Understanding Escrow Accounts: What You Need to Know

Buying your first home can be overwhelming, and one of the most intimidating components is the escrow account. What is an escrow account, what is it used for and is it really necessary? Keep reading to learn everything you need to know about escrow accounts.

1. What is an escrow account? An escrow account is a separate bank account that your mortgage lender uses to pay your property taxes and home insurance. Each month, at the same time as you pay your mortgage, you will pay a little bit extra that goes toward the escrow account.

2. How does this benefit me? The money in this account will add up over time, and when your yearly property taxes come up, the money will be there in your account, ready to go. This can minimize the stress that comes along with a high property tax bill. It can work the same way for home insurance.

3. How does this benefit my lender? Legally, the bank owns the home, so it has a special interest in making sure everything is paid on time. In some states, if the taxes on the home are not paid, the government might hold the lender accountable for any unpaid portion of the taxes. The bank also has a vested interest in protecting its property, so one of their priorities is making sure there are no issues with the payment of your homeowner’s insurance.

4. Do I have to have an escrow account? If this streamlining of payments doesn’t appeal to you, some lenders will allow you to pay your own property taxes and homeowner’s insurance. In most cases, you will have better luck avoiding an escrow account if you owe less than 80 percent of the home’s value. The downside of this arrangement is that the interest rate on your mortgage will typically be higher than it otherwise would be if you agreed to an escrow account.

5. What are the negatives of an escrow account? If you are naturally good at saving money, you might not need the help of a forced savings account like an escrow account. People with variable income might also prefer to save up for yearly bills at their own pace.

6. What happens if I change my mind? The requirement for an escrow account is usually written into your mortgage paperwork, but this can sometimes be renegotiated with the bank. It is common for home loans to be sold multiple times over the life of the loan, and each loan holder will have different policies regarding escrow accounts.

If you are unsure about whether an escrow account is right for you, make an appointment to talk to a loan specialist at your bank or give us a call.

So You Inherited Property—Now What?

It’s inevitable: Sooner or later most of us will receive that dreaded phone call announcing a death in the family. And, amid your grief, you might also hear that you’ve inherited property—perhaps the home where the deceased once lived. What to do? It’s hardly an easy question to answer.

“Making the decision about what to do with an inherited house is a challenge on multiple levels,” says Grant Gerhart, a Realtor® in Orange County, CA, and author of the “Inherited House Guide.” “There are a lot of financial, legal, and technical issues to consider during a particularly difficult time.”

To help ease this decision-making process, here are the options worth considering, along with the pros and cons of each.

Option No. 1: Refuse the inheritance

This might sound nuts, but there are cases where taxes and liens on a property, combined with the outstanding mortgage and taxes, mean there isn’t enough money in the deceased’s life insurance policy or savings and investments to cover the difference. That means that you, as heir, are responsible for paying those debts, and to do so before the house is yours. You could wind up actually owing money on the property you inherit.

If you find out that’s the case, you do have a handy escape hatch: You can bow out and let the executor handle the creditors.

Option No. 2: Fix up the property and sell it

If you’re not sentimentally attached to the home as a place filled with childhood memories, selling it is certainly a way to wash your hands of it and make some money (thanks, Grandma!). Just take into consideration the condition of the place. If the property has not been well-maintained—as is often the case with inherited homes—it may behoove you to make repairs and pretty it up before you put it on the market.

Hire a professional home inspector to make a detailed inspection, which will uncover any necessary repairs you’ll need to make, like replacing the roof or water heater or repairing damage caused by termites or rats, as well as how much these expenses will cost.

Meanwhile, a real estate agent or contractor can also ballpark the money you should spend on a new paint job, kitchen updates, and other cosmetic tweaks that will help you fetch top dollar. From there, you’ll just need to weigh the costs of these fixes with the amount you stand to make if you sell. If the expenses entailed are just too high, however, you do have other options. Read on…

Option No. 3: Sell the property as is

If you aren’t up for investing the time or money to upgrade or fix up the home, this is an easier alternative: Selling a home “as is” is often what’s going on when you see signs reading, “Estate Sale” at an older home in disrepair.

The heirs pull everything that’s usable out of the cupboards and closets, sell all the belongings for whatever price they can get, then clear it out and take bids, often from developers or flippers who specialize in turning these properties around for a profit.

Option No. 4: Keep the property and rent it out

There are pros and cons to this option, according to Gerhart.

“This is a good choice if you wish to earn consistent income without losing sight of the beloved one’s memory. The monthly rent increases the income for the family, and when the time comes that you decide to sell it, the market value could possibly be higher,” he says.

But: Rentals require maintenance—so prepare to receive some late-night calls to fix the boiler, last-minute expenses for repairs, tenant problems, water bug invasions (gross!), and other headaches. Make sure to read up on what it takes to rent out a home before you become a landlord yourself.

Option No. 5: Keep the property and live in it

In the best-case scenario, the property is paid off and comes to you, the sole heir, free and clear. In that case, you’ll be personally responsible only for property taxes moving forward, inheritance taxes (if any), and any repairs and improvements you choose to make.

However, if you’re not the sole heir and inherit the house with, say, your siblings, moving in will also mean compensating the other inheritors (and hoping they aren’t gung-ho to live there, too).

Whatever decision you make, try to base it on a balance of emotional and financial factors: While you may have always dreamed of keeping the place in your family for eternity, if that’s not possible, don’t beat yourself up. Remember, the deceased had meant this inheritance to be a gift rather than a miserable weight on your life. So do what makes sense for you.

Lisa Johnson Mandell, Realtor.com

The Sneaky Science of Selling Your Home Revealed!

Selling a home isn’t just about slapping down a fresh coat of paint—you need to delve into home buyers’ brains and figure out what makes them tick. From the moment they spot your listing to the instant they walk through your door, what persuades them to make an offer, and stick around to close the deal? To find out, we culled the most recent scientific studies that examine the home-buying mind to find out what turns it on—and off—and how you can use this information to your advantage.

Buyers know within seconds if they want a home

With a decision as weighty as a home purchase, one might think that buyers deliberate over all the pros and cons before they decide to sign on the dotted line. Yet studies show this is not the case.

According to the “Psychology of House Hunting” report by BMO Financial Group, 80% of prospective buyers know if a home is right for them within seconds of stepping inside. The reason? Researchers theorize that our minds process far more information in less time than we think, so a lengthy deliberation process may be a waste of time.

Take-home lesson: Since buyers know within seconds of entering your home whether it’s The One, you’ll want to spiff up the area they’ll see in that time frame—namely, your foyer.

“It can be a challenge to keep this area tidy since that’s where homeowners put their mail, keys, coats, shoes, dog leashes, and other items,” says Sissy Lappin, a real estate broker in Houston.

Containers are key for keeping this mess under control: baskets or racks for shoes, bowls for keys and change—and, unless you have a nearby closet, you can never have too many coat hooks. Be sure to stash any seldom-used items elsewhere. Anywhere else.

They find aromatherapy confusing

It’s not all about what home buyers see; what they smell matters, too. But that doesn’t mean you should fill your home with potpourri or freshly baked cookies.

These “complex” scents can actually backfire in homes, according to a study by Eric Spangenberg at Washington State University, who found that shoppers will spend 32% more in stores where he piped in a simple orange scent rather than a multifaceted blend of orange, basil, and green tea. The reason? Complex scents may be nice, but they’re also more distracting as people try to figure out what they are.

As Spangenberg explained to the Wall Street Journal, “They are not there to process the smells. They are there to process whether this is a place they want to live.”

Take-home lesson: If you go for a scent, keep it fresh and simple. Spangenberg recommends lemon, basil, or pine. You have no time to grab scented candles?

“As a quick fix, I splash Pine-Sol down the sink,” says Lappin. “While certain scents might appeal to one gender but turn off the other, everyone loves the smell of clean.”

They’re wary of the number 9 in a price

On just about any shopping spree, we’re wooed by “charm prices”—in other words, T-shirts or towels priced at $9.99 rather than a round $10—because consumers tend to think that prices ending in 9 are a way better deal. Only with big purchases like homes, charm pricing makes buyers wary.

According to a study by Old Dominion University, 9’s near the end of a home price—say, $199,000 versus $200,000—are a turnoff. Why? Because these homes appear to be trying too hard to look like a bargain, and buyers don’t like that whiff of desperation when it comes to such a big purchase.

Take-home lesson: Avoid 9’s near the end of your asking price, because buyers may have a knee-jerk impulse to turn away.

“Charm pricing may be fine for T-shirts, but it looks sleazy on a home,” Lappin says. “You feel like you need a shower after seeing the price.”

Prices with round numbers are a turnoff, too

Another number no-no? Pricing your home with round numbers with lots of zeroes, like $200,000, seems like you pulled this number out of a hat. A more specific number like $217,000, on the other hand, makes it look like you’ve really done your homework and know exactly what your home is worth.

One study by Columbia Business School found that negotiators who ask for specific amounts are more successful than those who make rounded offers.

Take-home lesson: Avoid the round number trap and make sure your asking price is specific.

“It will sound like you’ve run the numbers on your home, right down to the exact square footage,” says Lappin. “Oftentimes buyers will ask, ‘Where does this number come from?’ and I’ll say, ‘This seller has done their research and it will take an hour to explain it.’ That’s usually enough to convince them to fall in line.”

Buyers fall hard for staged homes

Staging a home to sell is all the rage these days, and research shows it works: A study by the Real Estate Staging Association looked at 63 unstaged homes that sat on the market for an average of 143 days. Once those houses were professionally staged, they sold, on average, 40 days after their makeover.

Take-home lesson: Pay attention to presentation. But you may not have to open your wallet for a professional stager; the basic premises are simple ones that anyone can put into practice. For one: If you’re already moved out, get some furniture back in the house.

“Seeing a house without furniture is like seeing someone naked in bright light: You can see all their flaws,” says Lappin. Or, if your home does have furniture, make sure it’s the right furniture for each room.

“If you turned your college kid’s bedroom into an office/workout room, change it back to a bedroom,” says Lappin. “I don’t care if it’s four-bedroom—if you only have a bed in one room, it will be perceived as a one-bedroom house. It may sound weird, but that’s how people think. They may say they have imaginations, but they really don’t. On a subliminal level, they take what they see to heart.”

Kimberly Dawn Neumann, Realtor.com

What to Know About a Historic District

You don’t have to live in a house where George Washington slept to find you are subject to rules regarding historically significant homes and neighborhoods. Renovations in these situations may be subject to more rules than regular renovations are.

First, when renovating any property, you should always start by determining the scope of the project. Before you can set a budget, you need to figure out exactly what needs to be updated or replaced. Find photos and models of similar buildings that have features you’d like to emulate. It can be difficult to strike a balance between expectations and reality, so it is a good idea to consult an expert before finalizing plans for renovation. Identifying which original features you want to keep and which you will find a similar replacement for is an important step to take early on. Plenty of advanced planning can ensure a smooth renovation process.

Choosing the right architect for the project comes with its own set of challenges. Finding someone with experience doing similar projects is vital — especially when you’re working with a home in a historic district. Ask neighbors, friends or community organizations for recommendations. Interview a few architects to find one that you feel is a good fit and is someone with whom you can communicate well. You’ll be working closely with the architect for the duration of the project, so it is important to choose the right person for the job.

Some historic neighborhoods have councils that meet to approve the designs before renovations can begin. It is important to make sure that all your changes are in line with the community’s guidelines. For example, unusual paint colors may be prohibited, certain architectural styles might be encouraged and historically accurate building materials might be required. Double-check with the design council before you proceed with any major changes to your home.

This council can also advise you on any permits you might need to acquire from the city before beginning construction. Historic homes are often subject to historical preservation requirements as well as all current building codes and OSHA compliance. It is also important to talk to someone knowledgeable about the potential tax benefits of renovating a historic property.

Once you have settled on an architect and contractor and finalized a design, it is time to begin construction. While you don’t want to rush the process, it will be considerably cheaper overall to complete each project in a timely manner. When possible, choose locally sourced building materials. This will cut down on shipping time and limit delays. Although it is important to keep an open line of communication with the contractor, disrupting their workday can cause a domino effect of delays. Limit midday communication as much as possible in order to maximize the contractor’s efficiency.

Once your historic home renovation is complete, you will be ready to move in (or sell) your newly updated property. Contact me for more information on selling a home in a historic neighborhood. Otherwise, enjoy your newly updated home.

6 Surefire Signs It’s Time to Sell Your Home

Most people don’t plan on living in their first (or second or maybe even third) home forever, but knowing when the time is right to put that baby on the market can be tricky.

In fact, it can feel kind of like breaking up with a longtime boyfriend or girlfriend. Deep down, you knew you wouldn’t be with that person forever—but ending things can be way easier said than done.

Sometimes life changes force the issue: There’s little reason for self-doubt or trauma-level angst if you’re relocating to another state or you know your newborn twins won’t fit in your one-bedroom bungalow. But without a pressing reason staring you in the face, it can be hard to know when you’ve outgrown your home.

So how do you know when it’s the right time to let go?

1. You’re feeling cramped, and you can’t add on

Your family might not be growing, but that doesn’t mean your lifestyle still fits in your current house.

If you’ve started working from home, for example, or you’ve adopted an extended family of indoor cats—or maybe you’ve just never gotten over your dream of having a sewing room—your house might be too small.

But before you jump to conclusions, see if paring down your possessions works to free up some space.

Another option might be to finish an attic or basement, add another room, or even add a whole story to your home. But, of course, that won’t work for everyone.

“If your property isn’t large enough or your municipality doesn’t allow it, moving to a bigger home may be your best option,” says Will Featherstone, founder of Featherstone & Co. of Keller Williams Excellence in Baltimore.

To decide which route to take, check your local building laws and get estimates from two or three contractors. It also wouldn’t hurt to check with your Realtor®. Sometimes adding on won’t increase the value of a home, and you don’t want to make big-time improvements that will bring only a small-time return on your investment.

2. You have too much space

On the other hand, perhaps you’re feeling overwhelmed by vacant rooms and silence. (Hello, empty nesters!)

“In this case, it no longer makes sense to have, say, four bedrooms and a basement,” Featherstone says.

Saying goodbye to a family home can be difficult, but you should consider how feasible it is to stay. If yardwork and house upkeep are getting to be a little too much, or soaring utility bills are cramping your style, it might make more sense to move.

3. You’re over the neighborhood

Maybe you can no longer deal with the rigid rules of your homeowners association, or perhaps your neighbors turned their house into a rental for frat guys. Whatever the reason, neighborhood dynamics can change dramatically over time.

And sometimes, you can change. Maybe the 40-minute commute to work didn’t seem like such a big deal the first few years, but now you’re dreading it every day. Or your kids are getting older, which can be a big problem if you’re not in the right location.

“If you can’t afford a private school system, you are limited to one school for your children,” Featherstone says. “Moving may be a benefit to your child’s education.”

4. Remodeling won’t offer a return on your investment

Giving your kitchen or bathroom a face-lift can make your house feel like new again, which might be all you need to decide you want to stay put for years. But that doesn’t mean it’s a financially sound decision.

“Before making significant improvements, you should really study the neighborhood and know the highest price point of your neighborhood,” Featherstone says.

If your home is already similar in style and condition of some of the priciest homes in the neighborhood, remodeling might be a bad idea, and you should consider selling instead.

5. You can afford to sell

Sure, you’re going to make money when you actually sell your house, but as the adage goes, it takes money to make money. So seller beware: You probably won’t be sitting around and waiting for the dollars to roll in.

“Before you consider selling, you should have the funds available to prepare your home for sale,” Featherstone says.

Most sellers need to make some minor improvements such as painting, landscaping, or updating flooring to get a good price on their home. Those costs will come out of your pocket at first, so it’s a good idea to have a cushion before you start.

6. You’re ready to compete

If you’re living in a seller’s market, you might be enticed to offload your home before things cool off. But don’t forget—once you sell, you’ll probably be a buyer, too.

“If your market is hot, your home may sell quickly and for top dollar, but keep in mind the home you buy also will be more expensive,” Featherstone says.

If you’re going to get out there, you should make sure you’re ready to compete.

By Angela Colley Realtor.com

The ‘Great News’ About Rising Prices

​Recently there has been a lot of talk about home prices and if they are accelerating too quickly. In some areas of the country, seller supply (homes for sale) cannot keep up with the number of buyers out looking for a home, which has caused prices to rise.
The great news about rising prices, however, is that according to CoreLogic’s latest US Economic Outlook, the average American household gained over $11,000 in equity over the course of the last year, largely due to home value increases.
The map below was created from CoreLogic’s report and shows the average equity gain per mortgaged home from June 2015 to June 2016 (the latest data available).

For those that are worried that we are doomed to repeat 2006 all over again, it is important to note that homeowners are investing their new found equity in their homes and themselves, not in depreciating assets.

The added equity is helping families put their children through college, and even invest in starting small businesses, allowing them to pay of their mortgage sooner or move up to the home that will better suit their needs

Bottom Line

CoreLogic predicts that home prices will appreciate by another 5% by this time next year. If you are a homeowner looking to take advantage of your home equity by moving up to your dream home, let’s get together to discuss your options!

Keeping Current Matters 2016

How Historically Low Interest Rates Increase Your Purchasing Power

According to Freddie Mac’s latest Primary Mortgage Market Survey, interest rates for a 30-year fixed rate mortgage are currently at 3.47%. Rates have remained at or below 3.5% each of the last 16 weeks, marking a historic low.

The interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power.

Purchasing power, simply put, is the amount of home you can afford buy for the budget you have available to spend. As rates increase, the price of the house you can afford will decrease if you plan to stay within a certain monthly housing budget.

The chart below shows what impact rising interest rates would have if you planned to purchase a home within the national median price range, and planned to keep your principal and interest payments at or about $1,100 a month.

With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5%, (in this example, $6,250). Experts predict that mortgage rates will be closer to 4% by this time next year.

Act now to get the most house for your hard earned money.

Keeping Current Matters, Inc. © 2016