Archive for July, 2005

Finding Art

Published by Louise on July 28, 2005 in Home Life. Closed

OK, so you’ve found your perfect home, and you’re ready to nest. How about some original artwork to fill your new pad with color and energy? Did you know the Seattle Art Museum has a rental/sales gallery of works by contemporary Northwest artists? You have the option to rent or buy works from the gallery. Renting art is a convenient and affordable way to see if you like a piece enough to keep it. (It’s also a good way to dress up a house you’re putting on the market.) You can rent some pieces for as little as $25 for three months.

The gallery’s next bimonthly show opens today and runs through August 27. The show, entitled Summer Introductions, features eight artists who are new to the gallery. Click this link to learn more.

And here are some other Seattle galleries you may want to check out.

Finally, The Wall Street Journal has some good ideas on where to find art, both online and off. Summer is a great time to scout out galleries, fairs, or auctions. Have fun finding what inspires you!

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The State of the Nation’s Housing, 2005

Published by Louise on July 25, 2005 in Affordability. 2 Comments

Yes, the Seattle real estate market is hot. However, my clients who are first-time buyers trying to purchase homes on their own (i.e., without the financial help of a spouse, parents, etc.) are often surpised to see just how little their hard-earned moderate income can buy them. These are people who work as schoolteachers, interpreters for the deaf, physicians’ assistants, and graphic designers. While these clients can easily obtain a home loan, they will have to allot as much as half of their monthly income to meet to their new housing costs. This affordability issue seems to be increasingly problematic as housing prices rise in Seattle.

And, according to a newly-released report (5MB PDF) from Harvard’s Joint Center for Housing Studies, this affordability issue is a growing concern nationwide. From an RIS Media article on the study:

“While the future looks bright for housing investment, there is little cause for optimism that the nation’s housing affordability challenges will diminish; in fact they are growing worse,” says the center’s Executive Director Eric Belsky. Between 2000 and 2003 alone, the numbers of households spending more than half of their income on housing increased by 2.5 million. “Housing affordability is a chronic problem and narrowing the gap between what decent housing costs and what low-wage workers and retirees can afford will remain a major national challenge.”

For those of you not up to reading the full report, ‘The NWReporter‘, a publication of the Northwest Multiple Listing Service, offers a synopsis of the study.

Besides the affordability issue, trends of note in the Harvard study include commuting patterns and the shift in buyer demographics. As the NWReporter notes, “Minority, single-person, single-parent and female-headed households are fueling demand for housing, together with record numbers of immigrants.” Commuting trends saw a three-fold increase in the number of metropolitan areas in the country where more than half of the households live 10 or more miles from the central business district. In other words, lots of people are commuting more than an hour to work. From 1990 to 2000, the number of Seattlites commuting an hour or more to work more than doubled (4.3% to 9.1%).

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Title Insurance: The Cod Liver Oil of Real Estate

Published by Louise on July 20, 2005 in Featured Articles and Insurance. Closed

Many buyers and sellers know little or nothing about title insurance. This is hardly surprising, because the subject is fairly esoteric and can be confusing (not to mention boring) to most people. However, title insurance is a critical part of a real estate transaction, and it’s worth taking just a few minutes to become familiar with the concept.

Title insurance defies easy definition, but try this rough analogy on for size: Let’s say you wanted to purchase some health insurance. Let’s imagine that you go to an insurance company that doesn’t cover any pre-existing conditions. That company would look through your medical history, run tests, talk to your doctor, interview your previous doctors… all in an attempt to find out as much as possible about your medical history. Lucky you, all they can find is that you have a bum ankle and some premature gray around the temples. Okay, says the insurance company, you’re healthy as an ox. We’re so confident in our skill at finding out any pre-existing conditions that might threaten your health that we’ll insure you against any health problems you have that we don’t know about - your heart, your liver, hangnails, whatever. The only thing we won’t insure you for is any condition which results from your bum ankle or your gray hair.

Title insurance is kind of like that. Our fantasy health insurance company searches the record of your health; a title company searches the title (or record of ownership) of your house. They agree to provide coverage for problems with the title, like a lien or encroachment, that you don’t know about now, but were caused prior to you buying the property. They will not generally insure you for any problems or defects they do discover at the time they do the title search.

Why is this so important? Because any defects on the title that can’t be resolved can delay or imperil the sale of the property. And any defects which are not uncovered become the responsibility of the buyer of the property. So unlike most types of insurance, which cover you against things that may happen in the future, title insurance covers you against things that happened in the past.

I’ve tried to describe title insurance here in manageable terms, but the ins and outs of title can get pretty convoluted. The Wikipedia has a fairly good technical definition of title insurance. I’ll quote a couple of paragraphs here:

A policy of title insurance is a contract of indemnity between the insurance company and the owner of an interest in real property. In plain English, this means that in the event that the insured owner of an interest in the insured property suffers an actual or threatened monetary loss, due to a title defect, lien or other matter of public record created prior to the effective date of the policy, that is not excluded as an exception to the policy, the title insurer will defend the insured against a lawsuit attacking the title, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy. Typically the real property interests insured are fee simple ownership or a mortgage. However, title insurance can be purchased to insure any interest in real property, including an easement, lease or life estate.

Title insurance differs in several respects from other types of insurance. Where most insurance is the contractual “coverage” where one party indemnifies or guarantees another party against a possible specific type of loss (such as an accident or death) at a future date, title insurance attempts to detect, prevent, and eliminate risks and losses caused by title problems which have their source in past events. Title companies attempt to achieve this by searching public records to develop and document the chain of title and to detect whether there are any adverse claims on the subject property. Any issues found are either fixed before issuing the title policy or the coverage is specifically written to exclude those items. Title insurers typically pay a very low percentage of their premium revenue out in claims in a given year; industry averages are 5 to 10%.

Commonwealth Title has a web page that explains the title insurance process and who pays for what.

RealEstateLawyers.com – a fantastic resource – has still more about title insurance.

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Living high in downtown

Published by Stuart on July 16, 2005 in Downtown Seattle. 4 Comments

The Seattle Times is running an article today on plans to build residential skyscrapers in downtown Seattle on Second Avenue between Pike and Pine. The article includes some background on Seattle’s current zoning laws, how they came to be that way, and what effect they have on the look of the city.

We’d love to see a more vibrant residential presence in downtown Seattle. What do you think?

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The Wall Street Journal’s Real Estate Guide

Published by Stuart on July 15, 2005 in Reference. Closed

The Wall Street Journal has a useful and thorough online real estate site. The WSJ’s RealEstateJournal includes sections on home & garden, relocating, buying & selling, home improvements, and city profiles, as well as WSJ articles on real estate issues, and a handy suite of maps, calculators, and other tools. Subscribe to their RSS feed to keep up with the latest headlines from the comfort of your aggregator.

Personally, I like browsing through the WSJ’s Distinctive Homes section (read: if you have to ask, you can’t afford it.) Ah, to be basking in the sun on the deck of my private Gulf Coast beach house. Or entertaining the hoity and the toity in my downtown Manhattan penthouse. Or watching the sun burn a million different reds and purples into the mountains surrounding my Utah trophy ranch. Now, that’s good dreaming.

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North Bay Redevelopment

Published by Louise on July 14, 2005 in Urban Planning. Closed

South Lake Union is not the only area undergoing major transformation. The North Bay area (near Interbay, north of the Magnolia Bridge) is the subject of some intense planning by the Port of Seattle. On June 28th, three of the Port’s commissioners voted to allow non-maritime industries to use the land. Two other commissioners voted against allowing non-maritime industry use.

As with any redevelopment project, opinions differ over what would be the ”highest and best use of the land.” (In real estate parlance, that translates roughly into the question of which industries or interests will most profitably use the land.) This Seattle Times article details some of the basic issues.

We’d love to hear what you think should be done with the North Bay area.

The Importance of Pre-Approval

Published by Louise on July 11, 2005 in Financing. Closed

I was happy to see the issue of pre-approval addressed in yesterday’s Seattle Times. As most real estate agents will tell you, buyers need to get pre-approved for a loan before looking for a home. Now, I know that letting a lender pore over your financial records isn’t nearly as sexy as mentally arranging your furniture in a new house, but the consequences of skipping this vital step can be costly and frustrating for everyone involved.

According to Barron’s Dictionary of Real Estate Terms, “Pre-approval is the practice by a lender of authorizing a borrower for a certain loan amount.” In essence a lender says, “this is how much money we’ll loan this buyer.” When pre-approvals are correctly done, the mortgage broker or loan officer verifies the borrower’s income, assets, debt ratio, and so on, by examining the borrower’s W-2s, bank statements, and credit score, among other items.

However, some lenders are quick on the draw, offering pre-approval letters without thorough verification. Naturally, this can be enticing to buyers who are shopping in a fast-moving market, like ours here in Seattle. But postponing the verification process can have serious consequences for both the buyer and seller. A buyer who thinks he has authorization for a certain amount may submit an offer on a house and have it accepted, only to open the door to a mess of trouble. As the Times article states,

“What sort of troubles? Mainly an inability of the buyer to pass the lender’s underwriting tests for the amount needed to fund and close the loan. Then the deal often goes off the tracks, and the seller has to put the house back on the market - a huge waste of time for everybody involved.”

So, it behooves both buyers and sellers to be sure that the buyer is fully pre-approved. By doing so, there is much less risk of a transaction falling apart because of financing.

Remember, if a lender is willing to write a pre-approval letter without asking for any of your financial information, shop around a bit for a more attentive lender.

Have you ever been burned by a worthless pre-approval letter? We’d love to read your story. Just click on the Comments link below this post and tell us all about it.

Explore Seattle neighborhoods online

Published by Louise on July 11, 2005 in Reference. Closed

The Seattle Times offers a comprehensive profile of neighborhoods in Seattle as well as those in the greater Puget Sound area. It includes descriptions, histories, maps, and relevant articles. Some of the information on the site is slightly out of date, but whether you’re scouting out new neighborhoods, or simply want to learn more about the one you currently live in, it’s a useful guide.

Not to be outdone, the Post-Intelligencer has its own Puget Sound neighborhood site called Webtowns. Webtowns has neighborhood histories, bus routes, maps, schools, transportation links and more. The site even stays current by offering RSS feeds, allowing you to read the latest news headlines for your neighborhood from the comfort of your favorite news aggregator.

We maintain links to both of these great neighborhood guides in our sidebar.

It could be worse…

Published by Louise on July 11, 2005 in Affordability. Closed

If you’re getting discouraged about how much house your money can buy you in Seattle, this might cheer you up: the median home price in California is well above $500,000.

MSNBC takes a look at what half a million bucks can buy you in Seattle and elsewhere around the country.

The secret is out: You can buy a home with very little down

Published by Joanne on July 10, 2005 in Featured Articles and Financing. 2 Comments
Contributed by:
Joanne Rocheford
Mortgage Loan Consultant
PH: (206) 242-0800 FAX: (206) 225-2017
Rocheford@msn.com

 

Editors’ Note: Seattle Real Estate Talk is pleased to welcome guest contributor, Joanne Rocheford.

I recently spoke to a senior citizen who shook her head and lamented, “The poor young people today. I don’t know how they’ll ever to be able to afford to buy a home.” I understand why she feels that way. Coming up with a 20% down payment and thousands in closing costs is a daunting proposition for most folks. With the median house price in Seattle hovering around $350,000, few buyers would be able to afford to buy a home if they had to meet those terms.

The good news is that there are ways to buy a house with no down payment these days. And there are ways to reduce your out-of-pocket expenses for purchasing a house – your closing costs – to almost nothing. Would-be homeowners watching late night TV infomercials pay thousands of dollars for audio tapes and CDs that claim to have the “secrets” for buying a home with no down payment. But you, lucky reader, can put your wallet away and go to sleep early tonight, because the secret is out.

Getting your down payment down

There are three ways to get 100% financing, or no-down-payment loans. The first way is to get a 100% loan. This means that if you buy a house for $250,000, you obtain a loan for $250,000, or 100% of the value of the home. In this instance, because you are putting less than 20% down, the lender will typically require you to purchase mortgage insurance, which protects the lender should you default on the loan. On these types of loans, the mortgage insurance can run around $200 per month.

The second way is to obtain a first and second mortgage at the same time. On that same $250,000 house, you would take out a first mortgage loan for $200,000 and a second mortgage loan for $50,000. This in known in the mortgage industry as an 80/20 loan. The interest rate on the second mortgage is a higher interest rate, but you don’t have to pay mortgage insurance with this option. Closing costs are higher on an 80/20 loan because you are actually getting two loans. Most lenders require a credit score of at least 680 to qualify for this type of financing.

The third option is an FHA loan. Although an FHA loan requires 3% down, FHA allows you to use gift money for the down payment. If you don’t have a wealthy great aunt Gertie, you can ask the seller to participate in a gifting program. (I’ll talk more about this in future articles.)

Lowering your closing costs

Now you’ve got 100% financing available to you. What about closing costs? Well, lenders require you to obtain an appraisal, to get title insurance, to use an escrow company, and so on… and they expect you to pay for all this! You can also plan to pay your first six months of property taxes and first fifteen months of homeowner’s insurance. These are known as your “prepaids,” but are often quoted as closing costs.

The easiest way to get your closing costs and prepaids taken care of without breaking your piggy bank open is to ask the seller to pay them. In today’s market if you ask a seller to pay your closing costs, he’ll say no; so here’s what you can do: If a seller is asking $250,000 for his house, you might offer him $256,000 and ask him to pay $6,000 of your closing costs. In essence, you just gave him $6,000 and asked him to give it back to you. Now you have the full amount of the price of the house in financing and all of your closing costs are being paid as well.

So it’s just that simple? Well, almost. When you find a home to call your own, you will write up a purchase and sale agreement offering to buy the property. At this time, you will need to write a check for earnest money to show you are serious about purchasing the home. You will want to have a home inspection done to make sure the house isn’t going to fall in immediately after you purchase it. Most lenders will ask for a deposit of $500 and up to get started.

Now, here’s the beauty of it all: Most lenders will allow you to get cash back at closing up to the amount you put in. In other words, we’ll give you back your earnest money and deposit on the day you close. [This policy varies by lender. Be sure to check with your loan officer or mortgage broker. -Ed.]

Here’s a real live example of a transaction I put together recently. The house was listed for $200,000. The buyer offered $207,000 and asked the seller to pay $7000 of her closing costs. The buyer wrote a check for $500 for earnest money, she paid $400 for a home inspection, and she paid me a $600 deposit. Thirty days later she got $1100 back at the closing table. How much did it cost her for closing? Just $400 for the inspection and the lender doesn’t even require it. (Although we ”definitely” recommend it.) You can see that she had to come up with some up-front costs, but but she got it all back.

Can you afford $400 to buy a home?

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