What happens to your home in a divorce?

by Dan Krell © 2005

Did your hear about Regina and Jonathan? Who knew they were headed towards divorce? What’s going to happen to that beautiful colonial they bought in Silver Spring? Didn’t they settle 9 months ago? Unfortunately, you hear this thread of conversation more often these days. When divorce is imminent, people tend to worry about the children’s future, how to treat the mother-in-law who was so nice (lucky fellow), how their friends will react. Of course, these should be at the top of one’s mind. There are many concerns to worry about.

Beyond family concerns, finances and real estate are important also. Figuring out who gets what and how much can get messy, antagonistic and litigious. There is no getting around it. That is why an attorney should be consulted on these matters. You can get more information on family law and contacting a local attorney by going to the following website: www.montbar.org/barfound/mclan/famlaw.htm.

What happens to the marital home when people get divorced? Let’s look at Regina and Jonathan. In a simplistic explanation, they have several amicable options. The options available depend on whether they want to stay in the home or not. Either way, both will have to agree on decision.

I understand that Regina wanted to stay in the home because she wanted to keep the kids at the same school. Among the many options available for her to stay in the home, one common solution is for Regina to buy out Jonathan’s equity in the home. You can see this is a friendly solution because, for a price, Jonathan will give Regina the home.

In buying out Jonathan’s equity, Regina will have to come up with the money to pay him; however, Regina doesn’t have the cash. How will she get the money? She can get the money out of the home itself by taking out a home equity line of credit or refinancing the home through a cash-out mortgage.

The first step is for Regina and Jonathan to figure out how much equity is in the home. They can do this by having someone appraise the home. The appraiser will determine the fair market value. The equity is determined by subtracting all mortgages from the appraised value. After the home has been appraised, Regina and Jonathan have to agree on how to split the equity. In their case, they determined that there is $100,000 equity in the home and they decided to split the equity equally.

Regina decided to call the ABC Mortgage Company to obtain a cash-out mortgage. The appraised value of the home is $564,000. She decided to get a mortgage of $450,000. A majority of the mortgage will pay off all existing mortgages and closing costs. The remainder, $50,000, is the amount needed to buy out Jonathan’s equity of the home.

One of the common pitfalls here is that the marital home is often times purchased using both spouses’ incomes to qualify and pay the mortgage. Thankfully, Regina is a senior executive with a local company and earns more than enough to qualify and pay the mortgage on her own.

Unfortunately, many ex-spouses are not as amicable as Regina and Jonathan. Either they can not agree on what to do with the home, or one spouse wants to stay in the home but cannot afford to stay there on their own. Another frequent solution is to sell the home and distribute the proceeds as decided by the spouses and their attorneys.

Selling a home is always an emotional and stressful time. Selling a home under these circumstances is more so because the selling parties are antagonistic if not hostile towards each other. No matter how friendly the parties are in a divorce, it is still a very emotional time and it’s important to be as objective and fair as possible when making decisions about the marital home.

This column is not intended to provide nor should it be relied upon for legal and financial advice.
This column was originally published in the Montgomery County Sentinel 4/30/2005.
Copyright Dan Krell 2005.

What happened to afordable housing?

by Dan Krell © 2005
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Everyone in the Metro area knows that housing costs have risen at what seems to be an exponential rate in the last few years. If you are a first time homebuyer, the shock of the price of a home in the Metro area must be like watching the Texas Chain Saw Massacre.

What happened to affordable housing? According to the Greater Capital Association of Realtors (www.gcaar.com), the average sales price for a single family home in Montgomery County in January 2005 was $512,743. Comparatively, the price of a single family home in January 2004 was $435,898. Evidence that it is becoming increasingly harder for a first time homebuyer to own a single family home.

Although the price of a home may not seem affordable, there are some ways to make it affordable. Montgomery County has always had some form of assistance to boost home ownership. Some of the programs that have been prevalent for some time now include the moderately priced dwelling unit program (MPDU), special loan programs and closing cost assistance.

The moderately priced dwelling unit program was established in 1974 by Montgomery County to provide affordable housing. The program allows a homebuyer to purchase a home at a special price. The homebuyer must qualify for financing and meet other criteria. There are MPDU’s scattered throughout the county in many communities and exist in many forms, such as townhomes, condos and semidetached homes.

There are restrictions on purchasing a MPDU, as one can imagine. The restrictions include a certificate of use, resale restrictions, and shared profits. The certificate of use requires the owner to live in the property, and not be able to rent to tenants. Additionally, when you are ready to sell your home, the price is restricted. Any profits that incur from the sale must be split with the Housing Initiative Fund (HIF) (which spends the money for additional affordable housing). The current price for a townhome is very affordable (check the website below). Information on qualifying and other regulations for the MPDU program, please visit the Montgomery County Department of Housing and Community Affairs website www.montgomerycountymd.gov/apps/dhca/index.asp.

If you choose not to go through the MPDU program, or if you do not qualify, there are other programs available to help with your purchase. Community programs, such as the Housing Opportunities Commission, offer special financing and closing cost help. If you visit their website, www.hocmc.org, you can see that there are currently two loan programs that offer below rate assistance for qualifying purchasers. One loan program offers a starting interest rate of 3.55%. These loan programs will qualify you to purchase a home that you might not otherwise qualify.

If financing is not a problem, you might need some closing cost help. The Housing Opportunities Commission has a couple of options for this too. One program offers a loan for up to five percent of the purchase price of the home. If you are short on cash, help such as this is a Godsend.

Although the average price of a home may not seem affordable to many first time homebuyers, there are programs that are available to help with the purchase. Each program mentioned here does have qualifying criteria, as well as restrictions, and should be checked before embarking on your endeavor. Both agencies mentioned here are very knowledgeable and want to help you with any questions you may have.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This column was originally published in the Montgomery County Sentinel.
Copyright Dan Krell 2005

Selling your home FSBO

by Dan Krell © 2005
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The real estate market has been a sellers market for the last few years. It has been so good for home sellers that many people have opted to try to sell their home without a Realtor. These For Sale By Owner (FSBO) sell their homes on their own for one reason-to save money on Realtor commissions. However, before embarking on such an endeavor, one should take an inventory of the pros and cons of becoming a FSBO, as well as the tools necessary to sell FSBO.

The obvious reason to sell your home FSBO, as stated above, is to save on Realtor commissions. Seasoned real estate investors may find it natural to sell a home FSBO because they control the communication as well as being able to communicate directly with potential homebuyers. First time FSBO’s may find it a bit awkward at first, but can find the rhythm necessary to complete the transaction.

How much money can you realistically save? Traditional Realtor commissions have always been around 6%, which pays the listing (homeowner) agent and the selling agent (homebuyer). However, in the last few years, there as been a trend of reduced commissions, so actual savings for a FSBO have been reduced. I have seen Realtors list a home for 4% (if you don’t believe it, send me an e-mail)! Additionally, FSBO’s are contracting and paying commission with more Realtors and their homebuyers in this environment of limited home inventory. In the end, the FSBO’s savings from Realtor commissions may be marginal.

You might think that saving money outweighs all negative aspects of selling your home FSBO. However, there are some real negative aspects of selling your home FSBO, such as time, expense, and contractual obligations.

How much is your time worth? Selling a home requires the application of time to tasks. Among the many tasks of selling a home, the top things that a FSBO may do include (and is not limited to) preparing the home for the open house, contacting the paper to advertise, putting up signs, meeting potential homebuyers, and negotiating contracts. The time quickly adds up.

Selling your home FSBO is supposed to save you money right? Well, there is a bit of expense that is necessary. A FSBO must have signs in the yard, as well as directionals (the small arrow signs) to point homebuyers in your direction. Additionally, you might consider paying the local paper for advertising, as well as paying for an internet advertisement (although there are many websites that will allow you to post for free). Another expense may be to have your attorney to review the contract to make sure it is legal and enforceable. It seems that the expenses also quickly add up.

Selling your home FSBO relieves you of certain responsibilities under the law right? Wrong. The most important thing a FSBO forgets to check is the law. That’s correct, even FSBO’s are responsible to adhere to certain federal and local laws pertaining to the sale of real estate (i.e., equal housing, lead paint, Maryland disclaimer-disclosure). This is the one area that FSBO’s get themselves in trouble because of the lack of knowledge and expertise. There is an increased liability potential.

FSBO sales are steadily increasing in the community. However, if a home owner actually does a cost analysis they may find that selling FSBO may actually not be saving them money, and actually may put them at a higher liability risk because of the lack of information and knowledge of the law. So, before you sell your home FSBO, do your homework and consult a professional.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This comlumn was originally published in the Montgomery County Sentinel on 5/30/2005.
Copyright Dan Krell 2005.

Why you need to conduct a home inspection

by Dan Krell © 2005
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A home is the largest investment most of us will make in our lifetime. It seems, then, unwise to spend so much money without having a professional opinion of the status of the investment. For example, would you purchase company stock without looking at the status of the company? Wouldn’t you at the very least look at the recent performance, cash on hand, leadership, etc.-and possibly discuss the purchase with a professional investment counselor? So too it is with a home. A home inspection can reveal much about the home you are about to buy.

A typical home inspector will check the status and condition of the home structure including the foundation, basement, roof, gutters, attic, chimney, siding, windows, doors, ceilings, walls, floors. The inspector will also check the operation and condition of the mechanical systems in the home, which includes the heating system (furnace), central air conditioning, ventilation, hot water heater, plumbing and pluming fixtures, electrical system (including electrical outlets). Additionally, the inspector will check all appliances that will convey as well as checking the condition of cabinets and countertops. Other factors checked include the exterior grading around the home, excess moisture in and around the home, any additional structure or system that conveys with the home.

A good home inspector will be able to give you a list of concerns that need to be addressed. Additionally, the inspector may be able to give you an idea of price for any necessary repair or replacement. Recently, it has become popular for home inspectors to provide home maintenance manuals. The manual provide repair and replacement timetables for various items around the house, as well as general Mr. Fix-it tips if you need to make a minor repair.

When choosing a home inspector, you should interview them and make sure they have credentials. Although the state of Maryland does not license home inspectors, there are several bodies that do provide training and certification. The most popular organization that provides training and certification is the American Society of Home Inspectors or ASHI. ASHI has been around for twenty-eight years, and was the first to provide home inspectors with a code of ethics and standards of practice. You can search on the ASHI website for ASHI certified home inspectors as well as getting additional information about the home inspection process. AHIS’s website is www.ashi.org.

Up until the past few years, it was almost a given that a homebuyer would have a home inspector conduct a standard inspection on the home they were going to purchase. However, because of the recent seller’s market providing much competition among buyers, many people have waived their right to have a home inspection.

At what cost are you willing to pay for future structural repairs and/or systems replacement to get into that home? It is not uncommon for defects in mechanical systems to show themselves within the first couple of years of ownership. The furnace or air-conditioning compressor is the first to go on older homes. Whether you are a first time homebuyer or a seasoned homeowner, you might want to think twice before waiving that home inspection.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This column was originally published in the Montgomery County Sentinel 5-23-2005.
Copyright Dan Krell 2005.