Buyer & Seller Guides

While most condominiums are apartments, a townhouse is attached to one or more houses and can run the gamut from duplexes and triplexes to communities with hundreds of homes. Buyers separately own their homes and the land on which the houses sit. With a condominium, the unit owners jointly own the land and this common interest cannot be separated from the others.

Townhouses can be structured in many ways. Some, particularly huge communities, have common areas – such as swimming pools – that are similar to condominiums.

One of the best ways is to get your hands on a comparable market analyses. See what price similar properties have sold for in the past and find out the listing price of others currently on the market.

It is important to examine the fixer-upper carefully and figure out how much it will cost to fix any defects or repairs. If you are unable to get in, talk with nearby neighbors about the home’s condition.

You can also do your own cost comparison by researching comparable properties recorded at the local county recorder’s and assessor’s offices, or at Internet sites specializing in property records. If the property is in foreclosure, you should get as much information as possible from the lender.

It depends. So-called “bad” areas – often described as those that are residentially unstable or poor – have offered an affordable means of homeownership for many – particularly young, first-time buyers and low- to moderate-income families interested in a home they can call their own. Whether it is right for you to buy a fixer-upper will depend on your personal threshold for risk and your level of tolerance. That said, however, many run-down neighborhoods, particularly those close to downtown, are benefiting from a residential resurgence as an influx of newcomers jump-start what were once staid, unsafe, or depressed areas.

They are literally everywhere, even in wealthy enclaves. What sets them apart is price. They have lower market value than other houses in the immediate area because they have either been poorly maintained or abandoned.

To determine if a property that interests you is a wise investment will require a lot of work. You will need to figure out what the average home in the area sells for, as well as the cost of the most desirable ones.

Experts suggest that novices avoid run-down properties needing extensive work. Instead, they recommend starting with a property that only needs minor cosmetic work – one that can be completely refurbished with paint, wallpaper, new floor and window coverings, landscaping, and new appliances.

Also, keep in mind that a home price that looks too good to be true probably is. Find out why before pouring your hard-earned money into it.

When looking for a fixer-upper, some experts suggest you follow this basis strategy: find the least desirable home in the most desirable neighborhood. Then decide if the expense that is needed to repair the property is within your budget.

In addition to being able to take advantage of tax deductions, the National Association of Housing Cooperatives (NAHC) says shareholders will find that co-ops have low turnover rates, lower real estate tax assessments, reduced maintenance costs, resident participation and control, and the ability to prevent absentee and investor ownership.

Also attractive: housing cooperatives come in all shapes, sizes, and types. They include townhouses, mid-and high-rise apartments, garden apartments, single-family homes, mobile home parks, artists’ cooperatives, and senior housing.For more information about co-ops contact NAHC at (202) 737-0797, or log on to www.coophousing.org.

Cooperative apartments – known as co-ops – are not really owned by people as real property. Instead, people own shares of stock in the company that owns the building in which they live. But for all practical purposes, the experts say owning a co-op is almost like owning real property. Personal loans to “buy” a co-op apartment are written almost like mortgages. And the IRS treats co-op owners much like real property owners. They can deduct interest paid on their apartment loans and on their portion of the municipal taxes and mortgage interest paid by the corporation.

Shareholders in a co-op are entitled to occupy specific units, use the common areas, and have a vote in the corporation. To maintain this right, they must pay a monthly fee that covers their share of operating expenses.

As for governance, a board of directors, which is elected from among the residents, runs the co-op. Under most bylaws, the board may evict any tenant/shareholder who fails to pay the monthly maintenance fee. Everyone is expected to abide by the rules, which may prohibit pets or even children under a certain age.

On the plus side, exterior maintenance and repairs are minimal; there are no neighbors above or below the home like in an apartment; and because the homes are attached, they may offer a greater sense of security.

As for the disadvantages, if there is a homeowner’s association, buyers will have to pay a homeowner’s fee. There is also less privacy than with a detached single-family home. And there are limits on how you can make exterior changes to the home.

They are a good way to enter into homeownership. The high price of single-family homes and the influx into the housing market of more single homebuyers have made condos relatively hot national investments. They have held their value as an investment despite economic downturns and problems with some associations.Condominium associations have also worked hard in recent years to clean up their image. Disputes and lawsuits were once rampant. But now associations have become savvier about property management and have taken steps to prevent legal problems and disputes.

This will vary depending on the type of work that is done. Remodeling magazine publishes an annual “Cost vs. Value Report” that can answer this question in more detail, based on the top 15 home improvements. A recent study it conducted says the highest remodeling paybacks have come from siding and window replacements, major kitchen remodeling, bathroom and family room additions, and mid-range master bedroom suites.

An important point to remember is that remodeling not only improves a home’s livability, it also enhances its curb appeal with future buyers.

If you sell your primary residence, you may be able to exclude up to $250,000 of gain – $500,000 for married couples – from your federal tax return. To claim the exclusion, the IRS says your home must have been owned by you and used as your main home for a period of at least two out of the five years prior to its sale.

You also must not have excluded gain on another home sold during the two years before the current sale. However, special rules apply for members of the armed, uniformed and foreign services and their families in calculating the 5-year period.

If you do not meet the ownership and use tests, you may use a reduced maximum exclusion amount. But only if you sold your home due to health, a change in place of employment, or unforeseen circumstances.

If you can exclude all the gain from the sale of your home, you do not report it on your federal tax return. If you cannot exclude all the gain, or you choose not to, you must use Schedule D of Form 1040, Capital Gains or Losses, to report the total gain and claim the exclusion you qualify for.

You can reject, accept, or counter any offer that is presented to you. Most offers include contingencies, which protect the buyer in case something goes wrong.

The two most common contingencies deal with financing, which makes the sale dependent on the buyer’s ability to obtain a loan commitment from a lender within a stated time period, and an inspection, which allows the buyer to have a professional inspect the property to their satisfaction.

There really is no reason not to consider these contingencies because they are quite reasonable and standard.

However, think twice about a contingency that is predicated on you making expensive home repairs, such as a kitchen renovation. Now, if the roof is caving in, that is an entirely different story. You may need to spend money to replace it or lower the asking price of the home.

Yes. For example, if you decide to sell your existing home first before buying another one, you can make the sale of your home contingent on finding a replacement home. Some sellers opt for this contingency to avoid a double move, such as moving to a hotel or rental until a new home is found and made available.However, there is one problem with this type of contingency: it can inconvenience the buyer, particularly if his own home is in escrow. He may not be willing to wait for you to move.

This strategy has a better chance of working when the market is relatively strong, your home is a rare find, the price and terms of the transaction are very favorable for the buyer, or the buyer is in no hurry to move.

It is a short-term bank loan of the equity in the home you are selling. You may take out a bridge loan, or interim financing, to help with a knotty situation: closing on the home you are buying before you close on the property you are selling. This loan basically enables you to have a place to live after the closing on the old home.

The key to a bridge loan is having a qualified buyer and a signed contract. Usually, the lender issuing the mortgage loan on the new home will write the interim financing as a personal note due at settlement on the property being sold.

If, however, there is no buyer for the property you have up for sale, most lenders will place a lien on the property, thereby making that bridge loan a kind of second mortgage.

Things to consider: interest rates are high, points are high, and there are costs and fees involved on bridge loans. It may be cheaper to borrow from your 401(K). Actually, any secured loan is acceptable to lenders for the down payment. So if you have stocks or bonds or an insurance policy, you can borrow against them as well.

Also known as a purchase money mortgage, it is when the seller agrees to “lend” money to the buyer to purchase and close on the seller’s home. Usually sellers do this when money is tight, interest rates are high or when a buyer has difficulty qualifying for a conventional loan or meeting the purchase price.Seller financing differs from a traditional loan because the seller does not actually give the buyer cash to complete the purchase, as does the lender. Instead, it involves issuing a credit against the purchase price of the home. The buyer executes a promissory note or trust deed in the seller’s favor.The seller may take back a second note or finance the entire purchase if he owns the home free and clear.

The buyer makes a sizeable down payment and agrees to pay the seller directly every month.

Seller financing is a viable option when the seller does not immediately need the entire cash equity they have accumulated in the home.In return for providing financial assistance to the buyer, the seller receives tax benefits, attracts a larger pool of potential buyers, generally completes the sale sooner, and gets good interest earnings.

As for the buyer, seller financing offers less rigid qualification requirements and cost savings by eliminating nearly all loan fees.

Fear of default often makes many sellers reluctant to take back a second note or finance the entire purchase. A thorough credit check should help to dispel many of these fears, although the mortgage also allows the seller to foreclose on the property in case of default.

A seller may also require the buyer to carry hazard insurance on the property and include a due-on-sale clause, a provision in the mortgage note that allows the seller to demand full repayment if the borrower sells the property. Other financing, disclosure and repayment-term requirements also will need to be met.

It is a good idea to consult an attorney when putting together this kind of transaction.

The interest rate on a purchase money note is negotiable, as are the other terms in a seller-financed transaction. To get an idea about what to charge, sellers can check with a lender or mortgage broker to determine current rates on mortgage loans, including second mortgages.

Because sellers, unlike conventional lenders, do not charge loan fees or points, seller-financed costs are generally less than those associated with conventional home loans. Interest rates are generally influenced by current Treasury bill and certificate of deposit rates.

Understandably, most sellers are not open to making a loan for a lower return than could be invested at a more profitable rate of return elsewhere. So the interest rates they charge may be higher than those on conventional loans, and the length of the loan shorter, anywhere from five to 15 years.

It is an agreement between a renter and a landlord in which the renter signs a lease with an option to purchase the property. The option only binds the seller; the tenant has a choice to make a purchase or not.

Lease options are common among buyers who would like to own a home but do not have enough money for the down payment and closing costs. A lease option may also be attractive to tenants who are working to improve bad credit before approaching a lender for a home loan.

A lease option also may be a way for the seller to move property in a slow market. Seller advantages include earning above-market rent, retaining all the property income tax deductions during the lease-option period, and attracting tenants who will care for the property as though they owed it.

A landlord agrees to give a renter an exclusive option to purchase the property. The option price is usually determined at the outset, but not always, and the agreement states when the purchase should take place – whether, say, six months, or a year or two down the road.

A portion of the rent is used to make the future down payment. Most lenders will accept the down payment if the rental payments exceed the market rent and a valid lease-purchase agreement is in effect.

Before you opt to do a lease option, find out as much as possible about how they work. Talk to REALTOR®s, read published materials, and, in the end, have an attorney review any paperwork before you and the tenant sign on the dotted line.

There are several new government programs that have been launched or are expected to launch to help prospective homeowners.

Stay in touch with federal, state, and local housing offices regularly. They offer many programs that come and go based on a changing economy and political administrations. Some city and county programs are available only in targeted neighborhoods where local leaders are trying to spark reinvestment or increase the homeownership rate.

With a refinancing, you pay off an old loan on your home and take out a new one, usually at a lower mortgage interest rate. To refinance, you will generally need to have equity in your home, a good credit rating, and steady income. You can borrow a percentage of the equity to cover remodeling costs, debt consolidate, and college tuition.

When you refinance, you will incur all the closing costs that go along with getting a new mortgage. So unless you are doing extensive renovations and can get a mortgage interest rate at least two points below your current loan rate, you may want to select another financing option.

Many people flock to refinance while mortgage interest rates are low, particularly when rates are about two percentage points below their existing home loans.

Other factors, like when to finance, will depend on how long you plan to hold on to your home and whether you have to pay considerable fees to refinance. It also will depend on how far along you are in paying off your current mortgage.

If you expect to sell your home relatively soon, you are not likely to recoup the costs you incurred to refinance. And if you are more than halfway through paying your current mortgage, you probably will gain little by refinancing. However, if you are going to own your home for at least another five years, that is probably long enough to recoup any refinancing costs and realize real savings as a result of lowering your monthly payment.

In fact, if it costs you nothing to refinance, you can gain even more. Many lenders will let you roll the costs of the refinancing into the new note and still reduce the amount of the monthly payment. Plus, there are no-cost refinancing deals available.

Contact your lender, and its competitors, before you refinance.

You most certainly can. During the most recent refinancing boom, for example, many homeowners refinanced their home loans two or three times within relatively short periods of time because interest rates kept treading downward, making it extremely attractive to trade in one loan for another.

Just remember that refinancing is basically like applying for a mortgage all over again. Also be aware that refinancing in today’s market is more difficult to do based on tighter credit restrictions. Each time you refinance, you will still have to go through the application process, get a home appraisal, and likely incur closing costs. Also, if you have a pre-payment penalty clause in your present mortgage, you will have to pay that penalty if you refinance. So be certain that it is actually worth it for you to refinance.

It can be difficult to do after a bankruptcy, unless you are willing to pay very high interest rates and fees. However, if you are contemplating bankruptcy, first talk with your lender and explain your situation. If your mortgage payments are current, the lender may be accommodating and refinance your loan, thereby helping to ease your financial burden.

The annual percentage rate, or APR, is an interest rate that differs from the loan rate. It is the actual yearly interest rate paid by the borrower, including the points charged to initiate the loan and other costs.

The APR discloses the real cost of borrowing by adding on the points and by factoring in the assumption that they will be paid off incrementally over the life of the loan. The APR is usually about 0.5% higher than the loan rate and is commonly used to compare mortgage programs from different lenders.

The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. The APR is usually found next to the mortgage rate in newspaper ads.

The loan-to-value ratio, or LTV, is the loan amount expressed as a percent of either the purchase price or the appraised value of the property. It is an important factor considered by lenders before approving a mortgage.

Lenders generally prefer a down payment of 20%, with an 80% LTV.

It is the cash value of your property over and above what is owed on it, including mortgages, liens, and judgments.

The amount of equity almost always grows in a home over the years, although the current economic slump and rampant depreciation has diminished equity for many homeowners.

Generally speaking, you can borrow against the equity that builds up in your home and use it for any number of reasons, including home improvements and to pay for college costs. The current economic climate, however, has made home equity loans more difficult to come by. Equity is also is a source of income for you once the home is sold.

Equity is also what makes seller financing possible. If you have money to spare, you can always lend some to the buyer and collect interest on it.

Also referred to as PMI, it is insurance you pay to protect the lender in case you default on the home loan. It is required when borrowers put down less than 20% of the purchase price.

Usually, a small fee is paid at the outset and a percentage of the face amount of the loan is added to the monthly payment.

Many people flock to refinance while mortgage interest rates are low, particularly when rates are two percentage points below their existing home loans.

Other factors, like when to finance, will depend on how long you plan to hold on to your home and whether you have to pay considerable fees to refinance. It also will depend on how far along you are in paying off your current mortgage.

If you expect to sell your home shortly, you are not likely to recoup the costs you incurred to refinance. And if you are more than halfway through paying your current mortgage, you probably will gain little by refinancing. However, if you are going to own your home for at least another five years, that is probably long enough to recoup any refinancing costs and realize real savings as a result of lowering your monthly payment.

In fact, if it costs you nothing to refinance, you can gain even more. Many lenders will let you roll the costs of the refinancing into the new note and still reduce the amount of the monthly payment. Plus, there are no-cost refinancing deals available.

Contact your lender, and its competitors, before you refinance.

A home equity loan, like a second mortgage, lets you tap up to about 80 percent of the appraised value of your home, minus your current mortgage balance. But because it is set up as a line of credit, you will not be charged interest until you actually make a withdrawal against the loan, although you will be responsible for paying closing costs.

The withdrawals can be made gradually as you begin to pay contractors and suppliers for handling your remodeling project.

The interest rates on these loans are usually variable. Of particular importance: make sure you understand the terms of the loan. If, for example, your loan requires that you pay interest only for the life of the loan, you will have to pay back the full amount borrowed at the end of the loan period or risk losing your home.

The interest rates on these loans are often higher than on secured loans and you generally will not be able to get a tax deduction for the interest paid. However, the costs to obtain an unsecured loan are usually lower. And the relative ease of getting this type of loan makes it popular for small projects costing $10,000 or less. The lender evaluates applications based on credit history and income.

Yes. Among the most popular:

• Title 1 Home Improvement Loan. HUD insures the loan up to $25,000 for a single-family home and lenders make loans for basic livability improvements – such as additions and new roofs – to eligible borrowers.
• Section 203(k) Program. HUD helps finance the major rehabilitation and repair of one- to four-family residential properties, excluding condos. Owner-occupants may use a combination loan to purchase a fixer-upper “as is” and rehabilitate it, or refinance a property plus include in the loan the cost of making the improvements. They also may use the loan solely to finance the rehabilitation.
• VA loans. Veterans can get loans from the Department of Veterans Affairs to buy, build, or improve a home, as well as refinance an existing loan at interest rates that are usually lower than that on conventional loans.
• Rural Housing Repair and Rehabilitation Loans. Funded by the Agriculture Department, these low-rate loans are available to low-income rural residents who own and occupy a home in need of repairs. Funds are available to improve or modernize a home or to remove health and safety hazards.

Just about every state now offers loans for renovation and rehabilitation at below-market interest rates through its Housing Finance Agency or a similar agency. Call your governor’s office to get the name and phone number of the agency in your area.

At the municipal level, many cities also have programs for special improvements to certain blocks and neighborhoods they are trying to spruce up. Call City Hall, as well as a Community Development Agency in your city.

Talk with your lender immediately. The lender may be able to arrange a repayment plan or the temporary reduction or suspension of your payment, particularly if your income has dropped substantially or expenses have shot up beyond your control.

You also may be able to refinance the debt or extend the term of your mortgage loan. In almost every case, you will likely be able to work out some kind of deal that will avert foreclosure.

If you have mortgage insurance, the insurer may also be interested in helping you. The company can temporarily pay the mortgage until you get back on your feet and are able to repay their “loan.”

If your money problems are long term, the lender may suggest that you sell the property, which will allow you to avoid foreclosure and protect your credit record.

As a last resort, you could consider a deed-in-lieu of foreclosure. This is where you voluntarily “give back” your property to the lender. While this will not save your house, it is not as damaging to your credit rating as a foreclosure.

Usually after the borrower has missed three consecutive mortgage payments. The lender will record a notice of default against the property. And unless the debt is satisfied, the lender will foreclose on the mortgage and proceed to set up a trustee sale, where the property is sold to the highest bidder.

It can happen. But a lot will depend on your circumstances and the mortgage interest rate you are willing to pay. Generally, most lenders will consider your request for a home loan two to four years after your foreclosure. Predatory lenders will issue a home mortgage in less time. But beware – they routinely charge high mortgage interest rates, fees, and penalties for this privilege.A quality lender will expect you to show that you have cleaned up your credit. Providing a reasonable explanation about the circumstances that led to the foreclosure – such as exuberant medical expenses – is also helpful.

Check with your state. It may provide special protection through the filing of a homestead exemption, which exempts some or all of the value of your equity in the homestead – or home that you live in and the land on which it sits – from claims of unsecured creditors.

Whether to file a homestead exemption will depend on your situation. Contact your county recorder’s office for details.

According to the AARP, older homeowners prefer to age in place, meaning they want to live in their homes safely, independently and comfortably, despite age or ability level. To do so, many require a few modifications in the home to enhance maneuverability, including the installation of a private elevator and the addition of a bathroom and bedroom to the main level. A Certified Aging-in-Place Specialist (CAPS) may prove helpful. CAPS professionals are remodelers, general contractors, designers, architects, and health care consultants who are trained in the unique needs of the elderly, Aging-in-place home modifications, common remodeling projects, and solutions to common barriers. The National Association of Home Builders (NAHB), together with the NAHB Research Center, NAHB Seniors Housing Council, and AARP, developed the CAPS program to address the growing number of consumers who will soon require modifications to their homes.

Zoning regulations establish how the land can be used, either for residential, industrial, commercial, or recreational purposes, or sometimes a combination thereof. Designed to protect property owners and communities from undesirable, or inappropriate, land uses and/or construction, zoning laws can be very rigid and inflexible. On the other hand, they can protect your property value and ensure against the stationing of a mega-store right next to your home. Before you begin any remodeling job, determine how your local zoning laws might affect your project. You can visit your local zoning office, city hall, or some other local planning board to get a copy of your local ordinance and determine how you will need to seek approval for your project. Take nothing for granted; some communities even require approval to erect fences.

A variance is a request made to your local jurisdiction to deviate from current zoning requirements. If granted, a variance will allow you to use your land in a way that is normally not permitted by the zoning ordinance because it waives a certain requirement of the zoning ordinance. For example, it may allow the owner of an odd-shaped lot to reduce slightly the setback requirements in order to accommodate a building, or permit the building of a gazebo in the backyard.

Plan ahead. Since your home will become a worksite once the remodeling begins, inconveniences will arise that can be minimized with a little planning. Begin by having a frank discussion with the contractor to set guidelines and develop a clear understanding upfront about the various project stages and the processes involved. Talk, for example, about where building materials will be stored, how to best protect your belongings from dust and debris, areas of your home that will be off limits to workers and whether you will need to vacate the home for any reason over the duration of the work. If a kitchen or bath will be out of commission, plan accordingly. It’s okay to move the refrigerator, microwave and toaster oven to the basement or another designated area where you can prepare meals to avoid eating out. Equally important are the rules that dictate how workers can conduct themselves in your home. Will they be able to use your bathroom and the telephone? Will they be prohibited from smoking, playing their radios or using profanity? Finally, remember to preserve a safe haven in your home where you can flee the chaos and dust and attempt to maintain your sanity.

Experts agree that any remodeling project that brings your home up to the level of your neighbors’ is a worthy investment. However, some improvements offer a greater return than others. It depends on the type of work you have done. Remodeling magazine publishes an annual “Cost vs. Value Report.” The most recent report, based on the top 16 home improvements for a mid-range home, says the highest remodeling paybacks have come from vinyl siding replacement (with 87.2% of the cost recouped), wood window replacement (85.3%), minor kitchen remodeling (85.2%), bathroom remodeling (84.9%), and vinyl window replacement (83.7%).

It is tempting to discard existing appliances when you build new cabinets around them. Rethink the idea. If the appliances are workable, keep them – and save yourself from $1,000 to $5,000, according to the National Association of the Remodeling Industry. Also keep the present location of major fixtures, appliances and utilities relative to the plumbing, gas and electrical outlets. Rearranging plumbing, wiring and jacks can be very expensive. Refacing existing cabinets can reduce the cost of your kitchen remodel considerably and eliminate the need for new flooring, countertops and appliances. If you must get new cabinets, options such as spice racks and slide out wire baskets can be added later. Also, install cabinets without soffits to decrease labor cost; and avoid trim moldings, or use a simple trim. If you must have a new wood trim to match the new cabinets, order pre-finished trim to decrease labor cost; avoid having the painting or staining done on-site. Other helpful tips: choose neutral colors for fixtures, appliances and laminates and avoid the need for a new floor by sanding and refinishing a hardwood floor that may be underneath the existing vinyl flooring.

Don’t jump too quickly to discard reusable fixtures. If your tub is in relatively good shape, consider having it re-glazed instead of replaced, according to the National Association of the Remodeling Industry. As for the walls around the tub, cultured marble sheets are cheaper to install than marble tiles and also easier to clean. Fiberglass is also less expensive than tile. If space is extremely limited and you cannot “steal” it from other areas of your home, purchase a jetted tub and shower combination or install a pedestal lavatory instead of a vanity cabinet with a sink. Remember, installing a large jetted tub can overtax your water heater, so consider adding a water heater that is dedicated to the tub to prevent problems later.

Universal design is an approach to design that focuses on making all products and environments as usable as possible by as many people as possible regardless of age, physical ability, or situation. In recent years, the housing industry has recognized the importance of a “universal” approach to residential design that modifies standard building elements to improve a home’s accessibility and usability. This allows for more equitable, flexible and simple use. Many books exist on the subject, including Residential Remodeling and Universal Design: Making Homes More Comfortable and Accessible, a resource guide offered by the Department of Housing and Urban Development (HUD). HUD’s guide provides technical guidance on selecting and installing universal features during home remodeling or renovation. The modifications can range from expanding doorway dimensions to replacing kitchen appliances. The guide emphasizes eliminating unintentional barriers and using designs and features that could benefit people with a broad range of needs.

That space may be as close as the next room, particularly if there is unused or under utilized areas in your home. A garage, attic, side porch, large closet, or basement can all be converted to fit the use you have in mind. Or, maybe, a small area can be carved from a larger area like a kitchen or living room to create, say, a powder room. This concept of “stealing” space from a neighboring room is called space reconfiguration and it is much cheaper than a major remodeling job.