First-Time Homebuyers Check List

First, let me apologize for a bit longer post today, but I think you will agree, the information eaxplained is helpful. 

Are you gearing up to buy your first place? A first home can seem stressful and overwhelming, and it isn't without its share of potential pitfalls. If you're aware of those issues ahead of time, you can protect yourself from costly mistakes and shop with confidence. For many people, a home is the most significant purchase they will ever make, but it need not be the most difficult.

You Must Know What You Can Afford
As we've all learned from the subprime mortgage mess, what the bank says you can afford and what you know you can afford (or are comfortable with paying) are not necessarily the same. If you don't already have a budget, make a list of all your monthly expenses (excluding rent), including vehicle costs, student loan payments, credit card payments, groceries, health insurance, retirement savings and so on.

Don't forget significant expenses that only occur once a year, like any insurance premiums you pay annually or annual vacations. Subtract this total from your take-home pay, and you'll know how much you can spend on your new home each month. When calculating this figure, use a mortgage calculator to research current interest rates. This will give you an estimate of what your total mortgage payments will be.
Next, tailor your house-hunting to properties in your financial neighborhood. If you end up looking at homes that are outside your price range, you'll end up lusting after something you can't afford, which can put you in the dangerous position of trying to stretch beyond your means financially or cause you to feel unsatisfied with what you actually can afford. You may even learn that you can't afford the type or size of home that you desire and that you need to work on reducing your monthly expenses or increasing your income before you even start looking. (Read "Six Months to a Better Budget" and "Get Your Budget in Fighting Shape" to learn more.)

Complete Mortgage Qualification
What you think you can afford and what the bank is willing to lend you may not match up, especially if you have poor credit or unstable income, so make sure to get pre-approved for a loan before placing an offer on a home. (Get the details in "Pre-Qualified Versus Pre-Approved – What's the Difference?") If you don't, you'll be wasting the seller's time, the seller's agent's time, and your agent's time if you sign a contract and then discover later that the bank won't lend you what you need, or that it's only willing to give you terms that you find unacceptable.
Be aware that even if you have been pre-approved for a mortgage, your loan can fall through at the last minute if you do something to alter your credit score, like finance a car purchase. If you cause the deal to die, you may have to forfeit any deposit or earnest money you put up when you entered into the contract. (To learn more about your options, see "Financing for First-Time Homebuyers.")

Estimated Additional Expenses
Once you're a homeowner, you'll have additional expenses on top of your monthly payment. Unlike your renter days, you'll be responsible for paying property taxes, ensuring your home against disasters and making any repairs the house needs (which will occasionally include expensive items like a new roof or a new furnace).
If you're interested in purchasing a condo, you'll have to pay maintenance costs monthly regardless of whether anything needs fixing, because you'll be part of a homeowner's association, which collects a couple of hundred dollars a month from the owners of each unit in the building in the form of condominium fees. (For more information, see "Does Condo Life Suit You?")

Not To Be Too Picky
Go ahead and put everything you can think of on your new home wish list, but don't be so inflexible that you end up continuing to rent for significantly longer than you want to. First-time homebuyers often have to compromise on something because their funds are limited. You may have to live on a busy street, accept outdated décor, make some repairs to the home, or forgo that extra bedroom.
Of course, you can always choose to continue renting until you can afford everything on your list – you'll have to decide how important it is for you to become a homeowner now rather than in a couple of years. (For related reading, read "To Rent or Buy? The Financial Issues - Part 1" and "To Rent or Buy? There's More to It Than Money - Part 2.")

Expand Your Vision

Even if you can't afford to replace the hideous wallpaper in the bathroom now, it might be worth it to live with the ugliness for a while in exchange for getting into a house you can afford. If the home otherwise meets your needs concerning the big things that are difficult to change, such as location and size, don't let physical imperfections turn you away.
Besides, doing home upgrades yourself, even when you have to hire a contractor, is often cheaper than paying the increased home value to a seller who has already done the work for you. (For more information on renovating, read our related article "Fix It and Flip It: The Value of Remodeling.")

Being Swept Away
Minor upgrades and cosmetic fixes are inexpensive tricks a seller's dream for playing on your emotions and eliciting a much higher price tag. Sellers may pay $2,000 for minimal upgrades or spend several thousand dollars on staging. If you're on a budget, look for homes whose full potential has yet to be realized. Also, first-time homebuyers should always seek a house they can add value to, as this ensures a bump in equity to help you up the property ladder.

The Important Things
Don't get a two-bedroom home when you know you're planning to have kids and will want three bedrooms. Don't buy a condo just because it's cheaper than a house – if one of the main reasons you're over apartment life is because you hate sharing walls with neighbors. It's true that you'll probably have to make some compromises to be able to afford your first home, but don't create an understanding that will be a significant strain.

Do the Inspection
It's tempting to think that you're a homeowner the moment you go into escrow, but not so fast – before you close on the sale, you need to know what kind of shape the house is in. You don't want to get stuck with a money pit or with the headache of performing a lot of unexpected repairs. Keeping your feelings in check until you have a full picture of the house's physical condition and the soundness of your potential investment will help you avoid making a grave financial mistake.

Choose your Agent
Once you're seriously shopping for a home, don't walk into an open house without having a real estate agent or broker (or at least being prepared to throw out a name of someone you're supposedly working with). Agents are held to the ethical rule that they must act in both the seller and the buyer parties' best interests, but you can see how that might not work in your best interest if you start dealing with a seller's agent before contacting one of your own.

Consider the Future
It's impossible to predict the future of your chosen neighborhood correctly, but paying attention to the information that is available to you now can help you avoid unpleasant surprises down the road.

Ask Questions:

What kind of development plans are in the works for your neighborhood in the future?

Is your street likely to become a major street or a favorite rush-hour shortcut?

Is there talk of a bridge or a highway to be built in your backyard in five years?

What are the zoning laws in your area?

I offer an hour free consultation in Long Beach for the first-time buyer, Please request your free and no obligation consultation meeting now.

I love your comments and questions. Be sure to subscribe to this blog for future issues. 

Does rising financing costs impact housing market?

The answer is yes. Rising borrowing costs are slowing the rate at which US homeowners are refinancing their homes or turning to home equity for cash. According to a recent report by the Mortgage Bankers Association, mortgage refinancing volume fell to its lowest point since December 2000. Refinancings now represent just 36% of all mortgage applications, the lowest share since September 2008.

As of the writing of this post, The average 30-year fixed mortgage rate is 4.71%, up from 4.70% last week. 15-year fixed mortgage rates decreased to 4.13% from 4.15% this week.  A 760 credit score or higher generally will qualify you for the best mortgage rates. However, you don’t need excellent credit to qualify for a mortgage. It’s challenging but possible to get a mortgage with a credit score under 620. 

If you pass the FICO score test and the lender says you are creditworthy, the next item you will be evaluated for is your “capacity.” Capacity means that based on the lender’s allowed maximum percentage debt to your gross income, less all of your other debt payments, how much do you have available for a housing payment? It also has to be stable income, such as your income per year for two years in a row.

Please call/email me with any questions you may have. Also, be sure to subscribe for future discussion on this site, as I try to answer your questions regarding real estate and mortgage-related issues. 

what is Senior Citizen's Replacement Dwelling Benefit?

photo by Amir Zee | Laguna Beach, CA | iphone6 & montage 

Persons over age 55 or severely and permanently disabled may qualify for property tax savings when they sell their principal home and buy a replacement residence of the same or lower value. To learn how to qualify, read the following fundamental questions and answers.

PROPOSITION 60:
FOR QUALIFIED PERSONS OVER 55
Proposition 60 amended the California Constitution in November 1986. It allows qualified persons over the age of 55 to transfer the base year values from a former residence (“original property”) to a replacement residence under certain conditions.

Who is a "qualified person"?

First, the claimant must be age 55 or older, and own and occupy the original residential property as the owner’s principal residence as of the date of transfer to a new owner. If the claimant is married and resides there with his spouse, then both spouses qualify if either one of them is at least age 55 as of the date of transfer.

What is a “transfer of the base year value”?
Let’s take this step by step. The base year is the year in which the property or portion thereof is purchased, newly constructed, or a reappraisal ownership change occurs. The base year value, also called “original base year value,” is the full market value of the home in the base year. The total market value is typically determined by either the purchase price or the Proposition 13 value. Proposition 13 was a 1978 amendment of the California Constitution (Article XIIIA), aimed at controlling housing price increases. It limited the assessed value of existing homes to 1975-1976 values, limited tax rates to one percent of assessed value (plus any voter-approved surcharges), and limited inflation-based increases to two percent annually. Proposition 13 value is the full market value, adjusted according to these limits. Thus, the factored base year value of the original residence is the original base year value, adjusted by the annual inflation factor for each taxable year under the current ownership. Prop 60 allows this value of the original residence to be transferred to the replacement home.

What other "conditions" must be met to qualify?
Both the original and replacement properties must be located in the same county; and
The original property must have been eligible for either the homeowner’s exemption (claimant owned and occupied it as a principal residence at the time of sale or within two years of the acquisition of the replacement property) or entitled to the disabled veteran’s exemption (a veteran with service-related disability and California resident on January1 of claim year); and The replacement dwelling must be of equal or lesser value than the original property; and The replacement dwelling must have been acquired or newly constructed within two years before or after the sale of the original property as long as the replacement property was purchased or newly built on or after November 6, 1986;

and The original property must be subject to reappraisal at its current "fair market value" as a result of its transfer, by Revenue & Taxation Code sections 110.1 or 5803; and
A claim must be filed within three years of the replacement dwelling purchase or completion of new construction of the replacement dwelling.

What if I jointly own the property with someone who is not my spouse?
The same rule applies. If there are two or more co-owners of a dwelling, all owners qualify if only one owner of record is over 55 and if that owner/claimant occupies the property as of
the date of the transfer.

How often can I claim the Proposition 60 benefit?
The benefits of the Proposition 60 exclusion are granted only once in a claimant’s lifetime. As a co-tenant of the original property with another owner, may I receive a partial benefit if we apply for the exclusion and buy separate replacement homes?
No. Only one co-owner of a qualified original property may receive the benefit in this situation. The co-owners must choose between themselves which one will make a claim. The only exception is a multiple-residence original property (such as a duplex), where multiple owners qualify for separate homeowner’s exemptions. In that case, each owner may transfer a portion of the original property’s value to his separate replacement dwelling.

Does Prop 60 apply if I make a gift of my original property to my children and I buy a replacement?
No. A gift of the original home to the owner’s child, while the owner is alive or through a will upon the owner’s death, does not qualify. The original property must be sold in exchange for something of monetary value (“consideration”) and be subject to reappraisal at full market value at the time of transfer.

What is "equal or lesser value" of the replacement dwelling?
In most cases, where the replacement property is purchased before or at the same time as the original, the market value of the replacement must be 100 % or less of the market value of the original.

Must I buy the replacement home before I sell my original residence?
No. You have up to two years before or after the sale of the original residence to buy a replacement. The date of the replacement’s purchase determines the relative market value that is required to qualify under Prop 60. Thus, (1) if thereplacement is purchased or newly built before the original property is sold, the replacement’s value must be 100% or less than the market value of the original; (2) if the replacement dwelling is acquired or newly built within one year after the original is sold, the replacement’s value must be not more than 105% of the original’s value; and (3) if the replacement isacquired or newly built within two years after the original is sold, the replacement’s value must be not more than 110% of the original’s. Market value is not necessarily the purchase or sale price—it is determined by the county assessor.

As the sole owner of an original property, may I qualify when I jointly buy a share of a replacement?
Yes, you may, as long as you are otherwise qualified, regardless of how many co-owners buy the replacement. All co-owners will share your benefit, although they need not join in your claim. You may not claim the benefit again, but the others may. (Ref. LTA 91/80.)

May one sole owner of qualified original home and another sole owner of a separate eligible original home apply their separate Prop 60 benefits to the same replacement residence they buy jointly?
No. Each owner may only receive the benefit of a single claim. The owners may not combine their benefits to buy a replacement dwelling of equal or less value than the original combined value.


PROPOSITION 90:
FOR PROPERTIES IN DIFFERENT COUNTIES
Prop 60 requires that both the old and new homes be within the same county. Prop 90, adopted in 1988, extends Prop 60’s benefits to homes in two counties, but only if the county of the replacement property has adopted a county ordinance permitting the local county assessor to apply the value determined by the county assessor of the original home.

Which counties grant Prop 90 exclusions?
As of October 2000, these counties had adopted an ordinance making Prop 60 benefits available to local replacement dwellings: Alameda, Los Angeles, Orange, San Diego, Ventura, San Mateo, and Santa Clara. For more information, contact the county assessor in the county where you plan to buy.

PROPOSITION 110:
FOR SEVERELY DISABLED PERSONS
Proposition 110 was adopted on June 5, 1990, to extend Prop 60 to severely disabled persons residing permanently in the property. Also, in existing homes qualified for a homeowner’s exemption, certain construction, modifications, or installations intended to increase accessibility for an owner or an owner’s severely and permanently disabled spouse, are excluded from reappraisal.

Do I also need to be 55 or older to qualify?
No. Prop 110 applies regardless of age.

What other conditions must be met?
The replacement property must be newly built or purchased on or after June 6, 1990; and

The disability must be appropriately certified; and
The claimant must not have previously benefited from a replacement dwelling exclusion. However, an exception applies to successful claimants under Props 60 or 90 who later become severely and permanently disabled: they may qualify again, under Prop 110. (Ref. LTA 97/02, R&T
Code §69.5.) Information courtesy of LA County

Housing Shortage at California

Photo by Amir Zee | Long Beach, CA

On the final day of the 2017 legislative session, the California legislature approved, and Governor Brown signed fifteen separate bills aimed at starting to address some of the driving factors of the shortage, such as requiring cities to allow developments that meet their zoning and general plans and allowing micro apartments as small as 150 sq. Ft.

It is evident due to the housing shortage, housing prices increasing this year. Interest rate still low between 4% - 5%.

According to California Association of Realtors, affordability for a single family residence is 31% and the median price of $538640. Condominium affordability is 39% with the median price of $449720. 

If you have any questions or comment, please contact me, I will be glad to help. Be sure to subscribe for future upcoming real estate issues. 

photo by Amir Zee | May 24, 2018, Long Beach

I am writing this post because few of you ask about the benefit of family trust last week. My answer is to talk to your attorney Before you do anything. Each person situation is different, and an expert attorney in family trust planning will tailor the best plan for you.
Trust may provide legal and tax advantages. Mostly it includes estate planning advantages. Here are some possible considerations you may want to explore with your legal/tax/lender/escrow professionals:

1) If you are getting a loan when you purchase, most banks will not allow you to buy in trust as they require a person (not an entity) to hold responsible for the loan. Some folks who desire to put their home in a trust will file a quit claim deed after closing to transfer Title to their Trust.

2) If your home is in a Trust, it may provide a faster way to transfer rights of ownership where you decide who gets your ownership rights. Possibly avoiding probate and any laws which would default dictate who would get the rights upon your death.

3) If your home is in a trust, it may provide some protection if you are sued personally.

Let us look at two type of trust which are more common in real estate:

A REVOCABLE LIVING TRUST

May be used if a property owner wishes to make provisions for the transfer of property upon death but is not currently ready to make an actual transfer of ownership. For a trust to be revocable, the “trustor” must reserve the right to terminate the trust and retain all trust property. When property is placed in a revocable living trust, there is no “change in ownership,” and thus, no reassessment to the current values.
Upon the death of the trustor, the revocable living trust becomes irrevocable. In preparing a revocable living trust, there should be planning to qualify the real property for the parent-child or another exclusion to avoid a “change in ownership,” and thus reassessment, upon the death of the trustor.

AN IRREVOCABLE TRUST

Is used when a property is transferred during the lifetime —or upon the death—of the property owner, or when the beneficiary of such a trust is changed. These events will (for property tax purposes) generally trigger a reassessment. However, if the parent-child exception applies, and with proper planning, it is possible to leave property to a child in trust and be relieved of the burden of high property taxes. With an Irrevocable Trust, a property owner can maintain ownership of the property for the duration of the owner’s life.

When property is left to more than one child, one of these children may want the property, and the other may seek money or assets of equal value. If the trust provides only the property to each child equally (each getting a one-half interest), it will be necessary for one child to transfer their interest to the other in exchange for an equalizing payment. This would no longer be a parent-child transfer, but would be a sibling-to-sibling transfer, which is not excluded from reassessment—thus, a change in ownership will have occurred, and the property will be reassessed. In either case, consult with a real estate or estate planning expert for advice before claiming any exclusions.
NOTE: This information is not intended as a complete guide regarding property tax laws. Again, please talk to your attorney. Your questions and comments are welcome as always. Be sure to subscribe for future conversations. 

What is Capital Gains Tax Law "When Selling Your Home"

photo by Amir Zee | May 20th, 2018 Long Beach 

Simply put, you may exclude up to $250,000 of your capital gain from tax. For married couples filing jointly, the exclusion is $500,000. Also, unmarried people who together own home and separately meet the tests described below can each exclude up to $250,000.

The law applies to sales after May 6, 1997. To claim the home as your principal residence an aggregate of at least two of the five years before the sale (this is called the ownership and use test). You can claim the exclusion once every two years. Even if you haven't lived in your home a total of two years out of the last five, you're still eligible for a partial exclusion of capital gains if you sold because of a change in your employment, or because your doctor recommended the move for your health, or if you're selling it during a divorce or due to other unforeseen circumstances such as a death in the family or multiple births.

Your gain is actually your home's selling price, minus deductible closing costs, selling costs, and your tax basis in the property. (Your basis is the original purchase price, plus purchase expenses, plus the cost of capital improvements, minus any depreciation and minus any casualty losses or insurance payments.)

Deductible closing costs include points or prepaid interest on your mortgage and your share of the prorated property taxes. Examples of selling costs include real estate broker's commissions, title insurance, legal fees, advertising costs, administrative costs, escrow fees, and inspection fees.

So, for example, if you and your spouse bought a house for $100,000 and sold for $650,000, but you'd added $20,000 in home improvements, spent $5,000 fixing the place up for sale, and paid the real estate brokers at least $25,000, the exclusion plus those costs would mean you'd owe no capital gains tax at all.

There are other situations as Nursing Home Stays, Home Offices and Marriage, and Divorce which I am not explaining it here as they not as common. But, if you have any questions, please call me, I will be glad to answer any questions.

Your comments are welcome. Be sure subscribe to blog for future real estate related issues.  

How to Apply for $7000 Homeowner’s Exemption in LA county

Photo by Amir Zee | Lafayette bldg. exterior 2017

Homeowners Exemption applies to homes that serve as a principal place of residence and amounts to a $7000 deduction from the home's assessed value, saving taxpayers approximately $70 per year.
The Assessor's Office estimates that nearly 400,000 homeowners are still eligible but fail to take advantage of these savings. This exemption can be especially beneficial to low-income homeowners and people on fixed incomes.

While $70 may seem inconsequential to some, over a 10-year period, it amounts to $700 – roughly the price of a new water heater. The Assessor also warns residents against fraudsters who offer to file an exemption for a fee. There is no filing fee, and no need to re-apply once qualified and Assessor's office is happy to help homeowners with the process. For additional information,
please visit the LA Assessor’s website If you own a home and it is your principal place of residence on January 1, you may apply for an exemption of $7,000 from your assessed value. New property owners will automatically receive a Claim For Homeowners' Property Tax Exemption. Homeowners’ Exemptions may also apply to a supplemental assessment if the prior owner did not claim the exemption. Further instructions are included with the claim form. Call 213.974-3211 or 1.888.807.2111 for forms and additional information.

This information is not intended as a complete guide regarding property tax laws. The information here has been derived in part from written and oral opinions from the California State Board of Equalization.

I appreciate your comment and questions. Feel free to post them, and I will be glad to answer them. Be sure to subscribe to blog for future informative posts.