to be a seller,” stated Northwest MLS director Mike Larson, president of Allen Realtors in Lakewood. “The expectation of multiple offers and the ability of sellers to simply dismiss inspection repair requests is behind us,” he believes. “Sellers need to understand that and find a listing broker who also understands that,” he emphasized, adding, “The days of doing a market analysis and then pushing the envelope on the list price an extra 5 percent are gone. Ultimately, I think that’s healthy for the market,” Larson commented.

Considerable variation exists among the counties, whether measured by listings, sales or prices.

“The real estate market has cooled a bit in Kitsap County with pending sales off 10 percent in July compared to a year ago,” reported Frank Wilson, Kitsap regional manager and branch managing broker for John L. Scott Real Estate in Poulsbo.

“Yes, the Kitsap market has slowed a bit but it’s still hot due to the persistent shortage of inventory, which is down nearly 21 percent from last year. When 575 new listings come on the market and 596 listings go pending, you know inventory is not building,” explained Larson, a board member at Northwest MLS.

Wilson also reported strong open house traffic as “pent-up buyer demand rallies the pool of buyers for each new listing.” When a broker arrived for the open house he had scheduled for a new listing, six cars were waiting. “By the time the open house concluded, more than 30 people had toured it. Eight offers were made and it sold for more than list price,” he commented.

In Pierce County, inventory dropped around 3.4 percent, and brokers reported more pending sales (2,012) than new listings (1,990). Year-over-year prices in that county were up nearly 14 percent.

“Pierce County has, for a handful of years, been the affordability solution for buyers who would otherwise buy in King County. I think the craziness of the King County market has magnified that fact even more. Buyers are willing to spend two or three hours in their cars each day if it means buying twice as much house,” reported Larson.

Dick Beeson, principal managing broker at RE/MAX Professionals in Gig Harbor echoed Larson. “The market in South Sound is bolstered by the reality that our houses are cheaper. That fact alone keeps our inventory, our number of pending sales, and our number of closings similar to last year even though we’ve faced higher interest rates.”

Beeson said multiple offers continue to follow homes that are well priced at or below our median price level. “If a property stays on the market more than 14 days, you know you’ve got a price problem. It’s that simple.”

Buyers are still on edge according to Beeson. “They know they will be competing with other buyers at some level – whether on price, shorter inspection times, larger earnest money deposits or fewer repairs being done by sellers. For buyers, it’s better than before, but before was just insanity. Buyers are still insecure about prices, financing and competition.”

Moorhead described the market as still “quite strong,” but projects a continued flattening of activity, due in part to looming concern that mortgage rates will rise again this quarter. “Some buyers have thrown in the towel and have chosen to lease for the next year to save for a larger down payment.”

Most brokers believe activity will remain strong.

The volume of pending sales “at or above post-recession highs is an indicator of a healthy volume of sales still moving through the market. We are seeing investors, speculators and builders reacting to the market change by bringing excess inventory to market,” said Deely.

“Getting back to a balanced market creates a healthier and more sustainable market,” Moorhead stated. He believes there has not been a better time in the last three years for a buyer to enter this market with more options and less competition.

Scott agreed, stating “for home buyers the next three months will be the best time for selection and availability of new listings until March 2019.”

Grady and Moorhead were more cautious.

“An 8.64 percent increase in median sales price compared to last year is still much greater than inflation,” Grady noted. “In the long term this is only sustainable in a growing employment market like we have in this region. Consider that through May more than 30,000 net new jobs have been created in just the Seattle-Bellevue area.”

Moorhead detected new construction starts have “slowed proportionately with sales,” saying builders are now offering large incentives to attract buyers.

Larson noted a shift in investors in rentals. “Our firm’s inventory of rentals has decreased about 15 percent over the past few years, from around 350 to under 300. Many of those owners bought rentals in the last boom market, and then weathered the storm when the market crashed. They finally have equity again and want to get out, which isn’t surprising.”

Northwest Multiple Listing Service, owned by its member real estate firms, is the largest full-service MLS in the Northwest. Its membership of around 2,200 member offices includes more than 29,000 real estate professionals. The organization, based in Kirkland, Wash., currently serves 23 counties in the state.

How much house can I afford to buy?

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If you’re thinking of making the move from renter to homeowner, simply diving into home shopping is the wrong first step. What you need to do is first answer the question:

“How much house can I afford?”

The best way to determine your spending ability is to do a step-by-step calculation. While there are alternate rules of thumb for figuring out your housing budget — such as a ceiling of 2.5 times your annual salary or limiting your housing payments to a third of your gross monthly income — you should not take shortcuts on a financial decision as important as this.

Calculating ‘how much mortgage can I afford?’

Here are the major factors you will need to consider to determine how much house you can afford to buy:

Income. 

First, add up the income that will be used to qualify for the mortgage, including bonuses and commissions. Make sure you have the documentation to prove every source of income; otherwise it cannot be counted when you meet with a mortgage lender.

Debt. 

Add all the payments you make each month for car loans, credit cards, student loans and any other debt. Based on your income, there are limits on how much debt you’ll be allowed to carry, including your mortgage. These debts will limit how much mortgage you can borrow.

DTI ratio.

When a mortgage lender calculates your level of debt based upon how much money you make, it is known as your “debt-to-income (DTI) ratio.” Debt-to-income ratios are the province of mortgage calculators. One important ratio, referred to by mortgage professionals as your “front-end” or “top-end” ratio, is calculated by taking your proposed housing expense divided by your gross (before-tax) income. Many mortgage calculators set 28 percent as the desirable value for this ratio. The other ratio involves all of your loan payments – your housing expenses and your monthly debts (but not utilities or other living expenses) — divided by your gross monthly income. A home affordability calculator frequently set this number at 36 percent. This is called your “back-end” or “bottom-end” ratio.

Monthly obligations.

While your mortgage lender cares about your auto and credit card payments, they really don’t care whether you have cable TV, the latest iPhone or even that you eat on a regular basis. Those monthly expenses are up to you to include, and cable, smartphones and a few trips to the grocery store can easily add up to several hundred dollars each month.

Down payment. 

The minimum down payment for an FHA loan is 3.5 percent; for conventional loans, the minimum is 3 percent for certain buyers and 5 percent for most buyers.

Taxes.

Today, it’s easy to get an idea on a home’s property taxes by looking at the listing online. You can also get in contact with the county tax office or ask a local Realtor to investigate for you. Most homeowners will have their property taxes paid from an escrow account attached to their monthly mortgage payments. One percent in taxes is equal to $1,000 per year for a $100,000 home.

Insurance.

Lenders require homeowners insurance to cover your property. Contact an insurance company or ask a Realtor to estimate your homeowners insurance costs which will vary according to the type of property, cost and features of the home, and its location. To get a rough idea, you can ask a family member or friend what they pay for insurance (if their home is similar to the home you are interested in buying).

Homeowners association dues.

If the property you purchase includes monthly dues, don’t forget to include those fees in your monthly payments.

Mortgage insurance.

If you make a down payment of less than 20 percent on a conventional loan, you will need to pay mortgage insurance. You can utilize HSH.com’s mortgage insurance calculator to see how much this could cost each month. For FHA loans, there is an upfront and annual mortgage insurance premium.

Interest rate.

You can check today’s mortgage rates at HSH.com, but remember that your rate will depend on your credit score, the type of property you are buying, and the choices you make regarding fees and points. A lender will be able to give you a customized mortgage quote given your situation.

Loan term.

While many buyers opt for a 30-year home loan, if you can afford higher monthly payments, you may want to consider a shorter loan term. Shorter loans have lower interest rates and cost you less over the life of the loan.

As a homeowner, you need to have enough money set aside in an emergency fund — at least three months worth of expenses – in case you lose your job or have a medical emergency, and enough reserves set aside to pay for maintenance and unexpected repairs.

Considering all your financial goals and your monthly comfort level with your mortgage payment is the key to accurately calculating how much house you can afford. It’s smart never to borrow the maximum amount you can qualify for so that you leave yourself some financial breathing room.

Keith Gumbinger

A Bridge To Your New Home

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Question: My mother wants to buy a condominium, now that she is living alone and no longer needs the old four-bedroom family home. She prefers to buy a condominium first, and make the move from the house to the condo over a period of time. After she has completely settled into the new condominium, she will then put the house on the market for sale. Assuming the condominium will cost less than what the house sell for, what is the least expensive way to bridge the two sales? In other words, is it possible to obtain a mortgage for only three to six months?

Answer: Your question has raised a number of issues, which I will try to explore in this column.

First, in my opinion — and if you can afford it — it is always better to move into a new home before you sell the old one. This gives you an opportunity to do whatever renovation is needed, without having to immediately move all the furniture into the new place.

But, obviously, not everyone can afford the luxury of owning two houses, and sometimes having to pay two separate monthly mortgage and duplicate real estate tax bills.

In your mother’s case, the family home is free and clear of any mortgage obligation. She should be able to obtain a “bridge” loan from a responsible lender, to enable her to have sufficient funds to purchase the condomimium. The loan will be secured by a first deed of trust (a mortgage) on the family home, and will be paid off in full when that house is ultimately sold.

Second, you ask whether short term loans are available. The answer is not simple, insofar as mortgage lenders do not want to spend a lot of time — and money — processing a loan application, only to have it paid off within a couple of months. Thus, while you might find such a short-term bridge loan from a mortgage lender, the interest rate may not be competitive.

On the other hand, your mother may be able to get a regular bank loan for the amount she needs, secured by a deed of trust on either or both the family home or the condominium unit. Much would depend on your mother’s financial situation at the time of loan application.

However, there is another way that, in my opinion, makes the most sense. Your mother may be successful in selling the home immediately; it may also be on the market for a long period of time. She does not want to commit herself to repay a loan in just a few months time, when there is uncertainty as to when her house will sell.

Thus, she should consider obtaining a regular mortgage loan on the family home. If necessary, you could co-sign and guarantee payment of the loan. She should obtain an Adjustable Rate Morgtgage (ARM) for one year, and make sure there is no prepayment penalty. If she is lucky and sells the house quickly, she can then use the sales proceeds to pay off the new loan. If, for any reason, the house does not sell quickly, she will have a low rate of interest for a period of one year.

More importantly, however, your mother should carefully review her financial situation. If she uses all (or most of) the cash from the sale to purchase the new property, will she end up “house rich and cash poor”? Perhaps she should consider obtaining a mortgage on the condominium unit (again your help may be required), and then keep the cash when the house is sold.

She should also review the tax situation before she sells. Will she have a large capital gain to pay? Is she eligible for the up-to-$500,000 (or $250,000) exclusion of profits? When did your dad die?

From a tax point of view, it makes no difference whether or not she uses any or all of the sales proceeds to purchase the condominium unit. She is either eligible for the exclusion or she is not.

There are two other alternatives which should be considered.

First, can she obtain a home equity loan on her current house and use these proceeds to purchase the condominium? Even under the new tax laws, so long as the money obtained from the loan is used to buy a new home or improve your present one, your mother will be able to deduct the interest she has to pay.

Second, are you in the financial position to lend her the money to purchase the condominium? If so, your mother can borrow directly from you, at a reasonable interest rate, and the loan will be secured by the new property. She can pay you interest only on a monthly basis, and you can decide at a later date if you want to gift her back a portion of the loan on a yearly basis, tax free.

Under no circumstances, however, should you consider going on title with her on the condominium unless you have fully explored all of the legal and tax ramification of such a move. There are significant negative aspects of putting your name on the deed, and obviously you want to maximize the tax benefits as much as possible.

Children often want to do right for their parents, and this of course is commendable. However, there are serious IRS repurcussions if the wrong steps are taken (even for the right reasons), and you must explore the situation with your own tax advisors before signing any legal papers. Also, we all have to carefully analyze the impact of the new tax law.

Bottom line: your mother should first talk with a financial adviser to explore all of the options.

WRITTEN BY

 

Don’t Be Afraid Of The Seller’s Disclosure

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State and federal laws are strict in requiring sellers to tell what they know about the condition of their homes that isn’t obvious or discernable to potential buyers. Buyers can’t see behind walls or under houses, so they rely on truthful information from the seller about the operations, appliances and systems of the home.

When you sell your home, your real estate agent will present you with a federal and/or state-mandated disclosure form called a Real Estate Disclosure Statement, Property Condition Disclosure, or Condition Report. You’re required to disclose the presence of lead paint, radon, asbestos and other toxic products if you know your home has them.

While the forms may ask you to disclose whether or not you know there is lead paint or radon present, you aren’t required to do tests to determine the presence of toxic chemicals. But your buyer’s lender can always require proof of tests and/or remediation for any problem that has been disclosed, such as fire and water damage.

It’s important to answer every question as truthfully as you can. You must answer the questions yourself – your real estate professional can not fill out the disclosure for you, but he or she can help you understand what’s being asked of you. If you’re in doubt about what to disclose, such as a repair, it’s best to err on the side of too much information than not enough.

While disclosure forms allow you to check the “I don’t know” box, you should only do so if you truly don’t know the condition of that item. If you answer that you don’t know the condition of an appliance you use daily, such as a sink or bathtub, you might raise suspicions in the buyer.

The best way to feel confident about the condition of your home is to have it inspected by a licensed professional home inspector. Your real estate professional can recommend someone or provide you with a list. For a few hundred dollars and a few hours of your time, you’ll either find that your home is market-ready, or the inspector will bring a problem to your attention that you can fix.

When you disclose a problem to the buyer that has previously been fixed, be sure to provide a copy of work orders, receipts and invoices. If the problem hasn’t been fixed, expect the buyer to either ask you to fix it, or to offer a little less for the home.

Remember, the more that’s left unrepaired, the more the buyer will discount the offer, if he makes one at all. Homes in the best condition sell the best.

The seller’s disclosure is designed to do one thing — hold you and your real estate agent harmless if you’ve disclosed the truth about your property. You don’t want to give the buyer any room for complaint or litigation after the closing.

To get an idea of the types of questions you’ll be asked in a disclosure, you can find legal forms at FindLegalForms.com.

So, don’t be afraid of the seller’s disclosure. It’s not meant to be a deal-killer, but a deal-maker. Many agents provide a copy of the disclosure to interested buyers, so they can get an idea of the home’s condition before they make an offer or have an inspection.

 

8 Things to Do Before Applying for a Mortgage

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Know what to expect

Buying a house is one of the largest financial commitments many people make in their lifetimes. Between the down payment, principal, interest, taxes, and insurance payments, utilities, maintenance, repairs, and updates, the financial outflows can be overwhelming.

A key aspect for most homebuyers is a mortgage — a loan secured by the house that enables the buyer to pay for the cost of the house over time, instead of all at once. It’s a big deal to apply for and get a mortgage, and taking care of these eight items before you do will help you along the way.

1. Determine how much house you need

If your income is decent and your credit score is good, you might find that banks are willing to lend you more money than it takes to buy a house that meets what you really need out of a home. While it’s tempting to buy up to a larger house in a nicer neighborhood, remember that many of the costs — not just the mortgage payment — scale right along with the price of the home you’re buying. Keeping your home buying decision attuned to what you really need will help you keep your total costs in check.

Key factors to consider include:

  •          How many people will be living in the house?
  •          Is the school district a ‘must have’ of a ‘nice to have’?
  •          What does the commute look like to work/grocery stores/etc.?
  •          Is the neighborhood safe?
  •          How much work are you willing to do to update/upgrade/maintain the home?

2. Scrape together a down payment

Most lenders will give you better terms on your mortgage if you have a substantial amount of your own cash tied up in the home you’re buying. Generally speaking, you’ll need at least a 20% down payment to get the best rates and terms on your mortgage. That means that if your house costs $200,000, you’d need to cough up $40,000 of that amount yourself and be able to borrow the other $160,000.

You might be able to get a mortgage if you have a smaller down payment, but chances are that you’d pay a higher interest rate and/or be stuck paying private mortgage insurance on top of your mortgage. Those raise your cost of borrowing over time, which means you’ll end up paying more in the long run than if you had the down payment available.

3. Check your credit report — and clean up any errors

If you’re borrowing a large chunk of money, lenders want to know you’re a good risk before they offer you theirs. To see most of what the lenders see, you’ll want to check your credit report. You can get a free copy of your credit report from each of the major credit bureaus once per year by visiting AnnualCreditReport.com. From that report you can see which companies you owe money to, how much you owe, and whether or not you’re considered to be on time with your payments.

Around 20% of credit reports have errors in them, either because of things like identity theft or because of more mundane clerical errors in data entry. If you see errors in your reports, the bureaus have a process to allow you to challenge those errors to get them corrected. By correcting errors before you apply for your mortgage, you improve both your chances of getting that mortgage and getting good terms on it.

4. Pay off what you can, and get current on everything else

In addition to wanting to see that you have a good history of managing your debts, mortgage lenders want to make sure you’re not over-extending yourself by taking on that large of a debt. They will calculate ratios based on how much you currently pay towards debt service and how much in total you will pay towards debt service once you have your mortgage.

Generally speaking, you’ll need to be putting less than 36% of your income towards debt service before considering your mortgage. Once your mortgage is factored in, you’ll absolutely need to keep that ratio below 43% of your income to have a qualified mortgage.

If that sounds like a crazy high percentage of your income to be putting towards debt, you’re absolutely right. The less you owe, the easier it is for you to make your payments on time and in full, and the more flexibility you have when things go wrong. By getting your other debts under control first, the less risk you’ll pose to the lender, and the better the overall deal you’ll qualify for.

5. Document your income — and the source of your down payment

Your lender will want to see proof that you make enough money to cover your mortgage payment as well as proof that youcame up with the money for your down payment. Proof of income comes in the form of your W-2 or 1099 from work or investment income that you use to file your taxes. A recent paystub would also help showcase that you’re still earning the income you’re claiming as part of your ability to pay your mortgage.

Proof of down payment money comes from checking account, savings account, and brokerage account statements, along with explanations for any large deposits into those accounts in recent months. The lender is looking for evidence that the money you’re using to make your down payment is yours, and they prefer “seasoned” money over recent windfalls.

Seasoned money is money that you’ve saved up over time, and it’s preferable because it gives the lender confidence that you’re good with money. If the lender suspects your down payment money is a gift or loan from family members — because it’s a recent deposit of a lot of money — the lender will ask for documentation on where that money came from. If the lender isn’t satisfied with the explanation, it could jeopardize your ability to get favorable rates or the mortgage at all.

6. Figure out what mortgage terms you want

The key choices you’ll make are the length of the mortgage and the rate type of the mortgage. The most common length for a mortgage is 30 years, followed by 15 years, but several other lengths are also possible. As a general rule, the shorter the length of the mortgage, the lower the interest rate you’ll pay on it, but the higher your monthly payments will be because you’re paying the balance down that much faster.

You can also choose between fixed rate and adjustable rate mortgages. With a fixed rate mortgage, your interest rate and the principal and interest part of your payment never move throughout the life of your mortgage. With an adjustable rate mortgage, your interest rate resets every year — sometimes after a preset number of introductory years at a steady rate. With an adjustable rate mortgage, you take on the risk of rising interest rates, but the benefit is typically a lower starting rate than a fixed rate loan has.

7. Avoid taking on any new debts around the time of your mortgage

If you’re buying a house, you’ll typically have a lot of expenses above and beyond the house payment. Things like renovating, buying new furniture, moving, fixing up your old place, and so on all require money. Avoid the temptation to borrow money for any of those items — or anything else — between the time you start shopping for a house and the time you close on your mortgage.

That can be trickier than it sounds. Even if the merchant offers you deferred payments like “no payments for 90 days” or interest free financing, it still counts as a loan and shows up on your credit report. If your lender sees you taking on excessive borrowing capacity before your mortgage is issued, it will react in a way that protects its interests. That likely means either cancelling your mortgage altogether or reducing the amount you can borrow based on your credit no longer being as strong as it had been previously.

8. Research lenders before applying for your loan

The act of applying for credit — whether or not you’re approved for that credit and regardless of whether you accept that credit — causes an inquiry on your credit report. That inquiry will typically lower your credit score by a few points. If your credit is borderline, the impact to your credit score can be enough to knock you into a higher risk tier or out of contention for a mortgage altogether.

As a result, you’ll want to check around to see which select group of lenders you want to do business with before filling out the mortgage application. Banks and credit unions frequently post their current mortgage rates online, and other mortgage lenders often advertise on real estate listing or similar sites. By researching lenders in advance and limiting your applications, you reduce your credit inquiries and the cost and hassle of applying for your mortgage.

A home is a big commitment — so plan for it

Your home may very well be the largest financial commitment you’ll make in your lifetime. By planning well for the financing associated with it, you can minimize the costs of ownership and put more of your hard earned cash towards what really counts, rather than towards fees, interest, and overhead costs. And that will go a long way towards allowing you to enjoy your home — and the mortgage burning party you might want to throw once you’ve paid it off.

 

Here are 3 ways parents can help their grown kids to own a house

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When responsible first-time homebuyers need help buying a home, the family bank sometimes can lend a hand.

Younger homebuyers face a mountain of obstacles, including rising home prices and interest rates, too few homes for sale and unpaid college debt. Student debt is a major source of trouble. When the National Association of Realtors surveyed recent homebuyers who had problems saving up a down payment, 53 percent of those in the youngest group (37 and younger) blamed student loan debt for their difficulty.

Families appear to be pitching in to help, according to the results of that survey in the 2018 NAR Home Buyer and Seller Generational Trends Report. Among homebuyers who made a down payment, 23 percent of those 37 and younger used a gift and 6 percent a loan from family or friends — the highest proportion for either type of assistance among all age groups.

Family assistance like this works best when the kids qualify for a mortgage on their own and parents make the purchase more affordable with, for example, a bigger down payment or a lower interest rate, says Jeremy Heckman, a certified financial planner with Accredited Investors Wealth Management in Edina, Minnesota.

FIRST, THE GROUND RULES

To create a businesslike distance for these transactions, Heckman suggests that parents:

• Consider disclosing the assistance to all immediate family

• Consider treating all siblings equally

• Use contracts

• Document gifts

Formal agreements offer important benefits, says San Francisco real estate attorney Andy Sirkin. They define obligations and minimize misunderstandings. And if parent lenders die or become incapacitated, all their heirs can view the transaction and its history.

WAYS TO HELP

Here are three ways parents can help make it more affordable for new homebuyers to purchase a home:

1. GIVE MONEY

A gift of money is often best, Heckman says. Parents can write a check for any amount they choose. That’s it — no contract or ongoing commitments. Or they can pay all or part of an expense such as mortgage closing costs. Providing down-payment assistance can help new borrowers avoid paying for private mortgage insurance, which helps keep their monthly payment low.

HOW IT WORKS

Strict rules dictate how cash gifts are used in a home purchase, and they vary by mortgage type, lender and lender offer, says Mark Case, a senior vice president at SunTrust Mortgage.

Lenders like to see money gifts — easily traceable checks, bank transfers or wire transfers — in a borrower’s bank account three or four months before applying for a mortgage, Case says. Givers and recipients may need to sign letters confirming that the money isn’t a loan.

When it comes to taxes, anyone can give any other person a gift up to $15,000 in value (money or, say, stocks) in 2018 without filing the gift-tax return IRS Form 709 . So a parent with two children can give each of them — and even the children’s partners — up to $15,000 this year without having to complete Form 709. A tax professional can confirm how the rules apply to individuals’ specific circumstances.

2. FINANCE THE MORTGAGE

Parents with cash to invest can become the mortgage lender, offering extra-easy terms, like no closing costs or no down payment. Heckman says they can charge a higher rate of interest on their money than it earns in a savings or money market account and still offer kids a lower-than-market mortgage rate.

“I said, ‘This could be a win-win for both of us,’” says Jay Weil, an attorney in Wayne, New Jersey. He and his wife, Judy, have financed two mortgages for their son Matt and Matt’s wife, Allison.

HOW IT WORKS

Jay and Judy fully funded the younger couple’s first home, a Columbia, Maryland, townhouse. They decided to use a service that facilitates family loans. They worked with National Family Mortgage, which charges one-time setup fees of $725 to $2,100, depending on the loan size; provides all necessary forms and documents to meet state, local and IRS requirements; guides families through the settlement and filing process; and connects borrowers with loan servicers.

Then in 2017, the Weils lent the kids money again, for a $579,900 house in Laurel, Maryland. Matt and Allison got two loans. One was a primary mortgage from SunTrust Mortgage for $259,900, at 3.875 percent. His parents provided a second mortgage for $260,000 at 1.98 percent. They used money earned from the sale of their first home to make a down payment.

Family lenders must charge at least the Applicable Federal Rate , the minimum interest rate required to keep the assistance from being considered a gift.

3. CO-BORROW

Although riskier for parents, co-borrowing is another option. Mortgages with co-borrowers were nearly a quarter of all new-purchase mortgages in the third quarter of 2017, according to ATTOM Data Solutions, a real estate data company.

Co-borrowing helps borrowers overcome a limited credit history or a too-high debt-to-income ratio, says Case, of SunTrust Mortgage.

HOW IT WORKS

Parents apply for the mortgage, too. They must meet the lender’s credit requirements and sign loan papers with their kids at closing.

Aside from the mortgage itself, a separate family contract can define expectations and details such as who gets how much equity when the home sells and what happens in case problems arise, says Sirkin, the real estate attorney.

For parents interested in being co-borrowers, there are some things to keep in mind:

• Not all loans allow co-borrowers, so it’s good to confirm the option when shopping for mortgages

• Some lenders may call this step co-signing, which may have different parameters, but the outcome is the same: Parents and children are equally responsible for the loan and any missed mortgage payments

• Parents’ credit could be affected, making it hard to finance another big purchase later, even if children make payments on time

With all the headwinds facing first-time homebuyers, family help sometimes makes all the difference.

By MARILYN LEWIS
NerdWallet


Pay Attention in 2018!

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We may have a tricky year ahead of us, so what’s the best and easiest strategy for consistent success in 2018?

Pay Attention!

Start the year with or without New Year’s Resolutions, but commit to success this year by paying attention:

#1. To how well informed you and information sources you rely on are

#2. To what’s really going on around you — real and fake, and

#3. To how you react to what’s going on around you — online and off.

Whether you are a real estate owner or a wanna-be… whether you intend to buy or sell in 2018, so much is shifting in real estate, in the economy, and everywhere else that nothing should be taken for granted or assumed in 2018. Concentrate on getting the facts not just someone else’s bias view of where advantages lie for you.

#1. A lot changed in 2017 and the full implications of those changes will continue to emerge in 2018.

Pay attention to ramifications and compromises, subtle and otherwise, attached to changes in everything from tax law and net neutrality to technology’s continued re-write and disruption of much we’ve take for granted:

  • Real estate ownership will be impacted by changes to tax law, estate planning, resulting neighborhood development, and interactions between these and many more elements. Where will advantages lie for you?
  • Changes in the business world may directly or indirectly influence job or retirement security for your family. This in turn may impact qualification for financing, mortgage renewal, and real estate affordability. Projected reductions in funding and donations for social and community support programs and organizations may have widespread impact in neighborhoods, community development, and in education. These shifts may reduce location benefits which, in turn, can affect real estate value. How will your location be affected in 2018?

#2. Whoever or whatever you blamed for distractions in 2017 will be with you in 2018 and might even be worse.

There are only so many hours in the day and only so many dollars in your pay check. Distractions that erode concentration on your needs and goals, and distractions that feed impulse spending will be expensive in many ways. Pay attention to what takes you off point, off track, and off goal to ensure you stay in control. You may blame others for distracting you, but it’s your powers of concentration that should be continually honed and improved to keep you ahead of the pack.

  • Saving for a down payment, home renovation, or to pay down an existing mortgage requires a written budget strategy to guide you toward clearly-defined results.
  • Paying monthly condominium fees, mortgage payments, or heating bills is exhausting when approached as month-to-month catch-up. Shift your focus to cutting costs and increasing income long-term and you’ll move beyond a monthly survival perspective to establish a constructive, long-term frame of reference for success.
  • Steady, dramatic increases in online shopping over the 2017 holiday season mean many households may be combining the impulse spending facilitated by credit cards and click-here shopping carts to undermine their budgets even more dramatically than ever. As the volume of online shoppers increases, convenience, cost saving, and product satisfaction may be compromised, so it’s only the novelty of online shopping that addicts. What’s all this got to do with achieving your core real estate ownership goals?

#3. Significant amounts of what you believed you knew in 2017 about real estate, finance, insurance, home security, mortgages, work, and the internet will be out of date in 2018.

Pay attention to which laws, regulations, services, and real estate expenses have actually changed not just been endlessly, sensationally rehashed in the media and online. Accurate information and clever strategies are gold.

  • Tweets, posts, and other online content arrive in increasingly-overwhelming rates and volumes. This leaves less and less time to uncover facts and realities and to actually learn and think about relevance to you. From shopping or applying for a mortgage to searching for a new home or viewing property, virtual video and online content bring these and other real estate activities onto your laptop and your mobile phone. Is this distance-learning leaving you better informed and smarter real estate-wise than face-to-face meetings with real estate experts and hands-on location and property investigations?
  • Searching out professionals who keep up with change within their profession is a challenge. Time pressures leave some professionals parroting what they hear and see in media and online instead of carrying out thorough research themselves. How do you make sure you receive the professional advice you need to interpret changes from your real estate point of view?

Let’s meet the challenges and opportunities of 2018 head on!

 

Three Valley schools earn top honors in county’s Green Schools Program

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Schools from 34 King County cities and unincorporated areas are reducing waste, increasing recycling, conserving resources, and cutting costs with help from the King County Green Schools Program, including four from the Snoqualmie Valley. North Bend Elementary and Snoqualmie Elementary in the Snoqualmie Valley School District, and Carnation Elementary and Eagle Rock Multi-Age in the Riverview School District, were among the schools to be honored by the program.

The Green Schools Program provides hands-on help and the tools that schools need, such as recycling containers and signs, to make improvements. It has served a growing number of schools each year – from 70 schools in 2008 to 251 schools this year, which is half of all K-12 schools in King County outside the City of Seattle.

Of the 251 schools participating in the program, as of June 232 schools have been recognized as Level One King County Green Schools for their waste reduction and recycling efforts. Of those, 132 were recognized as Level Two, for education and actions focused on energy conservation, including Eagle Rock Multi-Age School. One hundred from Level Two were also recognized as Level Three schools for efforts related to water conservation; and 77 of those, including North Bend, Snoqualmie and Carnation Elementary Schools, were recognized as Sustaining Green Schools for maintaining their Level One through Three practices and adding new conservation strategies and education.

“These 77 schools and two school districts initiated or improved sustainable practices, encouraging students and employees to reduce paper use, reduce food waste, recycle, or conserve energy and water, all of which reduce greenhouse gas emissions that contribute to climate change,” said Dale Alekel, Green Schools Program manager.

In addition to Green Schools Program assistance and recognition, King County offers support for student green teams, an elementary school assembly program, and classroom workshops for grades 1–12 that teach students about conservation.Learn more by contacting Alekel at (206) 477-5267 or dale.alekel@kingcounty.gov.

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