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Real Estate and Home

Though I’ve lived in the D.C. area for the past 5 years, I still haven’t bought a home here. It just hasn’t made sense yet, especially since I’m not sure how many more years I’ll choose to stay in this area. The properties I do own are located back in Texas and stay consistently rented out. The two of them combined cost less than one comparable home here in northern Virginia, and that’s only talking about the actual property value, so I’m quite content with the arrangement for now.

I’m not yet sure if I’ll ever move back to the land of affordable homes. Either way, one thing is for sure: it’s hard to discuss the cost of setting down roots in D.C. without talking about property taxes. The biggest surprise, though? While it’s exponentially more expensive to buy a home here versus Texas, the property taxes are actually quite a bit lower!

This is pretty fresh in my mind right now, too, as I received a tax assessment notice in the mail just yesterday. For the third year in a row, one of my properties’ values is climbing up again. Last year, for instance, it jumped $5,000; this year, it’s climbing another $8,000. While this might be good news if I were looking to sell sometime soon, it’s not good news for a long-term rental property. A higher assessment, of course, means higher property taxes. And higher property taxes mean less money in my pocket.

Don’t Blindly Pay, Especially With an Increase

With high or climbing property tax rates, it’s worth the effort to try to reduce those rates, if at all possible. After all, when filing personal income tax returns, taxpayers look for every deduction and credit, often saving hundreds or thousands of dollars. However, most homeowners simply accept their property tax bill without questions, even though it could easily be a bigger bill than their income taxes.

Related: 30 Things to Budget for When Buying a Home

With the stress of income taxes done and behind us, now is the perfect time to take a look at your property value and the accompanying tax bill. The amount of property tax you owe is based on an assessed value of your house, and local governments typically assess properties every 18 to 36 months. This means that, depending on where you live, your assessment could have been performed when the market was at a peak. Add to it that the average assessments lag behind current values by about three years, and there is plenty of room for real-time error.

What If You Don’t Agree With the Assessment?

Homeowners could save thousands of dollars with a successful appeal if they only set aside a little bit of time to dispute the bill.

Of course, we’d like to think that our home values continue to increase because we want to feel that the decision to buy a home will result in a good investment over time. When it comes to assessments for tax purposes, though, it’s better to have the lowest value possible. Review your recent assessment, and consider these factors for appeal:

  • Comparable home prices. Look at actual sales of houses in your area. Knowing the current market is a key to determining a fair assessment for your house.
  • Age of the assessment. If the assessment is from over a year ago, comparable homes in your area might have sold for less money more recently.
  • Room count and layout. Most assessments are accomplished without definite knowledge of your house’s layout. There could be mistakes in your assessment that result in a higher value on paper, like too many bedrooms. If your basement is unfinished, you could also argue for a lower assessment
  • Amenities. When assessments are based on comparable home prices, you could be unfairly taxed if your home doesn’t have the same amenities as your neighbors’ houses. Don’t have a pool like the houses surrounding yours? Then, you shouldn’t have the same property tax bill.

After you receive notice of your newest assessment, review it quickly and appeal right away. You’ll be filing what’s called a Notice of Protest with your county’s ARB, or appraisal review board. Even if you would prefer to resolve your concerns informally — many appraisal districts will work with you directly to review and resolve your objections — filing this notice in time is still important, as it retains your right to escalate your dispute to the ARB at a later date. You typically have 30 days from the date the appraisal district mailed your new assessment notice to file your dispute.

You’ll want to review the property record card and look for inaccurate details. You can also take photographs of relevant features of your house and look at documentation for comparable home sales in your neighborhood. Make notes of any improvements you have made, as well as anything that may have depreciated your home’s value (a foundation shift resulting in structural damage, for instance, or mold remediation).

The ARB will typically give you about 15 days’ advance notice of your hearing, though you can occasionally postpone this to a later date, if needed.

When you have your hearing, bring all this documentation to support your case, along with copies to pass along to the board members and district representative. When presenting your case, try to keep emotional pleas out of your argument, and just stick to the facts. Firmly but respectfully present your reasoning, and hope for the best.

If you are unhappy with the decision of the district or the appraisal board, you can take your case even higher. In many states, you have the option of appealing to the state district court in the county where your property is located. Be sure to check your individual appraisal district’s options, by looking online or calling the local tax assessor-collector’s office.

It Doesn’t Hurt to Try

Authorities are aware that most assessments are inaccurate, but they won’t do anything about it unless homeowners speak up. Some homeowners are unsuccessful with the first appeal and simply give up — however, I would suggest that pressing on is worth the fight, especially if you’re paying high (or markedly increasing) taxes.

The county certainly isn’t going to do you any favors; if you want to lower your tax bill, it’s going to take some effort. The savings from a successful appeal could be substantial, though, so don’t give up until your home’s value is accurately assessed.

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If you are a homeowner or have looked at buying a home in the near future, you probably know all about conforming loans. While the limits for these types of loans have remained stagnant for the past decade, steady increases in the housing marking have prompted this ceiling to rise for the first time since 2006. Beginning next year, a wider range of borrowers will now be able to access these types of loans. Rather than being limited to $417,000, conforming loans will now have an increased limit of $424,100 in 2017.

What is a Conforming Loan?

In the United States, mortgage loans are categorized based on whether they do, or do not, conform to the standards set for by Fannie Mae and Freddie Mac. One of these standards is the cost of the home. In order for a mortgage to be considered “conforming” – and be eligible for lower interest rates – it needs to be below the conforming loan limit.

Until this new change was announced for 2017, the conforming loan limit was set at $417,000 for many years. While a jump up to $424,100 isn’t an astronomical difference, it opens the homebuying door to many people who wouldn’t have otherwise been able to qualify for a lower risk, conforming loan.

If you want to buy a home that crosses this conforming limit threshold, your loan is considered non-conforming or jumbo. While these loans are certainly still available, they are considered much riskier to lenders and therefore are harder to obtain. Also, they typically involve higher down payments and a more intense scrutinization of your credit history and/or income. Because of this, they are seen more often with luxury homes, investment properties, or retail spaces.

Conforming loan limits vary by county, as it is relative to the cost of living in that area. The Federal Housing Administration is responsible for setting the national conforming loan limit (which is what will be increased for 2017), but some counties are deemed eve higher cost. As such, they have special higher limits.

In my county, for instance, the conforming loan limit is at the absolute max of $636,150 —  a whopping $212,050 above the standard national limit. Then again, the cost of living where I live is astronomical (Washington, DC area) and home prices stay high, so it makes sense that certain counties are able to get higher loans. If you want to check the conforming loan limits in your own county, Bankrate has a great chart that you can view.

conforming-map

What Does the Increased Limit Mean for Me?

If you are looking at buying a home that was toeing the $420,000 range, this increase may mean the difference between a basic loan and a jumbo loan for you. That equates to a lower down payment, greater chance of approval, and less headache.

Planning to buy your home with a VA loan? You would be obligated to purchase within the conforming limits of your county. A jumbo loan isn’t even an option with these (and other) government-backed mortgages, so the increase may open a few extra doors while finding the home of your dreams.

Why the Increase?

It’s a great indicator of the health and growth of our country’s housing market, that the limit is rising. After the US housing crash in 2007-2008, home costs are on the rise and expected to continue to grow. This is great news for our economy and for anyone whose money is invested in real estate, whether that be their home, rental properties, REITs, etc.

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While the cost of your home isn’t the only limiting factor between your mortgage being “conforming” or “non-conforming,” it’s a big part of it. Non-conforming, or jumbo, mortgages are harder to obtain and often involve more stringent credit/income guidelines, an intense application process, and higher down payments.

If you’re looking at a government-backed mortgage of any kind, you will need to stay within the conforming mortgage loan limits set forth by the FHA. Beginning in 2017, you’ll get a little extra wiggle room. Be sure to check for the actual limit in your county, especially if you live in a high cost area, and happy buying!

Have you ever had to walk away from a dream home because it would have meant a non-conforming loan?

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Beginning in January 2014, the Consumer Financial Protection Bureau, or CFPB, issued new rules to protect mortgage borrowers. The rules deal primarily with what is known as the “servicing” side of the mortgage process. That’s everything that happens after a mortgage closes, from setting up escrows and crediting payments to foreclosures.

There are nine rules in all. Their purpose is to “provide homeowners and consumers shopping for a home mortgage with new rights and greater protection from harmful practices.” Let’s see what each one is about.

1. Periodic Billing Statements

Mortgage lenders must provide periodic statements to borrowers for each billing cycle. These should reflect information on payments currently due and previously made, fees imposed, transaction activity, application of past payments, contact information for the servicer and housing counselors , and, where applicable, information regarding delinquencies.

The periodic statement does not apply to fixed-rate mortgages, as long as the the servicer provides a coupon book. Also, the coupon book must contain certain information as specified in the rule and that information must be made available to the consumer.

2. Interest Rate Adjustment Notices for ARMS

If a loan is an adjustable rate mortgage (ARM), it contains provisions for periodic changes in the interest rate. If you have such a loan, the lender must provide you with written notice of a rate change between 210 and 240 days before the initial change is set to take place. They are then required to provide notice of subsequent rate and payment changes, between 60 and 120 days in advance of the change. The notice must include an estimate of both the new rate and the new payment.

3. Payment Crediting and Payoff Statements

Lenders must credit loan payments from borrowers as of the day of receipt. However, if a payment is received for less than the full amount, the payment may be held in a suspense account. When the amount in the suspense account covers a periodic payment, the servicer must apply the funds to the consumer’s account.

The lender is also required to deliver an accurate payoff balance to a consumer when requested. They have no later than seven business days from  receipt of a borrower’s written request to provide that information.

4. Force-place Insurance

In the past, lenders engaged in a practice known as force-place insurance. That was a practice in which the lender would get a homeowner’s insurance policy on the property securing the mortgage, if it believed that the borrowers had allowed their policy to lapse. This sometimes resulted in high-priced policies, which were then charged to the borrower.

Under the new rules, lenders are prohibited from charging a borrower for force-place insurance unless the lender has cause to believe the borrower has failed to maintain insurance. They must also provide the borrowers with required notices.

The lender must provide the borrower with written notice of the force-place policy at least 45 days before charging the borrower for the coverage. They must also provide a second notice at least 30 days after the first, and at least 15 days before charging the borrower for the coverage.

If the borrower provides proof that a homeowner’s insurance policy exists, the lender must cancel the force-place policy. They must also refund any premiums paid on the policy during overlapping periods of coverage. In addition, the cost of the force-place policy must be reasonable for the amount of coverage in force.

If there is an escrow account attached to the loan which includes the payment of homeowner’s insurance premiums, the lender is prohibited from obtaining force-place insurance. If the servicer can continue the borrower’s homeowner insurance, even if they need to advance funds to the borrower’s escrow account to do so, they must go that route.

5. Error Resolution and Information Requests

Lenders are now required to respond to written requests for information, as well as complaints of errors. The lender must comply with error resolution procedures for mistakes that are spelled out in the new rules. This includes any errors that are the result of the servicing of the loan.

Lenders are required to acknowledge receipt of the borrower’s written notification within five days of receipt. Lenders then have 30 to 45 days to respond to the borrower’s request. Within that time, they must either correct the error claimed by the borrower, or conduct an investigation to determine that no error exists. If the latter occurs, they must then inform the borrower in writing.

If information requested by the borrower is not available, the lender must notify the borrower in writing. This notice must include an explanation as to why the information is not available.

6. General Servicing Policies, Procedures and Requirements

Lenders are required to establish policies and procedures that are designed to comply with the new rules. That means they must spell out how they will accomplish the following:

  • Accessing and providing accurate and timely information to borrowers, investors, and courts
  • Properly evaluating loss mitigation applications in accordance with the eligibility rules established by investors
  • Facilitating oversight of, and compliance by, lenders
  • Facilitating transfer of information during servicing transfers
  • Informing borrowers of the availability of written error resolution and information request procedures

Each lender must also maintain certain documents and information for each mortgage loan. This must be done in a way that enables them to compile it into a servicing file within five days.

7. Early Intervention With Delinquent Borrowers

Lenders are required to intervene in the event that a borrower may be heading for default. The lender must make “good faith efforts” to establish live contact with borrowers by the 36th day of their delinquency. They are required to promptly inform borrowers that loss mitigation options may be available. The lender must also provide the borrower written notice with information about loss mitigation options by the 45th day of a borrower’s delinquency.

8. Continuity of Contact with Delinquent Borrowers

Lenders are now required to make early contact with borrowers who are at risk of default. That contact must also be on a continuing basis. Once again, the lender must be fully prepared to assist the delinquent borrower with loss mitigation options where they are available.

The lender must make reasonable efforts to ensure that personnel are assigned to a delinquent borrower by the time written notice of early intervention is required. This can be no later than 45 days after a borrower’s delinquency.

In addition, the assigned personnel must be accessible to the borrowers by phone to assist with loss mitigation options. This includes advising the borrower on the status of a loss mitigation application, as well as expected timelines. Those personnel are also expected to have access to all of the information surrounding the borrower’s situation. This information can be shared with other personnel who are responsible for evaluating the loss mitigation options available to the borrowers.

9. Loss Mitigation Procedures

This rule gets to the heart of the attempt by the CFPB to provide the borrowers with more options and protections in the event of foreclosure. The borrowers must be given every opportunity to avoid foreclosure through loss mitigation.

The lender must follow specific loss mitigation procedures. For example, the lender is required to acknowledge the receipt of a loss mitigation application in writing, within five days of receipt. They must also inform the borrower whether or not the application is complete. The borrower must be apprised of any missing information.

If the completed loss mitigation application is received more than 37 days before a foreclosure sale, the lender is required to evaluate mitigation options within 30 days. This must include options that will enable the borrowers to retain their home. It must also include non-retention options, such as a short sale.

The lender is required to provide the borrowers with written notification of the decision in regard to loss mitigation. This includes the reasons for denying the application. The borrower must also be able to appeal the denial, under the provision that the complete loss mitigation application is received at least 90 days before the scheduled foreclosure sale.

This rule also prevents what is known as dual tracking. That’s a practice in which the lender is simultaneously evaluating a borrower for loan modifications or other mitigation options, at the same time that it is preparing to foreclose on the borrower’s property. The rule prohibits the lender from making the first notice or from filing requirements for the foreclosure process until the mortgage account is more than 120 days past due.

But even if a borrower is more than 120 days late, the lender may not begin foreclosure proceedings if the borrower has submitted a completed loss mitigation application before the foreclosure process has begun. This rule applies unless any of the following takes place:

  1. The lender notifies the borrower that they are not eligible for any loss mitigation option. Also, all appeals have been exhausted
  2. A borrower rejects all loss mitigation offers
  3. A borrower fails to comply with the terms of a loss mitigation option, such as a trial modification

However, if the borrowers submits a completed loss mitigation application after the foreclosure process has begun, but more than 37 days before a foreclosure sale, the lender may not move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, until one of the three conditions above has been met.

In general, the CFPB Mortgage Protection Rules are designed to improve the working relationship between borrowers and their mortgage lenders. And it is ultimately hoped that the rules will make the foreclosure process both less likely and less painful.

(Sources: What mortgage servicing rules apply to me?, What the new CFPB mortgage rules mean for families and homeowners, and Summary of the final mortgage servicing rules)

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In chemistry, a catalyst is something that triggers a reaction — but the nature of the reaction itself depends on having the right elements in place to respond to the catalyst.

What brought to mind that tattered remnant of high school chemistry was thinking back on buying my first house.

I’ll explain how I got from home-buying to chemistry — and, in the process, hopefully share some pointers about what elements should be in place when you buy a home and what catalysts might trigger you to react to those elements.

The chemistry of home-buying

The reason I’m talking about home-buying in terms of chemistry is that there is more to buying a home than pure dollars and cents. Don’t get me wrong. The financials are important, and I’ve written a fair amount about some of the financial aspects of home-buying. However, what is equally important is your personal outlook.

Generally, the elements of your personal situation fall into place bit by bit over time, and you might not really notice how they are developing. It can take a catalyst to set everything in motion.

In my case, the catalyst was simple: Our landlord tried to raise our rent by $50. That doesn’t sound like much today; but at the time, it was 12.5 percent of the rent we were paying previously. More than that, it was a catalyst to us. We realized that renting meant being subject to that unpredictability every year when the lease term ended.

Once that catalyst sparked the idea of buying a home, all the right elements were in place for us to follow through on our decision. My career was progressing well, I had gotten married and we planned to have kids, and we had family roots in the area. If it hadn’t been for that catalyst, though, I’m not sure how long it would have taken for it to occur to us to buy a house. So, we have our landlord to thank.

Here’s how the chemistry of home-buying might come together for you.

How to know if it is time to buy a house

Here are some of the right elements for buying a home:

  • Career stability. This does not necessarily mean that you plan on staying in the same job, but that you have in-demand skills and that there is a healthy job market for those skills within commuting distance of the house you plan to buy.
  • Commitment to your area. It could come down to the weather, family and friends, arts and entertainment, or all of the above, but you need to figure out where you want to be for the long haul. It’s okay to be restless when you are young, but it is better if you aren’t that way after you buy a house.
  • Clarity about your household. It might take several years before you start to have clarity on what your household will look like in the future: Will you marry? Do you expect to have kids? Will elderly parents come live with you at some point? The more clarity you have about the size of your household in the years ahead, the easier it is to know what kind of home to buy, though it is always wise to make choices that build in a little flexibility as well.
  • Knowing yourself. Life plans and personal tastes take a while to evolve. Don’t rush into home-buying unless you have a good handle on what you want for the long term.
  • Affordability. This is an entirely different area of discussion; but if the dollars and cents don’t add up, not all the elements for buying a home are in place.

Catalysts can help you decide

Given the right elements, what can trigger you to act on them? Here are some possibilities:

  • A jump in rents. As I mentioned, that did it for us. It changes the current comparison between renting and owning costs, and makes you think about stabilizing your housing expense for the future.
  • Low mortgage rates. You should look at today’s mortgage rates as an opportunity that might not always be there. If home-buying is in your future, you might want to accelerate the timing to take advantage.
  • A change in household. Getting married or having a baby might mean you have to find a bigger place anyway, so you might think about doing that by buying.
  • A strong raise in pay. A meaningful bump-up — beyond the standard annual cost-of-living type of adjustment — could not only give you the financial means to buy a home, but it might also be a sign that your career is well enough on track for you to make that kind of commitment.

In short, besides the math of affordability, buying a home comes down to the chemistry of your personal situation. Perhaps if we had known so much was riding on math and chemistry, we all would have paid more attention in high school.

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Robert Kiyosaki Gives Readers a Second Chance

by Luke Landes
Robert Kiyosaki [via YouTube]

Over the years, I haven’t been too kind to the best-selling author, Robert Kiyosaki. He’s certainly built a successful empire, and a large community people respect him for his business acumen, his willingness to try or to appear to try to help others, and his advice. However, I’ve always found his advice thin at best […]

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How Do You Determine Your House’s Value?

by Luke Landes
House

Yesterday, I pointed out that the house you live in is an essential part of your net worth calculation. But determining the value of your house, especially if it’s the house you live in and not something you track as an investment, can be tricky. It’s easy to determine the value of your mortgage to […]

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You Need to Include Your House in Your Net Worth

by Luke Landes
House

Naked With Cash participants include their houses in their net worth, if they own houses. Is that really necessary?

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Don’t Let Contractors Rip You Off

by Mitch Lipka

It’s the height of home repair season, a time when established contractors are often in demand and unavailable. That’s a big opportunity for the fly-by-night operators to step in. Hiring a contractor to do work on your home, whether it’s a relatively small job or a major renovation, is a big deal. For most consumers, […]

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The Only Way Buying As Much House As Possible Is Smart

by Luke Landes
Buying as much house as possible

Once again, I’m finding myself nearing the end of my one-year lease with the need to make a decision about my living situation. I moved to my current apartment in the summer of 2007, at a time when I had been more comfortable living off some of the income from my business. Until that point, […]

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Higher Home Ownership Linked to Higher Unemployment

by Luke Landes
Home ownership

American culture has long promoted the idea that home ownership is key to the fulfilling middle-class lifestyle. You can be sure the National Association of Realtors will continue to do its darnedest to keep this interpretation of the American Dream alive; whether you’re buying or selling, it’s always a good time for Realtors to earn […]

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