How much should you expect to pay in closing costs to buy a home

So you want to buy a house but you’re not sure how much money you need for closing costs on top of the down payment.  Well, here is an overview of what you can expect to pay in North New Jersey on a home purchase of $500,000.

Information was provided by:

Paul Davis from Annie-Mac Home Mortgages                                 
pdavis@annie-mac.com                                                     
856-334-3181

When you receive a loan estimate (LE) from a lender, there are approximately six categories of charges, collectively known as closing costs or sometimes called settlement charges.

The categories are as follows:

Origination charges – these are the costs for originating the loan and any loan discount points you would elect to pay to discount the interest rate. The origination charges vary from bank to bank. Banks are subject to an incredible amount of compliance requirements and the additional staffing required to meet the compliance regulations has greatly increased the cost for banks to originate a loan. You can expect to pay anywhere from $500 up to $2,500 for origination charges. The origination charge is often called the bank fee.

Services you cannot shop for – the charges in this category include the credit report, the flood certification, tax service, lender’s title insurance and appraisal fees. The credit report is anywhere from $15 to $30 per applicant. The flood certification, which is provided by FEMA, is $25. The tax service is typically $75. The lender’s title insurance policy has to be enough to cover the amount of the mortgage. In this scenario, figure $1700 for the necessary coverage. The cost of the appraisal is determined by the type of loan and the type of home that is being purchased. An FHA appraisal tends to be $50 to $75 higher than an appraisal on a conventional loan. Expect to pay between $375 and $475 for an appraisal on a single family home. Appraisals performed on multi-family homes and homes to be used as investment properties are more expensive because more work is required by the appraiser.

Services you can shop for – the charges in this category are for items such as the title services, any elective inspections or treatments, and attorney fees. You can expect title services to cost an additional $1200-1400. The home inspection could cost anywhere from $600 up to $1,000 and typically includes a termite inspection. Often times a client will choose to have the grounds of the subject property checked for underground tanks. The cost of these sweeps are typically below $400. A land survey, while not required by the lender and typically not required by the title company, is money well spent to firmly establish the legal boundaries of your subject property. These land surveys can run from $450 up to $1,000.  Attorney fees vary but you can expect to pay around $1200 to $1500.

Taxes and other government fees – each County has a charge to record the deed and the mortgage at the County Courthouse. Expect to pay between $400 and $500.

Prepaids – prepaids are for items such as home insurance premiums (the lenders require 12 months to be paid up front), any mortgage insurance premium if required, and prepaid interest which is collected at settlement to cover the interest that accrues from settlement day until the last day of the month. Also, any property taxes that are due within 60 days of settlement are typically collected.

Initial escrow payment at closing – if you elect to have the lender collect for the property taxes and the homeowners insurance (and flood insurance when required), this is known as ‘escrowing’. The lender will project how many months of taxes and insurance are required to be collected at settlement so that, with your monthly contributions, the escrow account will have sufficient funds to pay the taxes and insurance premiums as they come due.

In total, these costs amount to roughly 2-5% of the purchase price of the home and are in addition to the cash down payment you will need for the loan.

For more information to go: http://www.urbansuburb.com.

The Split-Level Home Makes a Come Back

Photo by The Cleary Company. See more traditional exterior designs

Photo Credit: Houzz

A split-level home is a style of house in which the floor levels are staggered. There are typically two short sets of stairs, one going up to a bedroom level, and one going down to a basement level. The basement level is usually at grade level or slightly below and finished, and often contains additional living area.  Sometimes there is an additional basement level, below grade, which is frequently unfinished. Split-level houses originated in the 1950s as an alternative to the one level ranch home.  The design proliferated in the 1960s particularly in the suburbs where sloped terrains and smaller lots could not necessarily accommodate a more sprawling ranch design.  No other architectural style elicits such reaction as the split-level home but long after the Brady Bunch era, this style is having a resurgence in popularity.

There are several reasons for the split-level’s increase in popularity:

• Compared to more prolific architectural styles, like the colonial, dollar per square foot, the split-level gives you much more bang for the buck
• The proportion of living space to bedroom space is usually greater in a split-level design versus other architectural styles which are more vertical like victorian styles
• They usually have a more open floor plan with the kitchen, dining and living rooms in close proximity and often having no or partial walls
• The garage is typically attached providing easy access to the home and not taking up valuable yard space for a detached garage
• The “split”of the more formal entertaining spaces and more casual family spaces lends itself well to family living.  There is space for everyone!

 

For more information to go: http://www.urbansuburb.com.

How a mortgage preapproval helps you in the home buying process

Buyers are often eager to get their home search started but here is why you need a mortgage preapproval before you start your home search.

• Most importantly you need to know how much home you can afford.  If you are searching for homes in the $600,000s and then find out you only qualify to buy a home up to $450,000 based on what you have for a down payment and can borrow, you might be disappointed in what that reduction in buying power means in terms of house size, features and location.
• Not all home loans are the same and depending on the loan type that best suites your financial picture and personal situation, there are different requirements and loan amounts you could qualify for.  It is best to speak to a mortgage professional to decide what is the best loan product for you and what those mean in terms of down payment requirements and monthly expenses.
• Getting a preapproval before you shop for a house gives you time to fix unexpected errors on your credit reports.  Those errors do happen, such as a bill that was paid that still shows up as a  delinquency, a credit card you didn’t open that is on your report or in my case, a credit card company reported my death to the credit reporting agencies.  That one was interesting to clear up!  Needless to say it took time.
• In a competitive market which we are currently in, at least in the Montclair area, you won’t be taken seriously making an offer on a house unless you have a preapproval included in the offer package.
• Because of the competitive market, the timelines are accelerated.  It is not uncommon for a house to come on the market or showings to begin Thursday or Friday and offers being due the following Tuesday afternoon.  If you have not already started the process to get preapproved, that can be very rushed to get all the paperwork in and also contemplate a strong offer.  This can create additional stress on an already stressful multiple bidding situation.
• Lastly, having the preapproval means that when you do find that dream home, the process can be accelerated because the lender has the majority of the paperwork needed to ultimately provide the mortgage commitment.  Some lenders even offer different levels of preapproval further simplifying the process of the loan application after the offer to purchase is accepted.

For more information or if you would like a referral to a mortgage broker, please contact me at http://www.urbansuburb.com.

Knob & Tube Wiring

 

What is Knob and Tube wiring?

Knob and Tube wiring was an early standardized method of electrical wiring used from about 1880 to the 1940s.  Knob an Tube wiring gets its name from the ceramic knob used to hold wires in place and the ceramic tubes that act as protective casings for wires running through wall studs or floor joists.  The system is considered obsolete but many older homes can still have some evidence of knob and tube particularly if the electric has not been updated.  The picture above was taken at a house I recently sold in Glen Ridge.

Why is Knob and Tube a concern?

Knob and Tube can be a safety hazard.  According to Anderson Electric, the dangers from this system arise from its age, improper modifications, and situations where building insulation envelopes the wires.  Insulation around the Knob and Tube wires will cause heat to build up, and this creates a fire hazard.  It also has no ground wire and thus cannot service any three-pronged appliances.  Wiring must be grounded in order to be used safely in wet locations such as kitchens, bathrooms, laundry rooms and outdoors.

Why is this important in a real estate transaction?

Other than the safety concerns noted above, the other complication of Knob and Tube wiring is the difficulty it can cause in obtaining home owners insurance.  Many insurance companies will refuse to insure a house with Knob and Tube wiring.  Others will command a higher premium or will insist the wiring be updated within a certain amount of time.  Removing Knob and Tube wiring is also costly.  According to Angie’s List, the cost is around $8000 to $15,000 to rewire a 1,500 to 3,000 square-foot home.  In my experience it, can be even higher.  This also does not take into account the repairs needed to fix the damage made to walls to remove the outdated wiring.

If you are planning on selling your home and know you have Knob and Tube, I recommend that you proactively remedy the situation.  Don’t wait for the buyers’ inspector to find the issue and potentially lose a qualified buyer.  If you are buying a home from this era, make sure you do a home inspection and hire a qualified and licensed home inspector who can look for evidence of Knob and Tube.

For more information go to http://www.urbansuburb.com.

 

The Tax Benefits of Home Ownership

 

Provided by:

Albert Rodriguez CPA

248 Lorraine Ave, 4^th floor

Montclair, NJ 07043

Rodriguezcpa.net/973-783-1040

 

The deductibility of homeowner expenses is a significant area of tax savings. Here is what is deductible from your taxes if you own your home:

Mortgage Loan Interest

Interest on your main home and a second home are generally deductible as an itemized deduction. The qualified loan(s) can be first and second mortgages, home improvement loans or a home equity loan.

Mortgage Costs

Costs paid in advance as “points” and loan origination fees at closing are deductible.

Refinancing “Points”

Points paid during refinancing can be deductible, but must be spread out in equal amounts over the life of the new loan.

Real Estate Taxes

Property taxes paid on your main and second homes are deductible as an itemized deduction.

Rental Income Less Than 15 Days

If you rent your home for less than 15 days during the year, you do not need to claim the income.

Assessments

Expenses for maintenance or repair are deductible.

Home Office

Homeowners may also qualify for a home office deduction if certain qualifications are met. The key criteria for a home office are:

• Principal place for your business
• Where your patients, clients or customers meet with you in the normal course of business
• The area is used exclusively and on a regular basis for business
• The area is used at the convenience of your employer
• The area is the sole place for storing products used for your business
• A place to conduct the administrative or management activities of your trade or business, provided there is no other fixed location for such activities

You are limited to home office deductions equal to but not greater than the gross income of the business minus other business activity expenses.

These charges are not deductible:

Lender Imposed Closing Charges

Charges related to the mortgage loan, but not loan interest, are generally not deductible. These include appraisal fees, notary fees, preparation and loan registration fees.

Seller Paid “Points”

The seller may not deduct “points” paid on behalf of the buyer.

Homeowners Insurance

The insurance premiums are not deductible even if the payments are escrowed as part of your monthly payment.

State and Community Charges

Charges by the state or township for services such as water and sewer are not deductible.

Assessments That Improve Your Property

State and local assessments such as sidewalks are generally not deductible.

When you sell your home you may be able to exclude up to $500,000 (married couples) or $250,000 (single person) of your gain when selling your house. This tax-free gain can be used once every two years for your primary residence. To qualify for the gain exclusion, you must also meet a two-year out of the last five-year residency requirement. But even this qualification has some exceptions if you are required to move due to unforeseen circumstances. In addition, qualified home improvements can be added to your home’s value to reduce the possible gain. Home improvements include such things as adding a room, finishing an unfinished basement, adding a new roof, or paving your driveway. Repairs and maintenance are not considered improvements unless they are done in conjunction with a remodeling project.

 

This article provides only summary information, for specific questions about your situation, please contact your tax professional.

For more information go to http://www.urbansuburb.com

 

Landscaping for Selling Success

Before

 

After

 

 

 

Provided by:

Cynthia Corhan-Aitken

Twig & Vine Design, LLC

http://www.twigandvinedesign.com

 

When the time comes to put your home on the market, there is a certain protocol that takes place.  A realtor comes in, walks the house, a price is decided upon and then it begins.

The decluttering phase!  Take away family pictures, clear the countertops in the kitchen to make it look bigger, clean the carpet, fix this, repair that.  But what about the outside of the house, does that go through the same process?  Shouldn’t it be decluttered and cleaned up as well, after all it is the first impression for a prospective buyer.

Since the first impression is the curb appeal, the entry to the front door should be carefully considered.  Looking back to when we bought the house we lived in, my first impression was not a good one.  When we drove up we could barely see the house for the 2 huge pine trees on either side of the front entry.  They covered the house and once inside made the house dark and dreary.  In addition, the landscaping in the back of the house as well as the front was overgrown and a bit of a bramble.  Luckily for our seller, the inside made up for the neglect of the outside and being a landscape designer and a big gardener, the outside offered a chance to really make a change and put a stamp of my own on a 100 year old house.  To make this point though, it turned out someone I know also looked at this house.  They were seriously considering it and were ready to make an offer but what held them back was the gardens, they thought it would need too much work and were frightened off by that.

In its overgrown state, it looked overwhelming and daunting.

So…how to landscape for selling success?  I am not a realtor nor a sales person of any sort but I do know curb appeal and here is my advice.  Stand in front of your house, maybe even look at it from across the street.  And look at it, really look at it.  Not like someone who has lived in it, has loved it, has emotional ties to it, look at it like someone will look at it with no emotion at all.  Now that you have done that, what do you see, what do you really see?  Are the front windows blocked by overgrown evergreens that have been there for years.  Are the hedges, leggy and spindly and just unattractive.  Are the shrubs overgrown, out of shape.  Maybe it is time for a good pruning?  Maybe it is time to declutter the yard and make the first impression of your house a happy and welcome one.   Once the garden “decluttering” has been accomplished think about adding some colorful annuals at the boarder.  They will bloom on and on and will continue to keep things looking nice.  In addition, consider adding some flowering pots for a finished look.

The only problem, once you are done you might not want to leave.

Have fun!

 

 

What To Do With An Underground Oil Tank In A Real Estate Transaction

According to the New Jersey Fuel Merchants Association there are over 100,000 buried oil tanks in New Jersey.  In my real estate dealings, addressing an underground oil tank is common practice.  The risk in buying a house with an underground oil tank is that it may have leaked.  It is not that uncommon for older underground oil tanks to leak oil into the surrounding soil or in extreme cases the ground water.  The party responsible for cleaning up a spill is the current home owner and most home owner’s insurance companies do not cover the clean-up.  Even oil tank warranty companies such as Proguard have restrictions and coverage limits.  That is why in representing buyers, I recommend that properties be checked for underground oil tanks and that the real estate contract stipulate that it is the seller’s responsibility to remove the underground oil tank.  And as a seller, if you have an oil tank, it is best to pro-actively remove it before even listing your house so that it won’t become an issue in the real estate transaction.

The following is some frequently asked questions and answers that were provided by NorRoc Enterprises, one of the environmental companies I recommend to remove underground oil tanks.  The picture above is actually the company removing a 1000 gallon oil tank from my property.  They can be reached at 973-541-9559 or norroc@optonline.net.

What is involved with removing an underground oil tank?

The first step is a site visit.  During this site visit, the representative will find the location and orientation of the oil tank and see if there is any fuel or water in the tank.  The field rep will also check for equipment access.  The next step is the permit process.  NorRoc applies for all permits from the local municipality which has up to 21 days to process the permits.  Once the permits are received, the process to remove the tank is only one day.  In a few short hours, the tank will be exposed, cut open and cleaned and then removed from the ground.  Once removed, the field crew waits for the arrival of the municipal inspector to approve the tank removal and excavation.  Once cleared, the area is backfilled with certified clean / virgin quarry soil.

How much does it cost to remove an underground oil tank?

The cost associated with an oil tank removal can vary depending on size, accessibility and remaining oil in the tank.  An average 550 gallon tank that is easily accessible and has no fuel remaining can cost approximately $1600 to remove without permits.  For a 1000 gallon tank the cost would be approximately $1800.  Towns can charge from $50-$279 for the permits and the cost is passed onto the customer.  There is no charge from NorRoc for getting the permits.

What happens if the oil tank leaked?

If the tank shows signs of leakage, the NJDEP (New Jersey Department of Environmental Protection) is contacted and a case number is issued.  Once the case number is issued, the NJDEP will require remediation be completed by a NJDEP certified contractor.  This contractor manages the process and the approvals required by NJDEP.   Remediation requires removal of all contaminated soil.  Soil samples are taken from the excavation and incorporated into a report that is issued to the NJDEP for approval.

How much can the clean-up cost?

Clean-up can range from $10,000 to $200,000 depending on the amount of soil that needs to be removed, if there is groundwater contamination and what further measures need to be taken per NJDEP protocol.

How long does the clean-up take?

Depending on the extent of the contamination, the clean-up can take a few days up to a few months.  If it is simply soil contamination, the field time can take 1-5 days with additional time for report writing, receipt of soil sample lab reports, disposal certificates etc.  In the event ground water is contaminated, that would be a case by case basis as monitoring wells would have to be installed and possibly a water treatment system.  This is an extensive process and it could take months to complete.

For more information go to www.urbansuburb.com

 

Home Insurance 101

 

Provided by Diana Fennelly

Private Client Group

William H. Connolly & Co. Insurance and Risk Management

dfennelly@whconnolly.com

973-650-9515

 

When should buyers begin looking for homeowners insurance?

Homebuyers should start the process at least one month prior to the closing.  Mortgage companies require proof of insurance and a receipt showing that the first year is paid in full at the closing.  We can usually bind a policy in a few days depending on the company that the homeowner selects but mortgage companies like to see the proof of insurance at least two weeks prior to the closing.

What information does a buyer need in order to purchase insurance?

We need personal information about the purchaser such as name, address, occupation and place of work.  We also require one of the insured’s social security numbers as many carriers do soft credit checks.  Fortunately, most purchasers have their credit in good shape as they are also applying for a mortgage so this doesn’t usually present a problem.

We also need as much information about the house as possible such as the year the house was built, accurate square footage including the basement and attic space as well as the porches and exterior space.  We ask how many bedrooms and baths, fireplaces, size of garage and whether it’s attached or detached.

Carriers are especially interested in the age of the roof, hot water heater and whether or not updates have been made to the electrical and plumbing.  Updates to these areas can sometimes lessen the premium.

Also key is whether or not the buyer has made any claims on his homeowners insurance in the last 3 to 5 years.

Once we’ve gathered all the information we have a conversation about the client’s budget as well as what is appropriate for the property and value.  We use the information to pull quotes from various carriers and present the options to the buyer.

Will an agent need to see the house?

Usually not but we are happy to come out and see a property if the buyer asks.  The inspection report can provide us with details.

What things impact the ability to get insurance and the price of insurance?

Good credit can affect a premium as well as the age of the home and whether or not updates have been made to plumbing, electrical and the roof.  Two or three family homes need to be placed with specific carriers.  Some carriers won’t insure a home built before 1900 or homes with knob and tube electrical.  Our most difficult to place clients are those who have been non-renewed by their current carrier either for non-payment or having filed too many claims in a certain amount of time.

One of the key determinates of premium price is whether or not the carrier provides “guaranteed replacement cost” in the event of a catastrophic loss (usually due to fire).  More basic carriers cap replacement costs at about 125% of the dwelling amount listed on the policy.  High end policies do not cap replacement costs but they do appraise the properties more carefully and the policies can cost more.  These high end policies offer broader coverages as well.

Are there options in terms of what to insure for and for how much? 

Policies are renewed annually at the discretion of the carrier.  A basic policy covers the “dwelling” amount (the actual house), the “contents” (all the stuff that would fall out if you were to hypothetically turn the house upside down), “other structures” such as the garage and walkways and liability (medical payments should someone who is not actually living in the house have an accident on the property).  Policies also have other built-in coverages such as “loss of use” or coverage to live elsewhere should you be displaced due to fire or some other catastrophic loss.  Optional coverages for things such as jewelry, umbrella (also known as excess liability) as well as auto insurance are also available.

One of the most confusing aspects for homebuyers is when the dwelling amount is different or higher than the purchase price.  Policies that offer guaranteed replacement cost will value a house based on their ability to rebuild should there be a catastrophic loss.  This rebuild includes such things as removing the debris, re-digging the foundation, the use of an architect, building green and rebuilding the home exactly as it was before.  As a result the insurance appraisal can be quite different from the market price that is often based on the location, school system and what the homes around it have sold for.

For more information go to: www.urbansuburb.com.

What You Need to Know About the Appraisal Process

As a buyer, unless you are purchasing your new home in cash, you most likely made your offer contingent on obtaining a mortgage. Mortgage lenders will require an appraisal on your home before they’ll provide a loan for the property since that property is the underlying asset that serves as collateral for the loan.

So What is an Appraisal?

An appraisal is a written estimate or opinion of a property’s market value completed by an appraiser. The value is based upon a market analysis of recent sales prices for similar properties in the area, and the property’s physical condition. The two main methods for appraising residential properties are the sales comparison approach and the cost approach. In the sales comparison approach, the appraiser compares the subject property with 3-5 recently sold similar properties (comparables or comps). The subject property is compared to the selected comps for any dissimilar features that would impact value such as size, condition, or improvements. In the cost approach valuation method the property value is based on the replacement cost of an equivalent structure. The market price for the property is equivalent to the cost of land plus the cost of construction, less depreciation. It is often most accurate for market value when the property is new.

What Does an Appraiser Look For?

The basic appraisal calls for information on the property. A typical appraisal report includes the subject and comparable property legal descriptions, sales price of comparable properties, square footage and price per square foot, lot size, age, condition, total rooms, appraised value, among hundreds of other identifying aspects of the property. The appraiser has the opportunity to comment or rate every aspect of the home, the property and even the utilities.

Why do Banks Appraise Properties?

If you default on the loan, the lender needs to make sure that they can sell the property to repay the loan. The lender uses the lower of the appraised value or purchase price in determining their loan to value ratio. So for example if you are getting a mortgage with 20% down on a property that you offered to pay $500,000 for, the bank should loan you $400,000 but if the property appraises at $480,000, the bank will loan you 80% of the $480,000 or $384,000. If the property appraises for $520,000 though, the bank will still only loan you the $400,000 since your loan is based on the lower appraisal value.

Who Benefits?

While the buyer pays for the appraisal, it is done on behalf of the lender. Lenders have their own approved appraisers but it is important to understand that the appraisers don’t work for the lender; they are independent professionals. In NJ, the appraisal must be done by a licensed or certified real estate appraiser.

Opinion of Value and Consumer Protection

So what happens if the appraisal comes in lower than the purchase price? Your protection depends on the specific language that is put in your purchase contract so make sure you discuss the process and options with your attorney during attorney review. If your contract is subject to the property appraising at the purchase price then you can cancel the contract or renegotiate with the seller on the purchase price. Another option if you still want the property is to put down a larger down-payment. So using the example from above of purchasing a property with 20% down for $500,000, if the appraisal comes in at $480,000, the buyer can put down the difference between the loan amount of $400,000 and $384,000 or the extra $16,000. Obviously, the buyer has to have the additional funds available. Your realtor can help you evaluate these options and negotiate with the seller on your behalf.

For more information go to http://www.urbansuburb.com.

Considering an investment property or multi-family?

Are you considering an investment property or multi-family?  If so, read on about why Montclair is a great place to invest.

According to the 2010 Census, 43% of housing units in Montclair are renter occupied by 12,711 people.

In 2014, according to the Garden State MLS: there were 40 two family homes sold with an average sale price of $348K, 7 three family homes sold with an average sale price of $477K, and 6 four family homes sold with an average sale price of $584K in Montclair.

The rental market is very strong with apartments typically renting within a month.  According to the Garden State MLS, in 2014: 1 bedroom apartments rented within 31 days at an average rental price of $1375, 2 bedroom apartments rented within 33 days at an average rental price of $1901, 3 bedroom apartments rented within 33 days at an average rental price of $2607, 4 bedroom apartments rented within 36 days at an average rental price of $3796 and 5 bedroom apartments rented within 32 days at an average rental price of $3967 in Montclair.

Renters consider the following in their decision on whether or not to rent an apartment: condition, size, and location, with proximity to transportation and shopping important, and ability to have a pet.  Also important are amenities such as parking and laundry.

For more information go to www.urbansuburb.com