Proposition 90: Homeowners Exemption Age 55+.  It’s a “property tax incentive to move”.  The main qualification of this proposition, however, is that you already own a home…it allows a homeowner 55+ to transfer the assessed value of their home to a new home and pay taxes based on the assessed value of the first property for the first year in the new home (restrictions on the 2nd home of course apply).  It doesn’t even really amount to much unless you've owned your home for a long time and it's now worth a crap load, and it’s only usable once (meaning you only benefit from said tax incentive for the first year).

Here’s a scenario if you are curious to see it how it works out mathematically:

• Say you bought a house 7 years ago for $300,000. 
  
• Considering a 1% tax figure, that’s $3,000 in taxes the first year. 
  
• Based on Proposition 13 (which puts a cap on property tax increases) we’ll say that the taxes over the 7 years increased by 14%. 
  
• Based on this, the current assessed value of the home would be $342,000 with a corresponding tax of $3,420 per year. 
  
• The market value of the property in today’s economy, after 7 years, is $500,000, and it sells for that price.
• You find a new home priced at $495,000. Typically, using the 1% tax rate, the new property tax bill would be $4,950, the first full year. However, because of Proposition 90 you get to carry over the assessed value (not sold price) of the home you sold ($342,000), and, therefore, your tax bill would be $3,420, saving over $1,500 in taxes the first year only.

*Please note that tax percentages vary by area, and this is only an example. 

The ugly truth of it is, due to the passing of Proposition 13 in 1978, new homeowners pay an average of three times more in property taxes than do those who have owned their home since 1978.  It’s an incentive to move alright (one that benefits the government).  Once that initial year has passed, the government can collect on the tax increase on BOTH properties because once the property is transferred the taxes start to increase at the new SOLD price (not assessed value).  Meaning, the house you sold will have an increased tax of $5,000 going forward and increasing each year.  Really, only the government wins.  It’s great if you’re already owning and wanting to sell regardless, hey, it’s a way to get a kickback and save some money.  But it’s not something that should incentivize anyone that isn’t already planning on selling since they will still pay increased taxes in the long run.

Housing Market Conditions Favor Homebuyers

Home price affordability has improved dramatically...53.8% of all new and existing homes sold during the first 3 months of 2008 were affordable to families earning the median household income of $61,500.  Three factors combined to substantially increase housing affordability: mortgage rates returning to near record low levels of a few years ago, a $2,500 rise in family income nationwide and lower house prices.

--Sandy Dunn, CNNMoney.com, May 21, 2008

There are many reasons for people to get into the housing market today, and very few reasons not to.  With the plentiful supply of homes for sale at affordable prices, interest rates approaching 40-year lows, and the strong track record of housing as a good long-term investment, conditions are ripe for buyers.

--Lawrence Yun, chief economist, National Association of Realtors, May 15, 2008

Consumers Shouldn't Wait to Buy

I'm concerned that consumers in many markets in America are putting off buying a home because they see some of the national statistics and they forget that real estate is local.

This is the absolute best time in my 33 years in real estate to buy a home.  Interest rates are still low, inventory levels are high, and prices are stable.  You should not try to time the market.  People who try to time the market get burned. 

--Jim Gillespie, President and CEO of Coldwell Banker, CNNMoney.com, May 19, 2008

Market Showing Signs of Improvement

The May REAL Trends PULSE survey of leading real estate industry broker/owners revealed that 60% of respondents said that they strongly or somewhat agree that their market is showing signs of improvement.

Comments included:

-Activity at open houses, showings and pending all increased in April. Consumers still very nervous and uneasy

-April was our best month for pending in over a year

-We see an increase in Buyer interest but looking for deeper concessions due to a larger inventory of available homes on the market.

-We are getting multiple offers on the best priced properties.

--REAL Trends Pulse Survey, RealTrends.com, May 2008

Southern California Update

San Diego County's housing market showed signs of life in April with sales up 33.3% from March and the median price back at the $400,000 level.  Buyers are willing to sit down and put pen to paper and write an offer.  We're seeing that trend grow.  People are saying now's the time.

--Stephanie Jensen, San Diego Agent, San Diego Union-Tribune, May 20, 2008

Home sales surged 22% in April in Southern California as bargain-hunters bought lower-end homes in areas hardest hit by foreclosures.  Sales of new and resale homes and condos reached 15,615 in April, up from 12,808 in March and the highest monthly total since August, according to DataQuick Information Systems.

--CNNMoney.com, May 19, 2008

If you buy a second home now for retirement later, you could give yourself a hedge against home price hikes as well as a relatively low-cost retirement shelter with an equity cushion.  That assumes during ownership you can find tenants who'll pay enough rent to cover your investment costs.  The upside to buying your retirement home now is that you can count on having someone else paying your mortgage for as long as you rent it.  You'll inherit a home with at least part of the mortgage already paid down and relatively low interest rate locked in. 
It's a good idea to get a head start on retirement living considering your favorite location might be a lot more expensive 10-15 years from now when 73 million baby boomers begin their retirement.

Don't forget the tax benefits that can help offset costs.  In addition to mortgage interest deductions on owned home values up to $1 million, tax deductible passive losses on rental properties are as much as $25,000.  The passive loss amount does begin to phase out once your modified adjusted gross income reaches $100,000 and is completely phased out once your income reaches $150,000.

Also, remember to consider non-financial related aspects of buying a retirement home now to live in later.  Things like health, climate, and other unforeseen events could prevent you from ever moving into your second home come retirement.

Appreciation may also help offset some of your costs, but to maximize your investment as a retirement nest egg, you probably don't want to tap your home's equity unless it's absolutely necessary.  In any event, buying a retirement home now to live in later begins with even more considerations:

• Investors should shop for a second home much in the same way they shopped for their first home.  Buy the cheapest home in the best block or buy into the cheapest neighborhood in the best community, both to give the home's value room to grow.
• Look for appreciation potential, typically found in areas where demand eventually will exceed supply.  Avoid heavily marketed, but unproven areas.
• Find a home in close proximity to as many preferred activities, attractions, and events as possible.  The more of these area features the better the potential for renting the property at a decent rate and selling at a high price later.
• Consider "try-before-you-buy" mini-vacation getaways offered by timeshare developments in potential investment home purchase areas.
• Get professional representation for the search, mortgage and property management. 

Proposition 8 - What is it?

In 1978, California votes passed Proposition 8, a constitutional amendment that allows a temporary reduction in assessed value when a property suffers a "decline-in-value."  A decline-in-value occurs when the current market value of your property is less than the current assessed value as of January 1.

Eligibility Requirements:

1. You must demonstrate that on January 1, the market value of your property was less than its current assessed value.
2. You must file a claim form for a decline-in-value reassessment application (prop.8) with the Assessor between January 1 and December 31 for the fiscal year beginning July 1.  If December 31 falls on a Saturday, Sunday or legal holiday, an application is valid if either filed or mailed and post marked by the next business day.

How do I file for Proposition 8?

A claim form is available from several sources.  Choose what is most convenient for you:

• Online: www.Assessor.lacounty.gov
• Email: MelissasEstates@gmail.com
• Phone: Melissa (310)489-8379

Claim forms may also be requested by mail or in person at our office.

As I'm sure you are aware the real estate market has been volatile.  Many property values have dropped.  To assist you in the market, I am providing you this information that could assist you in getting your tax bill reassessed downward.  If you would like the necessary forms and comparables, just give me a call.   

I really love this house, but it needs work...

The FHA 203(k) loan allows the buyer to finance the cost of improving an existing 1-4 unit property into 1 loan at a long term fixed or adjustable rate.  The mortgage amount is based on the projected value of the property with the work completed (taking into account the cost of the work).  All this jargon basically means you can buy the property and fix it up with 1 loan.

The FHA 203k program is used to make improvements to an existing property. They can be used to make simple up-grades to a home, such as a kitchen or bath improvement, or to completely re-construct a home that is presently un-livable. They can also be used to tear down an existing structure and re-build a new one using some portion of the existing foundation.

For example, let’s assume that you are purchasing a home for $500,000 and wish to invest an additional $50,000 to renovate it. Traditional loan programs will lend you the funds to purchase the home but will not advance additional funds to renovate it. This program will finance both the purchase and renovation of a property.

The FHA 203(k) loan offers flexible qualifying and low down payments:

• FHA down payment (3%)
• Flexible credit qualifying (620 FICO and above)
• Assumable loans 
• Purchase and Improve all in one loan

Made available to certain lenders by the U.S. Department of Housing and Urban Development (HUD), the FHA 203(k) program has already provided many buyers with the funds necessary to buy their first home, or greatly improve a move-up home. The FHA 203(k) loan is available to borrowers of all income levels, to homeowners who plan to occupy the house, and for homes with one to four units.

• 203K Eligible Borrowers:
• Owner Occupants - Purchase - Refinance
• U.S citizens
• Non-Occupant co-borrowers
• Inter vivos revocable trusts
• Permanent resident aliens
• Non-permanent resident aliens

• Eligible Properties:
• Single family dwellings that have been completed for at least one year.
• Condos
• Townhomes
• Mixed Use (Storefront)
• 1-4 Unit attached  - you can increase or decrease the number of units with this loan.

• Structural Alteration and Reconstruction:
• Changes for improved functions and modernization
• Elimination of health/safety hazards
• Changes for aesthetic appeal
• Plumbing, heating air conditioning, and electrical upgrades
• Well and/or septic repairs
• Roofing, gutters and downspouts
• Flooring, tiling and carpeting
• Energy conservation improvements
• Major landscape work and site improvement

Home Inspection:
The cost of your construction is estimated by an FHA Approved 203(k) consultant (estimator). The cost consultant assists you in determining the scope of repairs and the costs budgeted for the renovation job.

• Perform a home inspection to create preliminary costs estimates based upon FHA minimum property standards plus the scope of work as defined by the home owner/buyer.
• Once project has been determined, the cost consultant prepares a "work-write up" and 3 contractor bid packages are issued to the home owner/buyer.

• Appraisal:
  The appraiser will be given a copy of your "work-write up" to estimate an after improved value for your new home or current home. We loan against that improved value thus giving you credit for the work to be performed.
• Other Eligible Costs:
  (THESE COSTS MAY BE FINANCED INTO THE MORTGAGE LOAN)
• Contingency reserve (10%-20%)
• Up to 6 months PITI mortgage payments
• Permit costs
• Consultant fees
• Inspection and title update fees
• Architectural & Engineering fees (if needed)

• 203(k) home buying process:
• Homebuyer locates the property.
• Homebuyer and their real estate professional should determine the extent of the rehabilitation work required, the rough cost estimate of the work and the expected market value of the property after completion of the work.
• Sales contract is executed.  A provision should be included in the sales contract that the buyer has applied for Section 203(k) financing, and that the contract is contingent upon loan approval and buyer's acceptance of additional required improvements as determined by HUD or the lender.
• Homebuyer selects a lender.
• Homebuyer prepares work write-up and cost estimate.
• Plan reviewer visits the property
• Appraiser performs the appraisal
• Issuance of Conditional Commitment/Statement of Appraised Value
• Lender issues firm commitment
• Mortgage loan closing
• Rehabilitation construction begins
• Releases from rehabilitation escrow account
• Completion of work/Final inspection

REO is an acronym for real estate owned and is industry jargon for foreclosure property repossessed by banks or lenders. If a bank or lender is the highest bidder at a foreclosure auction — or if no third party bids at the auction — the property reverts back to the lender and becomes an REO. REOs are owned by banks. Lenders go to great lengths to sell REOs. For banks, however, bank-owned homes are a liability.

· First-time buyers will need to be pre-approved by one or more lenders.

· Don’t be surprised if the bank that owns the home requires that you

finance your purchase with them.

· Expect competition.  Many buyers bid on multiple properties.

· Banks won’t accept offers that are contingent on selling your home.

· The best deals generally are those homes with the longest time on market.

· Bank-owned homes typically sell for 10-20% less than their listing price.

· Be sure to pay for an inspection and consider the cost of repairs.

· The bank is likely to make a counter-offer.

· Some banks will not accept an offer unless it is submitted by a REALTOR.

· Banks generally close quickly, within two weeks to 45 days.

My parents have their Hermosa Beach home on the market and recently had an interesting offer come their way.  Understandably in this current market people are finding creative ways to buy and sell real estate, but this "creative" offer struck me as an old fangled way around fraud.
The buyers were titled as an LLC and submitted an offer site unseen - red flag number one.  The offer was for almost a million over asking - red flag number two.  At this point, I realized this was Fraud 101.  To overpay for a product and expect a kickback is the oldest trick in the book, what were they thinking?  At the close of escrow they wanted the overpaid amount paid back to them, less a little that my parents could keep as a "thank you".  Seriously?  How has this offer made it this far?  Who is this agent who is allowing this to proceed?  According to said agent, they have transacted in this manner 9 times and 6 have closed.  Well, that could be a lie.  Luckily my parents are surrounded by competent real estate practitioners in many areas of a transaction.  Aside from their agent, they also have best friends who own their own escrow company, my step mom works in a law firm, and one of my dad's closest friends is a real estate attorney.  This "offer", as well as the offerers were gone over with a fine tooth comb.  The findings concluded that they were unable to provide proof of prior transactions, and the escrow company they wanted to use went by 6 different business names.   The clincher - when asked to provide proof of funds they declined stating "privacy laws" allowed them the keep their funding sources private.  I'm laughing at this point, thanking gawd my parents weren't victims. 
It's scary to think how many people HAVE been victims of this sort of thing, and wonder if it's going to be a more prominent thing in our industry.  It's hard to believe anyone falls for this, but they must or else these people wouldn't think they could get away with it.  Watch out, if an offer sounds too good to be true, it IS.    

As part of the government stimulus package the new FHA loan limits will increase from $362,000 to $729,000 for LA and Orange County.  What this means to buyers, and those who may be sitting on the fence, is that 2008 is the time to buy.  Interest rates remain low, and this stimulus package is TEMPORARY.  It is designed to get the economy back on its feet and stable.  Be part of the market correction now while prices are low and inventory is high.  You may not have been able to qualify in the past, and you won’t be able to again once this package expires…

LA and Long Beach new FHA loan limits:
1 Unit: $729,750, 2 units: $934,200, 3 units: $1,129,240, 4 units: $1,403,400

1. 3% down payment options on owner occupied properties including 2-4 unit buildings.
2. Eligible for financing despite challenged credit.
3. Borrower's entire cash investment can be gifted by family members, employers, or other approved sources.
4. No reserves required on all 1-2 unit properties.
5. No minimum credit scores required.
6. Not subject to declining market conditions.
7. Non-occupant co-signers can be used to help qualify.
8. Seller concessions allowed up to 6% on all LTVs.
9. There is no maximum cap on income or debt ratios.
10. Home buyer and seller can individually or jointly pay closing costs. 

Here is another hurdle we young professionals struggle with in this business - a return on our SOI.  I don't know about the rest of you out there, but here is my predicament: my SOI is best described as my peers and family.  I am 28, female, single, and have been in real estate 2 years.  I consider myself wading in the shallow end of the depth of my career, read: I'm still getting my feet wet.  In my SOI of 93 I have a plethora of other 20 something women and men, single as in not married, and 96% of them in no place to be investing in real estate.  The rest is family who in my opinion, I don't have to "seduce".  The upside of this is that I don't have to work my SOI, being that the number is small and all know me on a personal level I can say that no matter what I do or don't do, they are in my corner.   Maybe my SOI is a longer term commitment than most, I see my SOI paying off in 3-5 years as my peers get older and are ready to delve into the market.  As their relationships with others mature and they too are in a position of needing a Realtor, I know my name will come up. 

It's great for those people who can talk to anyone about anything, those people who already know a lot of people, those people who are bred into a Realtor family or better, someone in the entertainment industry.  How nice for you.  Do you think if we traded places I wouldn't be as successful?  Do you think I won't be as a result of having a lack luster SOI?  In case you aren't following my cynicism, those questions are retorical. 

With all that said, leave me alone about it.

Acceptance:  The date when both parties, seller and buyer, have agreed to and completed signing and/or initialing the contract.

Adjustable Rate Mortgage:  A mortgage that permits the lender to adjust the mortgage's interest rate periodically on the basis of changes in a specified index. Interest rates may move up or down, as market conditions change.

Amortized Loan:  A loan, which is paid in equal installments during its term.

A.P.R. (Annual Percentage Rate):  A term used in the Truth in Lending Act.  It represents the relationship of the total finance charge (interest, discount points, origination fees, loan broker, commission, etc.) to the amount of the loan.

Appraisal:  An estimate of real estate value, usually issued to standards of FHA, VA, and FHMA.  Recent comparable sales in the neighborhood is the most important factor in determining value.  This should be contrasted against the home inspection.

Appreciation:  An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

Assumable Mortgage:  Purchaser takes ownership to real estate encumbered by an existing mortgage and assumes responsibility as the guarantor for the unpaid balance of the mortgage.

Bill of Sale:  Document used to transfer title (ownership) of PERSONAL Property.

Closing Statement:  A financial statement rendered to the buyer and seller at the time of transfer of ownership, giving an account of all funds received or expended.  

Cloud on Title:  Any condition that affects the clear title to real property.

Comparable Sales:  Sales that have similar characteristics as the subject property and are used for analysis in the appraisal process.

Contract:  An agreement to do or not to do a certain thing.

Consideration:   Anything of value to induce another to enter into a contract, i.e., money, services, a promise.

Deed:  Written instrument, which when properly executed and delivered, conveys title to real property.

Discount Points:  A loan fee charged by a lender of FHA, VA or conventional loans to increase the yield on the investment.  One point = 1% of the loan amount.

Easement:  The right to use the land of another.

Encumbrance:  Anything that burdens (limits) the fee title to property, such as a lien, easement, or restriction of any kind.

Equity:  The value of real estate over and above the liens against it.  It is obtained by subtracting the total liens from the value. 

Escrow:  Money, property, a deed, or a bond put into the custody of a third party for delivery to a grantee only after the fulfillment of the conditions specified

Escrow Payment:  That portion of a mortgagor’s monthly payment held in trust by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments and other items as they become due.

Fannie Mae:  Nickname for Federal National Mortgage Corporation (FNMA), a tax-paying corporation created by congress to support the secondary mortgages insured by FHA or guaranteed by VA, as well as conventional home mortgages.

Federal Housing Administration (FHA):  An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

FHA Insured Mortgage:  A mortgage under which the Federal Housing Administration insures loans made, according to its regulations.

Fixed Rate Mortgage:  A loan that fixes the interest rate at a prescribed rate for the duration of the loan.

Foreclosure:  Procedure whereby property pledges as security for a debt is sold to pay the debt in the event of default. 

Freddie Mac:  Nickname for Federal Home Loan Mortgage Corporation (FHLMC), a federally controlled and operated corporation to support the secondary mortgage market.  It purchases and sells residential conventional home mortgages.

Graduated Payment Mortgage:  Any loan where the borrower pays a portion of the interest due each month during the first few years of the loan.  The payment increases gradually during the first few years to the amount necessary to fully amortize the loan during its life. 

HOA:  Home Owners Association

Investor:  The holder of a mortgage or the permanent lender for whom the mortgage banker services the loan.  Any person or institution that invests in mortgages. 

Lease Purchase Agreement:  Buyer makes a deposit for future purchases of a property with the right to lease the property for the interim.

Loan to Value Ratio (LTV):  The ratio of the mortgage loan principal (amount borrowed) to the property’s appraised value (selling price).  Example – on a $100,000 home, with a mortgage loan principal of $80,000 the loan to value ratio is 80%.

Mortgage:  A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Insurance Premium (MIP):  The amount paid by a mortgagor for mortgage insurance.  This insurance protects the investor from possible loss in the event of a borrower’s default on a loan.

Mortgagor:  The borrower of money or the giver of the mortgage document.

Note:  A written promise to pay a certain amount of money.

Origination Fee:  A fee paid to the mortgagee for paying the mortgage before it becomes due.  Also known as prepayment fee or reinvestment fee.

Private Mortgage Insurance (PMI):  See Mortgage Insurance Premium.

Promissory Note:  A written contract containing a promise to pay a definite amount of money at a definite future time.

Realtor:  A member of local and state real estate boards, which are affiliated with the National Association of Realtors (NAR) and abides by its Code of Ethics.

Rent With Option:  A contract, which gives one the right to lease property at a certain sum with the option to purchase at a future date.

Second Mortgage/Second Deed of Trust/Junior Mortgage or Junior Lien:  An additional loan imposed on a property with a first mortgage.  Generally, a higher interest rate and shorter term than a “first” mortgage.

Severalty Ownership:  Ownership by one person only.  Sole ownership.

Survey:  The process by which a parcel of land is measured and its area ascertained.

Tenancy In Common:  Ownership by two or more persons who hold an undivided interest without right of survivorship.  (In event of the death of one owner, his/her share will pass to his/her heirs.)

Title Insurance:  An insurance policy that protects the insured (purchaser or lender against loss arising from defects in the title).