Financing

Today I heard on CNBC television that the financial market is contracting and that we are in a recession and the home financing market is only going to get worse. That there is less money out there to lend because all the big financing institutions are in financial trouble and therefore are not lending but are, in fact, lending less so as to build up their reserves. Reserves are the monies banks must keep on-hand in case of a run on the bank. Because of what CNBC said, aren’t realtors disingenuous in advocating people still buy and sell homes? Not at all. Some people have to move. These homeowners have two choices under these circumstances. One choice is to rent out their home after they leave. I don’t advocate this for most homeowners and here’s why. I’ve not been able to sell my home on four different occasions. That means on four occasions, I’ve rented out my home. Each time I’ve fixed up the home in preparation to sell. Each of these times I spent thousands to get this done. Then I’ve hired a property manager as I now lived in another state and couldn’t manage the property myself. But it required lots of my time in dealing with all the issues involved. Then I had to pay between four and 10% per month of the rent to the manager as a management fee. Also, as a finders-fee, the manager receives half of the first month’s rent. Then there are the regular things that go wrong with plumbing, roof leaks, siding cleaning, and yearly maintenance of furnace and air conditioning system fees as an ongoing expense. Plus the utilities bills and yard-maintenance fees you pay for while the home is empty on either end of the lease. And the fact that you still have a mortgage to pay, even when there is no rent being received. This requires keeping huge amounts of reserve funds on-hand. Also, in all my cases, the rent was equal or lower than my mortgage payments. This means I was renting as a net-monthly loss, before all the other expenses I've mentioned. In three out of four situations, I did make money in the end, when the home finally did sell. The tax write-off was great, the property depreciation was great. But the monthly cash-flow, was negative. And the time needed to manage all this was huge.

I had enough funds to deal with all of the above up until this year. So paying these expenses has been easy for me because my spouse makes a very good income as an Army Colonel. But soon he retires and our income will go to next to nothing, comparatively-speaking. My spouse’s pending retirement was what made me sell all my rental properties, even when the market was on the way down. I still made money on one recent sale and lost on the other most recent sale. But now I am out from under those obligations, and that was important to me for peace-of-mind, knowing my future required planning for financial changes in my budget.

Your life situation may be different than mine. For you, the loss may be acceptable because you know the market will go up one day and you have the ability to weather out the current market conditions. You may now have an opportunity to buy that you are in the right situation to take advantage of! Or, conversely, you may be ready to buy a great property knowing the home prices may never again be this low. And with financing rates as low as they are right now, you may be just the right buyer for this market.

Back to rental considerations: Add to the above rental facts the fact that Massachusetts is a very consumer-friendly state. That means that homeowners have strict rules on how homeowners rent their property. Massachusetts law requires that homeowners:
1. Must rent to anyone, including those with kids under six, even if your property is full of lead paint
2. Must remove or encapsulate lead paint if home is rented to someone with a child under six
3. Maximum allowable cleaning deposit is the amount of one month’s rent
4. Must provide renter with name of bank and account number of institution where deposit is held
5. Must offer to return all interest on deposit to renter each year
6. Deposit must be held out-of-reach of homeowner’s creditors, like in an escrow account

Then, when the renters leave, you will, most-likely, have thousands to pay to make the home marketable or livable. I always had to pay between $500 and $6,000 after my renters left to get the property sold. If you are handy, maybe this won’t apply to you and the renting option may be something you could consider, other considerations allowing.

So, if renting isn’t an option for you, then selling is the other option. And when you have to move, the current market isn’t something within your control. Then the biggest consideration is having enough equity to pay closing expenses. If you have little or no equity, do you have enough credit or savings to pay closing expenses yourself and take the tax write-off for the loss next year? Is your good credit-rating important to you? Does your job depend on your security clearance? These are all the considerations a person who can’t get their home sold must consider. Have you called your mortgage company and tried to work out a plan to lower your interest or accept a deed give-back? If you aren’t yet in foreclosure, consider a short sale. This is where you sale your home at a loss and the mortgage-holder agrees to not require the homeowner to pay the remaining balance. I considered all of the above and for me, the only option was to borrow the money and sale the property at a loss. My good name and good credit mandated that that was the only decision possible. I am a realtor, not an attorney. None of the above is legal advice. Seek legal advice for all of the above options. Consumer credit counseling is the service I utilized years ago when we had trouble selling our 2nd home. We ended up not needing their services and getting the home sold for a profit.

But the good news is, the financial market in the Quabbin, Massachusetts area is fine. We are able to get excellent, generous, home financing. I receive weekly financing updates from several local loan officers, whom I know personally, so I can tell you financing is available, even if CNBC says otherwise. And if you have very good credit, even 100% financing is available. And if your credit is good, you can get 97% financing with almost historic-low interest rates, too. And the ceiling for jumbo loans has recently been raised (so you get more home at historicly low prices). And the borrower can choose zero to two points and only pay slightly lower or higher APR depending on the points they do or don’t choose to pay.

What I’m saying is that, no, realtors are not being disingenuous in saying this is a great time to buy or sell a home.

Tip: Did you ever wonder if your realtor receives a kick-back for all the referral business she gives other professionals? I’m talking about when your realtor provides you with the names and numbers of the best local loan officers, lawyers and inspectors who will help you buy or sell a home. The answer is no, realtors cannot receive payment from these professionals for referring our customers to them. Realtors can only be paid by their brokers. The reason we refer professionals to our clients is because that is our job. Our job is to see our customers have everything they need to either move in or out of their home. We get paid when the closing closes. Our job is to see that the closing occurs. The closing won’t occur if competent, honest, professionals aren’t involved. That’s why we provide this service.