Minnesota First Time Home Buyers » Word of the Week

Word Of The Week: Contingency

Steve Howe — Sat, 02 Apr 2011 03:54:56 +0000

I’m often asked about ways to “back out” of a purchase agreement when buying your first home. Since I work with a lot of first time home buyers in the twin cities area, I’ve learned the importance of having easily explained contingencies in the contract, in order to back out of an agreement and retain your Earnest Money deposit.

Contingency: A condition in the contract which must be fulfilled for the agreement to be completed and legally binding.

The most common contingencies in real estate in today’s market are the Inspection Contingency and the Financing Contingency. Both of these contingencies largely benefit the buyers in the transaction. In summary, the inspection contingency allows the buyer a time frame after the offer is accepted to inspect the property in order to identify if the house is suitable to their standards. If the buyers don’t think the house is acceptable, then they may have the ability to cancel the contract and receive their earnest money back–or they may have the option to ask for items in the house to be fixed, or terms of the contract to be changed.

The financing contingency is different depending on the type of loan the buyer’s are obtaining, but typically the buyer could be able to back out of the contact if something prevented them from obtaining the loan between offer acceptance and closing. This could include several different clauses and time frames, and in the case of an FHA Loan it might enable the buyers to back out if the house does not appraise at the same value as the sale price that was agreed upon in the contract. This is usually called the “FHA Escape Clause”, and prevents the seller from forcing the buyer to cover the difference between the lower appraisal price and higher sale price in the contract.

Both of these contingencies can vary in every contract, so make sure you discuss the details with your agent when you’re writing up the offer.

Not working with an agent to buy a home?? Why not?!?! In almost every case the seller pays the buyer’s agent’s commission. So it’s a no brainer to hire one and get expert advice from a professional!!

[contact-form-7]

Word Of The Week – Sweat Equity

Steve Howe — Mon, 06 Dec 2010 17:13:56 +0000

This has been a popular term thrown around over the past 5 years or so. Ever since the real estate boom in the early 2000′s when people starting buying and selling properties quickly for profit, this was a strategy used by a lot of people to earn a quick buck on their house.

Sweat Equity: repairs or improvements done on a property to increase it’s value, typically completed by the home-owner themselves rather than hiring of a construction professional.

In short, it’s a way to to increase the value of your home by doing simple “cosmetic” repairs or updates yourself. This could be anything from a new coat of paint, to new light fixtures, or even updating the landscaping outside. Really, any work done to the property to gain value could be called “sweat equity”.

A lot of first time homebuyers opt to take on some of these projects themselves in order to increase the selling price of their home when they do decide to put their house on the market. This is largely because so many homes have gone back to banks in foreclosure, and these cheaper homes usually need some work done on them to make them livable. As long as there aren’t huge problems in the home (mold, foundation issues, roof problems, etc.) you can typically buy them for a decent price if you’re willing to put in some time and effort into repairing and updating them.

If you’re thinking about buying your first home, consider “sweat equity” as a way to get an inexpensive home and turn it into a “good buy” when you sell down the road.

[contact-form-7]

Word Of The Week – Chain of Title

Steve Howe — Wed, 13 Oct 2010 15:32:08 +0000

No, we’re not talking about restraining your job title here–Chain of Title is a term used by closing and title companies that refers to the previous owners of a property and the transfers of ownership over time.

Specifically, the chain of title over the last 12-24 months is usually the most critical period a title examiner is going to look at to determine if the title is “clear”.

This means the title company will want to check the documentation of any ownership transfers in this time period to verify that they are authentic and within legal requirements.

So why should you care about the chain of title? Simple: if you’re buying a home you want to make sure no one else has ownership rights to that home. If someone did have ownership rights, they could potentially sue you as the new owner for damages or even try to take the house away from you. Either situation would be pretty chaotic.

The reason why this issue is important in today’s real estate market is because a lot of companies, investors, and sellers have been involved in fraudulent and illegal activities when buying or selling property. This includes situations where investors buy properties from the owners for pennies on the dollar, and then re-sell to another investor and exchange money “under the table” which is not documented in the transaction.

People are obviously being investigated and even being sent to jail for some of these practices, and because of that title companies are making sure that they are not involved in any suspect transfers of ownership.

The chain of title becomes even more important in short sale and foreclosure situations. Timing is critical when an owner is trying to avoid foreclosure, and if there is a hole in the documentation where title was transferred before a foreclosure occurs it could cause trouble for a new owner who thinks they own the property legally, when in reality the bank might be able to take possession of the property.

The bottom line is that your title company should make you aware of any questionable title transfers and proceed with caution if there are doubts to whether you will have full ownership rights to the property after you buy the home.

[contact-form-7]

Word of The Week – HOA

Steve Howe — Wed, 08 Sep 2010 19:48:53 +0000

Yet another confusing acronym in the world of real estate! This real estate term actually stands for Home Owner’s Association (HOA for short). A Home Owner’s Association can be defined as: a non-profit association within a Common Interest Community (townhouse or condominiums) that manages the common elements of the development.

As a part of the Home Owner’s Association, owners of townhomes and condos usually need to pay monthly or yearly dues which go towards Hazard Insurance, Lawn Care, Sewer and Garbage, as well as the Pool, Party Room, or other areas of the community which are used by the residents.

In most cases here in Minnesota, all owners are members of the HOA, and can become involved in the decision-making process in regards to the development.

The most common concern for people in today’s twin cities housing market is if the HOA is in good standing or not. In other words: are dues being paid in order for the HOA to be “above water”. If properties are foreclosed on and units sit vacant for too long, the HOA dues can become delinquent and in some cases the HOA can become bankrupt or even be dissolved. In that instance, individual home owners may be in big trouble if something like a fire or roof collapse happens when there is no Insurance on the main structure of the building.

There are also certain rules and regulations in each HOA, such as quiet hours, pet limitations, or parking restrictions which new buyers may not agree with. Before making an offer on a condo or townhouse in mn, be sure to sign a CIC Addendum which allows you to look over these regulations before closing. Especially for first time home buyers–you might end up owning a house that limits what kind of lifestyle you can live at home.

[contact-form-7]

Word Of The Week – Title Insurance

Steve Howe — Sat, 08 May 2010 13:48:40 +0000

Just what you need, right?! More insurance.

Most people know about Home Owner’s Insurance, Car Insurance, Life Insurance, Health Insurance, and maybe even Mortgage Insurance. But a lot of people don’t really know what Title Insurance is and why you need it. So we’ll shed a little light on what this term means in the real estate world, and also help you decide whether it’s worth your money at closing.

Title Insurance – Insurance that protects the lender (lender’s policy) and/or the buyer (owner’s policy) against a loss arising from disputes over ownership of real estate properties.

So what does that mean exactly? Well, after you buy your property (whether it’s land, a home, or even a condo) there may be other people who have rights of ownership to your property. Maybe it’s an old uncle from the previous owners, or it could be a contractor who performed work on the property and never got paid for it. Whatever the situation is, you could be liable for financial damages or even have to give up your ownership of the property.

So title insurance saves you in these types of situations. The best part of title insurance (unlike car, life, or even home owner’s insurance) is that it’s a one time fee, and very affordable. Most owners’ policies range from $100-400 for you, the buyer, which should cover any costs you would be liable for in a case where someone has a claim to your property. That means if they sue you or seek financial damages your title insurance company will cover it. Pretty cool, huh?

So this tiny $200 fee at closing could save you thousands of dollars later if a problem arises with the title to you property. In the state of Minnesota, if you’re buying a house and getting a mortgage you must get the lender’s policy so that they are protected against any such problems. The owner’s policy is completely optional, but for such a small fee you’d be pretty crazy not to get it.

I strongly suggest talking with your lender, realtor, and even the title company about the pros and cons of the title insurance policy. Chances are, they will be able to help you decide if you need it or not.

[contact-form-7]

No Related Post

Word of The Week: FHA 203(k)

Steve Howe — Wed, 06 Jan 2010 12:36:56 +0000

When buying a distressed property like a Foreclosure or Short Sale, you may have limited options for what type of financing you can use. The main reason many homes can’t use regular FHA or Conventional financing is because the property may be without plumbing, electric, or other living essentials. These “typical” types of financing require homes to be fully livable in order to close the loan when you buy the property and take ownership.

For most first time home buyers, FHA is going to be their only option when buying a property because of the low down payment amount and the competitive interest rates.

It’s a common scenario amongst MN Buyers today that their financing will not allow them to purchase a home. So how can you work around this fixer-upper roadblock? Easy: by taking advatnage of the FHA 203(k) Rehab Loan Program.

What this program essentially does is allow a buyer to purchase a property which may have “essential living issues” such as the problems named above. They are able to close the home purchase with the seller, then begin rehab work after closing and roll the costs of the improvements into the end loan.

There are two different types of FHA 203k loans available, a streamline version and regular version. I have attached a PDF here that you can save or print with all the information you need on these loan programs. Click Below for the File:

FHA 203(k) Loan

If you’d like to see if you’re eligible for this or any other loan program, contact me.

[contact-form-7]

Word of The Week: Joint Tenancy

Steve Howe — Tue, 29 Dec 2009 20:36:03 +0000

So you’re at the closing table signing your life away when all the sudden your closing agent asks you and your spouse, “Will you be taking ownership as Joint Tenants or Tenants in Common?” You quickly give each other the raised eye-brow and turn to your agent to inquire, “What’s a Joint Tenant?”

In this Word of The Week edition we will examine what it means to take ownership under Joint Tenancy versus another option of Tenancy in Common.

Joint Tenancy: A form of ownership or taking title to a property which means each person owns the whole property and that ownership is not separate. In the event of the death of one of the owners, the survivor(s) own the property in its entirety.

Alright, so in layman’s terms it means when two or more people buy a property together, they will both own the whole property and in the case that one of them dies, the ownership passes onto the other owner(s).

So under Joint Tenancy, if you and your spouse buy a home together and are both on the title to the property, your ownership rights would go to your spouse upon your death. Not a fun thing to think about, but still a very meaningful and important detail of home ownership.

Now, there is another option you could could choose called Tenancy in Common. Under this agreement, all owners of the property own a separate percentage of the property (usually equal share). If one of the owners dies, their ownership rights get passed to their living heirs (aka, family). This can get messy sometimes if one owner wants to sell but the other owner does not. Since they each own separate shares of the property, it can be a sticky legal battle in some cases.

Most married couples who buy homes together will take ownership under the Joint Tenancy agreement. However certain circumstances would work better for the Tenants in Common ownership, such as: re-married couples with separate families, investors or business partners, and friends buying a home together.

Since this is a legal ownership matter, you should always consult an attorney before making a final choice if you have questions. Your real estate agent, loan officer, and closing agent are not technically allowed to influence your decision.

[contact-form-7]

Word of The Week – HVAC

Steve Howe — Sat, 19 Dec 2009 00:24:12 +0000

It this installment of our Word of The Week, I thought it would be fitting to examine another one of the Real Estate Industry’s famous acronyms: HVAC.

First off, HVAC is an abbreviation for Heating, Ventilating, and Air Conditioning. It’s basically short hand for all your heating and cooling systems in a property. The reason why I chose this for a W.O.W. article is that HVAC is something most home owners don’t think about. But when buying a foreclosed property, which most first time buyers are purchasing nowadays, you need to be aware of these systems because they are essential to your living environment and can be costly to repair or replace.

You should be aware of the type of heating when you purchase your home, since it can affect your utility bills and energy efficiency. Older homes may have inferior types of heating systems such as Gravity or Radiant Heat using boilers to heat water which circulates throughout the home. Newer homes have Forced Air heat which is supposed to be easier to install, replace, more efficient to run.

Forced Air units can also come with ventilation systems which filter the dust and airborne bacteria making the air in your home cleaner and safer for your family.

When it comes to the AC in HVAC, we’re mostly talking about Central Air units which sync up with a Forced Air Heating furnace and cool your home through the duct system. Sure, you could use the old window AC units, but we all know those aren’t most effective at cooling a house in the summer time.

When touring through homes make sure to stop for a second in the basement or wherever the utilities are located and check out the condition and age of the HVAC systems. Replacing these units can range from several hundred dollars to $10,000 or more. So double check the information and have your home inspector give you their own advice on these systems as well.

[contact-form-7]

Word of The Week: BPO

Steve Howe — Sun, 14 Jun 2009 03:57:49 +0000

Oh, the wacky world of real estate always love to confuse people with acronyms anonymous.

However, that’s why I’m here to help clear the confusion for you.

BPO simply stands for Broker’s Price Opinion.

This is when a Real Estate Broker (or agent) analyzes the neighborhood and give a price opinion on a particular house’s value. This is slightly different than a Comparative Market Analysis (CMA) or an Appraisal which are used to determine values in other cases.

A BPO is generally used by banks when they are preparing to list a Bank-Owned Property for sale, or they are pressed with approving a Short Sale.

What goes into a BPO?

A BPO consists of at least 3 recently sold properties, and 3 active listings currently on the market. The goal of the BPO is to give the bank a good estimate of the current market value of a home. There are exterior and interior BPOs, which can sometime take into account any repairs and updates that need to be made for the home.

If the bank is looking at approving a Short Sale, this BPO is the main determining factor for whether they will say yes or no to the lower price.

A low BPO can ruin a Short Sale deal, and frustrate buyer, seller, and eventually the bank. If you are thinking about making an offer on a Short Sale listing, keep updated through your Realtor on whether the BPO has been completed and what the value came back at.

[contact-form-7]

Word of The Week: Tax Assessed Value

Steve Howe — Tue, 02 Jun 2009 02:42:38 +0000

This term is coming up a lot in today’s Housing and Real Estate Markets.

For years we had soaring Market Prices and nobody really cared what the tax value was assessed at. However, now tax values are higher than actual market values, and people are starting to notice in a big way.

Definition: Tax Assessed Value is a dollar amount estimate that the County Tax Assessor designates for each property in the county. More specifically, it’s the amount that the property tax amount is based upon.

In Minnesota, Property Taxes are paid for in the year they are levied, so if your tax statement says 2010 taxes, then those are the taxes payable in the year of 2010. In some other states, the taxes are paid ahead of time which can be a bit confusing.

The main thing people are upset about right now, is that Tax Assessed Values are higher than Fair Market Values. Fair Market Value is basically what houses are selling for in the real world.

Here’s the catch though: since 2010 tax amounts are payable in 2010, that means the Tax Assessed Value was actually calculated before 2010. So what you have is a couple years lapse in Tax Values when compared to Fair Market Value.

So, 2010 Tax Values were actually calculated in 2008 or 2009. That means whatever is going on in 2008 and 2009 is what the 2010 tax value will be based on.

Because of this 2-3 year lapse, what you actually see in MN is that Tax Values are 2-3 years behind Market Values.

Now you can see why this was never an issue in a fast moving upward market when market values were skyrocketing so drastically. Tax Values were still 3 year behind, and therefore people were getting a “deal” on their property tax amount.

Well, now that the market has declined in value for a couple years, we are seeing tax values much higher than market values. This has people angry, which is somewhat understandable.

What First Time Home Buyers need to know, is that these values are coming down in most areas right now, and will most likely continue to do so over the next couple of years. If you want to contest your tax assessed value, visit your county tax assessor’s website to inquire about how to have the value lowered.

You also should not base your offer price on this Tax Value, since the two are unrelated. To get a fair price for the property, all you have to do is look at the Comparable Sales and consult with your Realtor.

[contact-form-7]

Minnesota First Time Home Buyers » Word of the Week

Word Of The Week: Contingency

Related Posts

Word Of The Week – Sweat Equity

Related Posts

Word Of The Week – Chain of Title

Related Posts

Word of The Week – HOA

Related Posts

Word Of The Week – Title Insurance

Related Posts

Word of The Week: FHA 203(k)

FHA 203(k) Loan

Related Posts

Word of The Week: Joint Tenancy

Related Posts

Word of The Week – HVAC

Related Posts

Word of The Week: BPO

Related Posts

Word of The Week: Tax Assessed Value

Related Posts