Buyers

Here are five things you may not know about VA loans.

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1. They’re reusable.

Even if someone has used a VA loan in the past, they’re still eligible for a new loan. Service members can reuse the loan as many times as they like as long as they pay each previous loan off. Furthermore, service members with bankruptcies and foreclosures can still get a VA loan, even if it was a VA loan they foreclosed on.

2. Only certain homes are eligible.

VA loans are primarily designed for move-in-ready homes that will be the service member’s primary residence. While there are a few exceptions, commercial properties, investment properties, and vacation homes are typically ineligible.

3. The VA doesn’t issue the loans.

The VA doesn’t actually provide the loans; they just guarantee the loans (usually up to 25 percent), making lenders more confident and allowing service members to get better terms and rates.

4. No mortgage insurance required.

The VA’s guarantee eliminates the need for service members to purchase mortgage insurance for their loans, saving them thousands of dollars. However, there is a mandatory fee of about 2 percent of the loan amount for VA loan recipients. This fee helps keep the VA loan program going and can be rolled into the loan amount or waived for those with service-connected disabilities.

5. They have co-borrower restrictions.

Having a co-borrower who isn’t the spouse of the service member or another veteran with VA loan entitlement who will also live in the home will require a down payment on the home.

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Household appliance life expectancy

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As much as we don’t like to think about it, household appliances need to be upgraded at some point. Most warranties offer an easy solution to this problem, but it isn’t always so simple. Regular maintenance while planning for replacements can help extend the life of your appliances and prevent financial and emotional shock when they break down.

Air conditioner: Good-quality central air conditioners can last up to 20 years, with many replacement parts readily available.

  • Filter cleaning or replacement improves efficiency and protects the health of the evaporator coil. The coil should be cleaned once a year.
  • Problems may also arise from incorrect installation resulting in leaky ducts and low airflow. Consult an HVAC professional to ensure your AC is functioning properly.

Dishwasher: Dishwashers usually last no more than 10 years.

  • Pay attention to lime buildup — use a lime descaler once a year to extend the life of your appliance.
  • Clean your dishwasher’s filter every six months to greatly improve its cleaning ability.

Refrigerator: Refrigerators need to be replaced about every 15 years.

  • Clean dusty condenser coils twice a year to improve performance and extend the life of your refrigerator.
  • Clean door gaskets to ensure a tight seal and prevent stress to the refrigerator’s motor — gasket repairs can be costly.

Washer/Dryer: At an average of one load per day, all newer model washing machines and dryers can last up to 14 years.

  • Avoid overloading your washer to reduce the strain placed on its moving parts and extend its life.
  • Clean the lint screen on your dryer after every load to improve circulation and eliminate fire hazards — use the long nozzle on vacuum to clean lint missed by the screen.
  • Clean the dryer vent ducting once a year so it flows cleanly.

Water heater: Depending on the type of water heater in your home (standard storage, tankless, heat pump or solar) it can last anywhere from 10 to 20 years.

  • Water heaters are subject to rust and mineral buildup. Flushing sediment from the tank and checking the anode rods once a year will help improve efficiency and longevity. Replacing the anode rods when needed can save you hundreds of dollars.
  • Experts recommend repairing rather than replacing your water heater up until 10 years of use. When problems become more complicated after that, it’s time to consider upgrading.

What is the purpose of the TDS?

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A: A seller’s broker and their agents have a fiduciary agency duty owed to their seller to diligently market the listed property for sale and do what is necessary to locate a buyer.

On locating a prospective buyer, the seller’s agent owes the prospective buyer and the buyer’s agent a general duty to provide factual information on the listed property, collectively called disclosures of material facts.

The seller’s agent is required to gather facts about a property that affect the property’s value, and actively take steps to make specific disclosures to prospective buyers when marketing a one-to-four unit residential property for sale.

Fact gathering activity of the seller’s agent includes:

  • Conducting a visual inspection of the property to observe conditions which might adversely affect the market value of the property;
  • Entering any observations of adverse conditions inconsistent with or already noted by the seller on the the Transfer Disclosure Statement (TDS);
  • Assuring seller compliance with the seller’s duty to deliver statements to prospective buyers as soon as practicable (ASAP), including a TDS, by providing the seller with statutory forms at the listing stage to be filled out, signed by the seller and returned to the agent for inclusion in the marketing package to be handed to prospective buyers on their inquiry into additional property information; and
  • Reviewing and confirming, without further investigation or verification by the seller’s agent, that all the information and data in the disclosure
  • Documents received from the seller are consistent with information and data known to the seller’s agent, and if not, correct the information and data by either investigating and clarifying the information or disclosing in the documents their uncertainty about the information.

A seller’s agent’s duty owed to prospective buyers to disclose facts about the integrity of the physical condition of a listed one-to-four unit residential property is limited to prior knowledge about the property and the observations made while competently conducting the mandatory visual
inspection.

Accordingly, all property information received from the seller is reviewed by the seller’s agent for any inaccuracies or untruthful statements known or suspected to exist. Corrections or contrary statements by the seller’s agent
necessary to set the information straight are included in the document or the document corrected before the information may be used to market the property and induce prospective buyers to make an offer to acquire the property.

What is a balloon payment?

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A: Final/balloon payment mortgages contain due date provisions calling for final payment of the principal balance in a lump sum before the principal is fully amortized through periodic payments.

For homebuyer mortgages, a final/balloon payment mortgage has a scheduled final payment that is more than twice the amount of any of the six regularly scheduled payments immediately preceding the balloon payment date.

Final/balloon payments on consumer-purpose, homebuyer mortgages have become rare due to consumer mortgage legislation, known as Regulation Z (Reg Z).

When your mortgage complies with Reg Z qualified mortgage (QM) standards, your mortgage needs to be fully amortized in substantially equal
regular installments, a rule eliminating the inclusion of a final/
balloon payment provision.

Business-purpose mortgages often have a due date for a final/balloon payment as they are not subject to federal consumer mortgage law.

When your consumer mortgage has a final/balloon payment, your lender needs to document their good faith effort to determine your ability to actually repay the mortgage when it is due.

A consumer or business mortgage with a term exceeding one year which is secured by your primary residence and contains a final/balloon payment due date is required to include a 90/150-day due date notice provision.

The notice reminds you of the final/balloon payment and gives you an opportunity to modify, refinance or pay off the remaining principal balance before the final/balloon payment becomes due.

The notice needs to be delivered at least 90 days, but not more than 150 days, before the due date (hence the term 90/150). When the notice is not timely delivered, the due date of the final/balloon payment is extended until 90 days after proper notice is delivered. No other terms of the note are affected. Thus, the accrual of interest and the schedule of periodic payments remain the same during the extended due date period.

Difference between Re-course and Non Re-course loans

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A: Mortgage lenders are limited in their ability to recover losses incurred when the value of the property securing the mortgage is insufficient to satisfy the mortgage debt.

On any default, the lender must first foreclose and sell the property to determine their loss on the mortgage. The lender’s ability to collect their loss from the owner depends on the type of debt the mortgage represents.

One type of debt called a nonrecourse mortgage, also known as purchase-money debt or anti-deficiency debt, includes:

  • Purchase-assist financing by a lender on a one to four unit residential property to be occupied by the buyer;
  • Carryback mortgages evidencing the installment sale of any type of property; and
  • Refinanced purchase-money mortgages, to the extent the funding is applied to pay off the replaced purchase-money mortgage.

When a lender forecloses on a nonrecourse mortgage by either a trustee’s sale or a judicial sale, the lender is barred from obtaining a deficiency judgment in any amount.

Thus, when the value of the secured real estate becomes inadequate to fully satisfy the debt, a condition called negative equity, the risk of loss shifts
from the owner to the lender.

A nonrecourse mortgage retains it nonrecourse status for the life of the mortgage unless it is:

  • Subordinated to a construction loan; or
  • Secured by other property, in whole or in part.

The other type of mortgage called recourse debt is any debt not classified as nonrecourse debt. When the lender on a recourse mortgage forecloses by a trustee’s sale, the lender may not pursue the homeowner for a loss due to a deficiency in the value of the secured property. However, the lender may only recover a deficiency when they complete a judicial foreclosure
sale of the property, if:

  • The court-appraised value of the property at the time of the judicial foreclosure sale is less than the debt; and
  • The bid at the judicial foreclosure sale is for less than the debt.

Residential Security Deposits

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BEFORE Rental/Lease:

What is a security deposit?
A security deposit is a payment, fee or deposit that a landlord collects from a tenant at the beginning of a lease or rental to compensate the landlord at the end of the term if the tenant (i) does not pay rent, (ii) damages the property, (iii) breaches the agreement or (iv) does not leave the property clean.

Is there a legal limit imposed on residential security deposits?
Yes. For an unfurnished unit, the maximum a landlord is permitted to collect in advance is the equivalent of two months’ rent. For furnished units, the landlord is permitted to collect up to three months’ rent.

May a landlord collect a cleaning fee or pet deposit or other amount in addition to a security deposit?
Regardless of how the security deposit is labeled (cleaning fee, pet deposit, last month’s rent or something else) or how it is divided into different categories, if at all, money that is used by the landlord to protect from financial or other damage is all considered a security deposit and falls within the above 2 or 3-month rent equivalent limits for unfurnished or furnished units.

May security deposit be made in multiple payments?
Yes, if allowed by the landlord. If all payments are due before the commencement date of the lease or rental, but have not been paid, the landlord may have the right to terminate the agreement.

DURING Rental/Lease:

May the security deposit be increased during the lease or rental term?
Yes, for a month-to-month rental, if proper notice is given and provided the overall amount stays within the 2 or 3- month rent equivalent legal limitation, and if no other restriction, such as rent control, applies. A landlord may use.

END of Rental/Lease:

What happens to the security deposit after the tenancy has terminated?
Within 21 days after the tenant vacates the property, the landlord is required to give the tenant a written statement identifying (i) the amount of security deposit received, (ii) the amount of security deposit spent, or anticipated will be spent, along with itemized statements for the expenditures, and (iii) the amount being returned to the tenant.

Is there anything a tenant can do to minimize potential reductions from the security deposit?
Yes, the tenant can clean the property and repair any damage arising during the tenancy. To help identify potential deductions from security deposit, the landlord is required to give the tenant a notice of a right to have an inspection prior to termination.

How do I Negotiate a Counter offer?

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The preparation of a counteroffer allows you as the seller and your agent to take control of negotiations after a prospective buyer submits a purchase offer. Your agent, on receiving a prospective buyer’s offer, will review with you:

  • The terms offered and contingency provisions — conditions — which affect closing;
  • The likely net sales proceeds the offer will generate; and
  • Their knowledge about the profit tax liability you will likely incur on the sale when the property is not your primary residence.

A counteroffer is made when the terms and conditions of the buyer’s offer are for any reason unacceptable without a change. Your agent prepares your written counteroffer and reviews it with you before you sign it and your agent submits it to the buyer. Your signed counteroffer documents your intent to be bound by your offer to sell when the buyer accepts.

To counter a buyer’s unacceptable purchase offer, your agent may recommend that they:

  • Prepare your counteroffer on a new purchase agreement form;
  • Prepare your counteroffer on a counteroffer form;
  • Dictate escrow instructions based on terms and conditions orally negotiated with the buyer (or buyer’s agent);
  • Set up an auction environment by calling for the submission of all “best and final” offers in a multiple-offer situation; or
  • Orally advise the buyer’s agent about the changes they need to make before you will accept the buyer’s offer.

The buyer may agree to purchase your property on the terms stated in your counteroffer by merely signing the counteroffer and delivering it as accepted, or submit a counteroffer back to you for
further negotiations.

Senior, 55+ yo, Carry Forward

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A: If you’re a California homeowner aged 55 or older, you have a once-in-a-lifetime right to sell your home and carry forward its current assessed
value to a replacement residence of equal or lesser value.

To qualify to carry forward the current assessed value:

  • You need to own and occupy the home sold as well as the replacement home;
  • Both homes must be eligible for the homeowner’s $7,000 property tax exemption;
  • You or your spouse must be at least 55 years old or severely and permanently disabled on the closing date of the sale of your old home;
  • You need to purchase (or construct) a replacement home of equal or lesser value than the home you sold
  • The replacement residence must be located:
    • In the same county as the property sold; or
    • Within another participating county; and
    • The purchase (or construction) of the replacement home needs to close (or construction completed) within two years before or after closing the sale of your old home.

When your replacement home is not within the same county as the home you sold, the county of your replacement property needs to be a participating county which allows the carry-forward assessment from your prior county.

Currently participating counties include Alameda, El Dorado, Los Angeles,
Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolumne and Ventura counties (subject to change).

Only one carry-forward assessment exemption is allowed per married couple. For example, if a married couple takes a carry-forward assessment exemption, and one spouse later dies, the surviving spouse may not take a carry-forward assessment exemption even if they later remarry.

When you and a co-owner both reside in the home and are not married, you both individually qualify for the carry-forward assessment. However, on the sale, only one of you may use the exemption.

Thus, the co-owner who does not apply for the exemption is precluded from any future use of the assessment carry-forward tax relief.

The only exception is when you become severely and permanently disabled after receiving the carryforward tax relief due to your age. In this case, you
may use the exemption a second time under a separate claim due to the disability.

Why should I care about LTV and FMV?

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A: When you apply for a mortgage and consider your down payment options, you will come across two important terms:

• Loan-to-value ratio (LTV); and
• Fair market value (FMV).

Your LTV states the mortgage amount as a percentage of the property’s purchase price or FMV. The FMV is the price a reasonable, unpressured and informed buyer is willing to pay for similar property on the open market.

For example, consider the owner of a home with an FMV of $500,000. They owe $400,000 on their mortgage. Therefore, their LTV is 80% ($400,000 / $500,000).

Sometimes, a homeowner will owe more on their mortgage than their home’s current FMV. This is especially common during a recession, a period when prices drop. For instance, the owner of a home with an FMV of $500,000 who owes $600,000 on their mortgage has an LTV of 120%
($600,000 / $500,000). In this situation, the homeowner is underwater on their mortgage, their balance sheet now financially saddled with $100,000 in negative equity.

When an underwater homeowner needs to sell their home, they may either:

  • Take a loss on the sale by paying off the balance of their mortgage using “out-of-pocket” funds such as savings, if financially feasible; or
  • Under extenuating circumstances, negotiate a short sale with the lender, during which the lender accepts the net proceeds of the home sale in exchange for cancelling the unpaid mortgage balance.

Homeowners with effective negative equity are those who have an LTV just below 100% but, due to the lack of positive net equity, are unable to cover transaction costs, typically 7% of the home’s value.

The smaller the down payment a homebuyer makes, the more likely they are to slip into negative equity territory since home values often fluctuate. Further, when an appraisal comes in below the agreed-to selling price, the
lender will approve the mortgage based on the appraised value — the property’s FMV — and require the buyer put in the difference between the sales price and the FMV.

As an alternative, the sales price reduced its appraised value through negotiations with the seller. A homebuyer who overpays and makes a small down payment will likely be underwater immediately.

What is an Impound Account?

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A: An impound account, also know as an escrow account, is a money reserve funded monthly by you to pay annual recurring ownership obligations together with payments of principal and interest (PI) through your mortgage payments.

The impound account is maintained by your lender to pay your annual property taxes and hazard insurance premium (TI).

Payment from an impound account ensures your lender’s security interest in your property will not be impaired by defaults in your payment of TI obligations.

An impound account is created when you agree to the terms of an impound account addendum attached to your lender’s trust deed. If not required at origination, you may request the lender set up an impound account when they provide this service.

An impound account provision establishes:

  • Monthly deposits to be paid in amounts based on your annual TI obligations;
  • Reserves initially deposited as prepaid installments when future monthly payments will be insufficient to cover TI obligations on their due dates; and
  • Interest to be paid to you by your lender on the impound account balance.

When you have an impound account, your lender will provide accounting, statements and analyses prepared and delivered to you at least once yearly. These will include itemizations of:

  • Surpluses when the balance is greater than necessary to satisfy TI disbursements and reserves, which are either returned to you or credited toward the next year’s impound account payments; or
  • Deficiencies and shortages, arising when the impound account balance is insufficient to pay upcoming TI obligations or the impound account has a negative balance after a TI payment.

The formulas for setting initial impound account deposits, monthly TI payments and limits on reserves for any mortgage are set by California law.
Impound accounts are also subject to some enforcement rules. A lender:

  • Is prohibited from requiring an impound account at origination on a first mortgage secured by an owner-occupied one-to-four unit residential property when the loan to value ratio is less than 90%; and
  • May demand and enforce the establishment of an
  • Impound account on a mortgage secured by a one to-four unit residential property when the owner is delinquent on two or more consecutive property tax payments.

Rules for terminating enforceable impound accounts vary based on the lender’s policies. Your lender is also required to pay 2% annual simple interest on any balance in the impound account.

For business mortgages, including carryback business mortgages, impound accounts are optional requirements for the mortgage holder, but are neither common nor compulsory.