Reverse Mortgages are very appealing to older home owners on Philadelphia’s Main Line as well as in other areas of the United States during these hard economic times. A reverse mortgage is basically when a lender gives you a cash advance on the equity you have in your home. You don’t have to pay back the advance until you either sell the home or die. However, there are several things you should be aware of before getting a reverse mortgage, such as:

1. How much money will you actually be able to borrow? There is a maximum home value which was just raised from $417,000 to $625,500, although you can’t obtain a reverse mortgage for the full value of your home. A formula is used to determine how much you can borrow. This formula takes into consideration how old you are (the older you are the more you can borrow), current interest rates, and your home’s value. You will have to subtract what you owe on your house and any loan fees involved in getting the loan. This is all subtracted from the amount you are able to borrow. To see how much you could possibly borrow go to www.revmort.com/nrmla.

2. Reverse mortgages have very high fees. A Money magazine article states that as well as paying normal closing costs, there is an origination fee of 2% on the first $200,000 of the loan balance and 1% thereafter, plus mortgage insurance premium of about 2% and on top to that there is a monthly service charge. Origination fees are legally not to exceed $6,000, but by the time you add up all of the fees involved, the total amount in fees is usually in the $10,000 to $15,000 range.

3. There is some risk involved. First of all you have to be at least 62 years old before you can obtain a reverse mortgage. If you decide to obtain a reverse mortgage in your early sixties or seventies, you have to ask yourself “Will the money outlast me?” If or when you run out of money, you won’t have any home equity left, so the longer you can wait to obtain a reverse mortgage the better.

4. Alternative ways to make ends meet. Because retirees have seen a rapid decline in their investments, reverse mortgages have increased by 50% over the past two years and the average age of the borrower has shifted from 76 to 72 years old. So, before taking out a reverse mortgage, don’t forget that cutting expenses, moving into a smaller home, or taking out a home equity line of credit are some other viable options to obtaining a reverse mortgage.

Before you are able to obtain a reverse mortgage you are required to meet with an independent counselor who should explain the loan and all of the drawbacks. However, a recent study showed that counselors are not fully explaining all the risks involved so be sure to do your research and try to find out all the pros and cons of obtaining a reverse mortgage to make sure it is the best option for you.

Money magazine had a great article on credit in its September issue. Many people on the Main Line, who are interested in real estate, ask me if it is hard to get a loan these days and the answer is “no” if you have a good credit score. What is a good credit score and how can you keep it high? FICO is the most used credit rating system. The top score is 850 and the lowest is 300. “You need a 750 or better today to have the same treatment you got with a 700 two years ago,” says John Ulzheimer, president of consumer education at www.Credit.com. The higher your score the better the interest rate you are able to obtain for a mortgage. To achieve the best rate, you need to do the following:

1. Know your score.

You have three FICO scores based on the information at the three credit bureaus: Experian, Equifax, and TransUnion. You can obtain a reflective score at myfico.com for $16 or you can receive an estimate for free at Creditkarma.com. You can get the history report that your score is based on for free at www.annualcreditreport.com. You are legally allowed one free credit report from each bureau annually.

2. Look for Errors

If you find a mistake notify the bureau (they have instructions on their websites) and have it corrected. Make sure your credit line amounts are correct and that none of your accounts have been marked late or delinquent in error. You could raise your score by 200 points, says Ulzheimer, just by having a mistake corrected.

3. Don’t be Late on Your Payments

Your payment history makes up the largest portion of your credit score. One late payment can cause 100 points to be taken off your score. Your payments aren’t recorded as being late until you are 30 days past due. If you make a payment 30 days past due and then pay on time after that, you should be able to get most of your points back. Being 90 days past due can affect your credit score for years so be very careful.

4. Follow the 20% Rule

The second largest factor that makes up your credit score is how much you owe compared to how much credit you have available. Credit card balances and their available lines of credit are something that you can control. You need to keep the ratio at 20% or less overall to maintain a high credit score as well as for each individual card. This is known as your credit card utilization rate. People have become very concerned over banks cancelling cards and lowering credit limits since it can really affect your credit score. If your rate becomes higher than 20% then you will need to pay off some of your debts or obtain another card to increase your credit limit since just a utilization rate of 25% could decrease your score by 50 points. However, don’t get a new credit card if you are planning on applying for a mortgage soon.

5. Keep and Use your Oldest Credit Cards

15% of your score is based on the length of your credit history. The longer you can show that you have been able to manage credit card debt the better for your credit score. Don’t cancel your cards and use them periodically so credit card companies won’t cancel them on you.

While there are other components that make up your credit score, thesa are not as easily controlled, so just concentrate on the ones that you can and you should be okay.

Regards,

Sarah

Visit me at www.SarahSellsTheMainLine.com

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Although there are not a lot of new construction subdivisions on the Main Line, buyers need to be aware of some of the potential hazards of purchasing new construction and some of the precautions they need to take.

Homebuilders have been hit hard by this economy and many are filing for bankruptcy. If a builder goes bankrupt, buyers could lose their deposit monies, liens could be placed on homes just completed and purchased, builders would no longer be able to uphold their warranties, houses, clubhouses, pools, and/or parks could be left uncompleted and neglected.

What should a buyer do if they are thinking of purchasing new construction?

1 Make sure the builder is financially sound before purchasing any new construction or having a home built. The internet can help you with this especially if it is a publicly held company.

2. Drive through the neighborhood to see if any work is being done. If there aren’t a lot of subcontractors working on completing homes or amenities then that could be a sign the builder is having financial difficulties.

3. Knock on the doors in the neighborhood to see if the owners are pleased with their home and if the builder has been repairing items under warranty.

4. Don’t buy in a neighborhood where you are one of the first homes. If the neighborhood is well established and the builder does get into financial trouble, your neighborhood won’t look like a construction site and you won’t be sharing responsibility for common maintenance with just a few home owners

5. Eliminate some of the risk, such as losing your deposit and being unable to get out of a contract, by purchasing a house that has already been completed in the new subdivision.

If you do decide to have a new home built:

1. Make sure your deposit money is being kept in a third party escrow account; not in the builder’s escrow account so you will have a better chance of having your money returned.

2. Have a clause put in the contract that if the builder goes bankrupt , seeks debt reorganization or debt discharge, the buyer will receive all their deposit monies back and have the ability to declare the contract null and void.

3. In the contract, make sure there is a clause stating that the seller at the time of settlement will make sure a title insurance policy with an affirmative mechanic’s lien coverage clause insuring the home will be available to the buyer.

4. The buyer may also want to include language in the contract that states the property must appraise at the sales price or more in order for the settlement to occur due to decreasing home values. If a lower sales price can be agreed upon by both parties then the closing can take place.

Not all builders are in financial trouble, but all buyers need to be aware and take precautions before purchasing new construction whether on the Main Line or elsewhere.

Regards,

Sarah

Visit me at:  www.sarahsellsthemainline.com

There are not a lot of real estate foreclosures here on the Main Line. According to the Philadelphia Inquirer, Philadelphia and the eight surrounding counties placed number 77 out of 100 metro areas nationwide in the number of people filing for foreclosures in 2008. However, I am starting to see more foreclosures on the Main Line and it is worrisome and it affects the whole community.

There is a home four houses down from mine on the Main Line that went through foreclosure. It once was a beautiful home surrounded by a picket fence with perennials planted next to the road. The yard had two large water fountains and had been professionally designed and landscaped. It resembled a large French cottage. It was an asset to our neighborhood. Then we started noticing that the privet hedge and perennial beds were starting to look overgrown. Next the picket fence was starting to fall apart and ivy starting climbing on the outside walls. Then we realized that the owners had left town. My neighbors started calling me. They were very concerned about someone breaking in and trying to live there. We talked about getting together to clean up the yard so the house wouldn’t look vacant. One day my child came home very upset because there were policemen at the vacant house. They were putting up a Notice to Sale on the front door. She felt horrible for the family that had lost their home and she was close to tears. In the end, there were about three large pink notices left on the front door for everyone to see. It is now a REO (Real Estate Owned) property and is listed for sale. There is a padlock on the front door along with a lock box . The house looks very scary and forlorn.

It takes about 10 months to foreclose on a home. A lot can happen to a home during that time. I understand that the hardwood floors are all buckled and that the basement is full of water. The yard and fence still look horrible. The REO company did cut back the privet hedge but that is about all. Who will buy the property? Will the house be fixed up or torn down? Will they turn it into townhouses? How will this house affect the values of the homes in the neighborhood? These are all questions that the community is asking. All we know is what was once a lovely home is now an eyesore and a reminder of what many families are going through in these difficult economic times.

Regards,

Sarahs

www.sarahsellsthemainline.com

Many people who have never been able to purchase a home on the Main Line would love to take advantage of the new 2009 $8000 tax credit, but they don’t have enough money for a down payment or to cover the closing costs.  If you are a first time home buyer and you need your 2009 $8000 tax credit to help you purchase a home, there is a way to receive your tax credit early. First time home buyers who would qualify for the tax credit are allowed to lower their income tax withholdings up to the amount of the tax credit. This extra money will be brought home in the buyers take home pay. Buyers can then save and use this extra money to help them with their down payments or their closing costs. Buyers just need to adjust their withholding amounts on their W-4 through their employer or quarterly estimated tax payments if they are self-employed. However, if a buyer does decide to lower their income tax withholdings and does NOT make a tax credit qualified purchase then they would have to repay the IRS for the income tax possibly including even interest and penalties. If you would like to read the rules and guidelines concerning income tax withholdings, they can be found in the IRS Publication 919.

Also, some rules were changed as part of the stimulus package to allow first time home buyers to claim the tax credit and take part in a program financed by tax-exempt bonds.  Some state financing agencies, such as the Missouri Housing Development Commission, have developed programs that provide a short-term loan in the amount of the tax credit to first time home buyers which can then be used for a down payment. Potential first time home buyers should contact their state housing finance agency to see if such a program exists.  Most of these numbers are listed by state on the website www.housingfinance.com

Regards,

Sarah 

Visit me at: www.sarahsellsthemainline.com.

Currently it’s a great time to be a first time homebuyer on the Main Line, or any where in the United States for that matter.  The main reason being the new first time homebuyers $8000 tax credit that is retroactive to January 1, 2009 and lasts until November 30, 2009.  How does the $8000 tax credit work?  Basically, if you purchase your first home within the time period mentioned above, when you file your taxes next year you will receive a refund check for $8,000 if you do not owe any taxes.  If you owe $3000 in taxes then you will receive a refund check of $5000.  Unlike the first time homebuyers $7500 tax credit that went into effect April 8, 2008, you do not have to repay this tax credit back as long as you remain in the home for three years.  This tax credit, along with 30-year interest rates being at 4.98% should remove any doubt that this is a great time to purchase your first home on the Main Line.

If you have never owned a home or if you have not owned a home or had any ownership interest in a home in the past three years, then you are considered a first time home buyer.  If you are married, both parties have to be first time homebuyers.  The home you are purchasing has to be where you will reside over 50% of the time and within the United States.  It can be a condo, townhouse, co-op, or a single-family residence.  If the home is new construction you have to be moved in by December 1, 2009.  It cannot be a vacation home or rental property. The purchase price has to be over $80,000 to receive the full $8000 credit.  If the purchase price is less than $80,000 then the credit is 10% of the purchase price.

There are some exclusion’s however.  Even if you are a first time homebuyer, you will not qualify for the tax credit if your modified adjusted gross income is above $95,000 or if jointly it is above $170,000. You are also excluded if you have purchased your home from a close relative such as a parent, grandparent, spouse, child, or grandchild.  Also, you cannot be a nonresident alien.  The good news is that most first time homebuyers will qualify and will receive a huge benefit from purchasing their first home in 2009.

The new $8000 first time homebuyers credit, historically low interest rates, large inventory of homes at great prices makes this the best market in a long time for first time homebuyers on the Main Line.

I was watching the Today Show recently and their real estate expert, Barbara Corcoran, had a segment about foreclosures and auctions. While the real estate market on the Main Line has not been hit as hard as other areas, there are still foreclosure properties on the Main Line for sale. Radnor, St. Davids, Wayne, Devon, Berwyn, Bryn Mawr, Ardmore, and Haverford are all great areas to buy in on the Main Line because of their great school districts and proximity to Philadelphia.

If you are currently looking to buy foreclosures at auctions, here are three really good websites to help you find these types of properties: www.foreclosure.com/, www.foreclosures.com/ and www.realtytrac.com/. Remember that most foreclosures are sold “as is”, so it is wise to have an inspection beforehand and to have a contractor provide you with estimates on any repairs or updating that the house is going to need.

Before going to the auction you should know your maximum bid. You don’t want to get caught up in any bidding wars. You will also need a cashier’s check, picture identification, and a pre-qualification letter. Auctions usually require 5% of the selling price as a deposit and they won’t accept personal checks. Also, it doesn’t hurt to have a picture of the house you are bidding on with you. More buyers than you would think end up bidding on the wrong house at auctions.

Some questions that are important to ask are: is there a reserve on the property and does the buyer have a right to rescind the contract? If there is a reserve amount on the property then the seller does not have to accept the winning bid if it is less than the reserve amount. If it is an absolute auction, then the winning bidder gets the property no matter what. Most auctions will give you a 3-day review period, but if they don’t grant you the right to rescind then you will be required to purchase the property. If you back out of the deal or can’t get a loan to purchase the property, then you may be held accountable for 25% of the selling price.

To get the best price at an auction, bid on properties that come up in the beginning of the auction. Those first on the list always go for less because people are gauging prices. Don’t let your emotions get you involved in any bidding wars. Have your maximum bid written down and in front of you. Dress very professional and sit close to the front. Most people attending the auction will think you are with a bank trying to buy back a property and will probably not bid against you.

Even though the Main Line is an affluent area, the current economic hard times have caused home sales to decrease.  Homes are taking longer to sell and home owners are facing stiff competition for buyers. So, why not use every marketing tool available to get a home sold faster?  In real estate as in other industries, time equals money. The longer a home stays on the market the more money it costs the home owner and realtor. In my opinion, home staging is an underused marketing tool. According to the International Association of Home Stagers, staging a home can increase the sale price by an extra seven percent and enables the home to sell quicker than other homes in the area by 100 days. I have personally experienced how staging a home can shorten its days on the market and increase its value. Every home that I have staged as a realtor has sold within 30 days that is why I offer free home staging to all of my clients. I know times are hard but stagers are now offering more packages then ever. For as little as $125.00 a stager will come and give a verbal recommendation of what needs to be done to the house to help it sell quickly. To have those same recommendations put in writing costs around $300.00. Where else can you get such a good return on your sales and marketing dollars? Stagers inform home owners how to increase their home's curb appeal. They will tell them how to arrange the furniture so the house will look larger and have a better flow. They will have them remove the clutter and repaint. They will even go as far as recommending the actual paint colors.  Some stagers even have furniture and accessories realtors and their clients are able to use. Want to get a vacant home sold fast? Home staging will do that too. It has been proven that vacant houses take longer to sell because the house appears smaller and buyers are not able to visualize how their furniture will fit into a space and the house appears stark and cold. Home staging is a great way to make a vacant house look larger and to increase the livability of a home. Builders have known about this secret for a long time that is why model homes are decorated and accessorized.

However, one of the things I like most about using a stager is that it reduces the tensions that can occur between a realtor and a client. Realtors no longer have to worry about offending clients because they were the ones that had to tell them that in order for their house to sell they needed to remove all the clutter, repaint, buy new accessories for the bathroom, clean up outside, etc. Not only do we not have to worry about stressing our relationship with our clients over home improvements but we can enjoy the praise that our clients will give us for providing them with a service that enabled their house to sell quickly and for more money.

For first time home buyers now is the perfect time to purchase a home on the Main Line. Currently the Main Line real estate market has a large supply of homes and few buyers; therefore the likelihood that you will be competing with another buyer for the same house is slim. In addition, you can get a lot more house for your money than you could a couple of years ago due to low interest rates.  Combine these all together and you have the perfect first time home buyers' market. Besides the purchase price of the house, few things affect your payment more than the interest rate and interest rates are at historical lows. When interest rates are low you are able to purchase more home for the money. If you are concerned about getting a loan, don't worry. If you have good credit, there are plenty of banks willing to give you a loan and for those whose credit is questionable or don't have a large down payment there are FHA loans readily available. For a FHA loan, the home buyer just needs to know that he/she will have to provide more documentation than usual and that he/she needs at least 60 days to close on a house since it takes approximately 30 days to get the loan approved. The government is even helping out by offering first time home buyers a new tax credit. The first time home buyer will be credited 10 percent of the purchase price of their home or up to the maximum amount of $7,500. For those first time home buyers who want to live on the Main Line because of its proximity to Philadelphia, its great schools and its great towns such as Wayne, now is the time to buy.