New Homebuyer FYI #4

New Homebuyer FYI #4
by Hassan Nicholás

• Supplemental Tax - Most home buyers are unaware of or don’t understand supplemental property tax, but if you’re not prepared it could be quite a payment shock. The tax is an additional tax beyond the normal annual tax you would pay for any increase in the value of the property as determined by the assessor. For a home buyer, this means any increase of value from the former assessed value, an addition of a room onto the house, a new pool and any other major improvements will be included. The tax, which is billed separately, reflects the tax on the difference in the new value of the property versus the old value. Tax rate can range between 1% to 1.2% depending on area code, meaning on a property whose value increased by $100,000 a buyer could expect to pay a supplemental tax of $1,000 to $1,200. The tax payer (you, the buyer) will receive the supplemental tax bill many months after purchasing the home. The bill is split it in two halves, the first of which arrives with a no-penalty deadline for 30 days and then four months thereafter to pay the second half. Because the tax is supposed to capture the current value of the property you will only receive a supplemental tax once. And any reduction in value will result in a refund of taxes paid or taxes owing.

• Maintenance Costs - If you're only planning for PITI (principal, interest, taxes and insurance) then you're playing with the risk of getting into unexpected debt. Maintenance costs is definitely one of the "hidden" costs of homeownership, so if you're in the market to purchase a single-family home you must plan for it. Some experts recommend saving 1% of the purchase price for annual maintenance. Divide that percentage by twelve and it will tell you how much you should be setting aside monthly. And while we're at it, you had be saving for furnishings as well. After all, you don't want to live in a house with an empty living room.
  

Down Payment Assistance using Real Numbers

Down Payment Assistance using Real Numbers

by Hassan Nicholás


By request we have been asked to do a demonstration of how using a down payment assistance program could work with alleviating higher costs and narrowing the affordability gap between buyers and home prices.

The bottow example uses the County of Los Angeles HOP (Home Ownership Program), ADDI (American Dream Down Payment Initiative), and MCC (Mortgage Credit Certificate) programs to illustrate this concept:

• HOP offers a deferred loan of the lesser of $90k or 25% of the appraised value in targeted areas, and the lesser of $80k or 20% in non-targeted areas.

• ADDI offers the greater of $10k or 6% of the appraised value of the home

• MCC offers between 15-20% tax credit, depending on area.

Remember that this is only one possible scenario out of many. It is just a sneak preview as to what we cover in our workshops to help your understanding of alternative financing methods and strategies.

Down payment assistance can be a great tool for a first-time homebuyer, but for many reasons explained here and here, you should always consider all options.

NeighborHoodwinked: The Fallacy Behind the American Dream

Opinion

NeighborHoodwinked: The Fallacy Behind the American Dream

by Hassan Nicholás

hood·wink [hoo d-wingk]
–verb (used with object)
1. to deceive or trick.

Do you remember where you were when you the heard the POP!? – the defining moment that signaled the end of a hyper-inflated real estate bubble? I remember I was sitting at my desk, much like I am now, mulling over real estate news...probably finishing off some yogurt. Back then I believed in something called the “America Dream”. We talked about it in our workshops, counseling sessions. It even appeared in bold white letters on our workshop workbooks that we would pass out to anxious first-time home buyers. Now, many months later the once inspiring phrase has escaped me.

When most envision the American Dream imagery of houses guarded by pristine white picket fences, perfectly manicured lawns, and friendly neighbors comes to mind. It’s hard to ignore the temptation to want ownership of something, anything in this world. Whether it be a car, a home, or limited edition Jordan’s there’s an intangible value added that we could best describe as pride. Americans find pride in their homes (among other things), because for us it represents that we have succeeded, that we have arrived.

If you are a homeowner you deserve that feeling. Purchasing a home, for most people, will be one of the most significant purchases you will make in your lifetime. Fact. There are several

But now that we have arrived are we still living or striving for the American Dream?

Many pundits claim that house prices must fall an additional 30% to align them back to where they've been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, thus a drop of 30% would be needed. Right? Nope. Though appealing on the surface, this simplistic analysis is flawed for a variety of reasons. The most important? It neglects the fact that a great majority of Americans buy their houses with mortgages. "And if one buys a house with mortgage, the most important factor in deciding what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house." Today the rate on a 30-year, fixed-rate mortgage is around 6.5%. Back in 1981, the rate hit 18.5%. Comparing house prices of today to that of the 1970s or even 1980s, when mortgage rates were treading on astronomical levels, is not only wrong but downright misleading.

We have been conditioned since birth to believe owning a home is one of the best, most secure methods of accumulating wealth. Many real estate professionals tout that owning a home is a better investment then the stock market. Though, studies have shown this is hardly the case. Homeownership is something great to experience and have, but it's not a guaranteed money maker. I was among the many that believed "real estate always appreciates". Many victims of our current real estate crisis probably repeated similar mantras, but it didn't do much to curtail the wave of price drops across the nation. The good thing about this (if anything positive can be pulled from this situation), is that I have been forced to think about homeownership in a different way. Now, feeling suddenly enlightened, I have began to explore the more realistic benefits of owning a home. And once you start thinking, you actually come up with many reasons why owning a home can be such a wonderful thing.

Just some of the reasons I came up with:

• Leverage. If you been to one of our workshops you've seen an example of how one can leverage a small amount of money to buy a significant piece of property. If that property appreciates well, you discover your gains are greatly compounded.
• The intangiblel. Cost of buying a home in El Sereno, $310,000. The feeling of buying your first home with a backyard big enough to house all three of your Irish Wolfhounds? Priceless. Emotions will definitely come into play as you decide whether buying is right for you. I feel it's very pertinent to consider the emotional outcomes, but don't let them the reason you make an irrational decision.
  
• Rent vs. Buying. Through some creative financing (and I don't mean ARMs, more like deferred loans) the costs to rent could be equal to or greater then the costs of owning a home of similar square footage.
• Ownership can help start/build generational wealth. On a social level, it helps build a "savings culture" and lift some families out of poverty.
• Etc. There are so many other benefits to homeownership that you will discover as learn more about the process and everything real estate markets entail. Have any to share? Let me know and we can continue this list.
  

When Should You Buy?

Before you figure out when you should buy, determine how you will buy.

Here's my list of factors you should take into account before you make one of the most (if not, the) biggest purchase in your lifetime.

• Real estate data - Those who are able to interpret real estate data well can probably make a good prediction of where the market is headed. (Hint: Prices are still falling) For the rest of us, there's a gamut of real estate forums and news that can provide just as good as information that will give us insight. And pretty much how you perceive the market will determine your approach - are you a cheerleader or a doomer?

• Interest rates - Watch interest rates. Why? Because your mortgage is Principal, Interest, Taxes and Insurance.

• Subsidy Programs - If you're a first time home-buyer and your ability to finance a home depends on the availability and amount of assistance programs this will be a definite factor.

• Motives - Why do you want to buy anyway? For an investment opportunity (a la flipping), because you want security, rental income etc.? If you are looking to add to your wealth through the future potential appreciation of your purchase then look no further to current real estate headlines and you will see that the "but, real estate is always cyclical" philosophy is currently debunked. Not saying that you can't make money off equity, but to ignore potential rental income would be a mistake.

• What's your time line? - How long do you intend to stay in this house? A short-term schedule and long-term schedule will impact how you approach home-buying.

• Lifestyle - A household with family or expecting family will certainly have different needs then say...a bachelor pad. Even if you home will eventually be shared by your partner, you might want to consider what type of lifestyle you will have to forgo and any other adjustments.

• ? - And of course there are an innumerable amount of reasons outside of this short list why you should or shouldn't buy. Hopefully, you will have considered most of them.

Have any more reasons that are missing from this list? Let me know, and we'll keep adding on...

Subsidy Programs Update

Programs & Status

LAHD Low Income, Mod 120, Mod 150 - January 2009*

LACDC HOP - November 2008*

LACDC ADDI - July 2008*

LAHD ADDI - Available

LAHD MCC - Available

CalHFA (ExtraCredit Teacher, CHDAP, CHAP, HiCAP, etc.) programs - Available

*Reflect anticipated dates that are not guaranteed.

I already know what some of you are thinking. There's no way on earth I'm going to wait till November or January of next year to see if these programs will be available. For others, this is just part of a delayed waiting game that reflects the current real estate market and state of economy.

If you were counting on down payment assistance the question you should ask yourself is, will the lack of sufficient down payment assistance programs prevent my purchase or delay my purchase? If prices for your area are predicted to continue to fall, then it wouldn't exactly be advisable to buy now anyway, because you would missing out on potential savings.Your decision on whether to purchase now or later will depend on well you understand this market - specifically, your local market. If you're confused about the When you should buy, look at my list of the How should by first...

Photo Tour: Park La Brea - Miracle Mile

So, my video editing skills have improved since last time I did this.

Califotography: A Pass Through Miracle Mile, Glimpse of Park La Brea

This brief photo tour shows parts of Park La Brea and Miracle Mile. This popular, growing area is sandwiched between Beverly Hills and Hancock Park, bordered loosely by Wilshire Boulevard, 3rd Street, Fairfax Ave and La Brea. It is home to the La Brea Tar Pits, LACMA, Pan Pacific Park, The Grove, and the Peterson Automotive Museum. It has a great mix of new and old mid-rise apartment complexes, beautiful one story homes, and entertainment thats spans from free jazz concerts in the park to margaritas on Monday at El Torro. Enjoy.




Here are some preview pics:

New Homebuyer FYI #3

Compiled by Hassan Nicholás
FYI #3...random stuff to know

• Real Estated Owned property or REO means the bank owns the property and is selling it. Bank must deliver the property to a new owner without past liens, either property taxes or HOA dues. Recorded liens - that's the guarantee. Liens that have not been recorded are not necessarily cleared by the seller or guaranteed by the Title Company. Most likely, if the HOA has put a lien on the property, the bank will pay off the lien. The bank can't close escrow unless all liens are paid off.

• The short sale process is lengthy and rarely successful for first-time home buyers. Only 5-10% of short sale listings actually close, according to professionals in the field. Most are taken off the market by the owner itself or because of foreclosure. If you decide to make an offer it is advised that you put a clause in your contract that your deposit cannot be cashed until it is clear that the sale has been approved by the mortgage company and the contract has been signed.
  

• A trustee sale is when a bank tries to offload a pre-foreclosed property. Typically, the opening bid on a trustee sale is set at the amount of the first trust deed loan balance. Sometimes short sales are taken off the market through trustee sales.

For more questions check out