millennials

Hey Millennials! Here’s Your Checklist for Buying Residential Real Estate

Posted on by khaniauerbach
Image by: Khami Auerbach, acrylic on wood
Image by: Khami Auerbach, acrylic on wood

As 2015 has comfortably settled in, we are beginning to notice an increase in the Millennial’s (ages 18-34) becoming first-time home buyers. As rents are continuing to increase faster than incomes can keep up, it should come as no surprise that in 2015, Millennials are choosing to buy real estate rather than rent, as rents in large cities like New York, Chicago, Miami and Los Angles have continually increased since the “great real estate crash” a/k/a GREC of 2008. The GREC left a bad taste in every person’s mouth, and rather than have the confidence to invest in real estate at all, this entire generation basically chose to rent. Yes, this is a generalization, but it’s a generalization based on statistical information from a variety of sources. It would seem that the choice to flee-from-purchase created an overnight demand for rentals causing higher than normal monthly payments, far outside the reach of the Millennials.

During this “supply and demand” situation in the rental market, banks made it more difficult for first-time home buyers to borrow money, leaving them with very few mortgage options and tons of restrictions on down payment resources. The good news is, however, over the past few years, lenders have now relaxed their lending requirements, the real estate market has improved and Millennials are finally seeing the light at the end of the tunnel. They can discard the chains of rent and embrace home ownership.

With these possibilities before them, Millennials can actually buy a residential home. But keep in mind, buying a home is usually largest purchase anyone will probably make in a lifetime. So, before plopping down the down payment on the dream home, we suggest every home buyer do their homework, be prepared and have this handy-dandy 8 item checklist that includes the following: (Click this link, BUYING RESIDENTIAL, to receive concise .pdf handout version of this article.  If you are mobile, it will download to your device for easy future reference)

#1 KNOW YOUR CREDIT SCORE

If you don’t already know your credit score, go and find out what it is. You will be better off knowing what your score is BEFORE looking at homes, finding your dream home and later finding out that what you want is not even within your reach. The heartbreak and disappointment can be avoided. Finding out your credit score is also helpful before speaking with lenders. It’s like being prepared for the biggest test of your life. Would you feel good going in unprepared?

#2 GET PRE-APPROVED

After finding out your credit score, but before even looking at properties, get a pre-approval from a qualified lender or mortgage broker. Better to find out what a lender is willing to give you before looking. Find out what you can afford, how much you might spend in monthly mortgage payments, property taxes and insurance BEFORE looking. Again, this avoids disappointment and the epic fail that follows when you find out that you can’t get a loan on a home you fell in love with.
The pre-approval process requires that you submit current tax documentation, typically from the last 2 years, and additional information. During this time, you’ll also have the ability to get an understanding of your spending habits and make an honest assessment of your budget. It may seem like a cumbersome process, but you will appreciate the fact that you did this before a contract is signed. Be sure to go through this process with a qualified mortgage broker or lender. Having clarity on your financial picture will allow you to have clarity about your assets and liabilities and then, you’ll know what you can comfortably spend on a home. In the end, the pre-approval process will result in knowing the amount you are able to borrow and knowing this information before you look at properties will save you a ton of time.

#3-DON’T BUY THE BEST HOUSE IN THE NEIGHBORHOOD

I wouldn’t necessarily recommend that you buy the worst home in the neighborhood, but you definitely do NOT want to buy the best. Buying the best home in any neighborhood puts you at the top of the home-buying food chain. Should you wish to refinance your home in the future, it’s likely that there will be few, or no, comparable sales in the neighborhood that you can use as leverage to obtain the best loan and pull the most equity out of your home. Buying an “average” home in any neighborhood will put you in a better position to see the greatest value appreciation, even over a short amount of time. You may have to put a little TLC into the property, but a little renovation can go a long way. Watch those home-improvement TV shows and you can learn how to invest very little, but get back a lot of value in return.

#4-MAKE A WISH LIST

What do you want? Before you even think about emailing, calling or even texting a real estate agent, put your wish list together. Again, watch those home-improvement TV shows to get an idea of what you want. Remember, KEEP IT REAL and keep your numbers in mind when you are putting this list together. If you know you can’t even afford the home in a gated community with high monthly maintenance requirements, put yourself outside the gate. If you know there are extra costs for living in a community on the water, don’t put the home on the water on your list. Make two lists, name them however your wish. On one list, put the “must haves” and on the other list, put the things you “wish” to have. Be willing to give up the items on “wish” list. Be practical and don’t let this process become too emotional for you. Remember, it’s just DIRT!

#5-FIND A REAL ESTATE EXPERT YOU HAVE CONFIDENCE IN

Yes, the handsome agent on the billboard in front of your office looks good and yes, the gorgeous agent on the bus bench you pass every day is tempting to hire on the spot, but choose your real estate agent wisely. Find out which agent has the most experience in the neighborhood you are looking into. Getting a referral from someone you know and trust is probably the best way to find an agent. Make sure they have patience to explain the process, details and the contract. If they rely upon too many other people for things you expect a realtor to know, you might be better off finding someone else. You will be spending a large amount of time with this person in a very short amount of time. Make sure you like them because you really want to enjoy the process. If they don’t seem that into you, don’t take it personally and move on. If the relationship works out, then you will both benefit. You can search for agents online, but again, the very best way to find an agent is through your own network or a personal referral. You can always check reviews online using services like Zillow, an agent’s own website, their YouTube videos and various search engines, such as Google, Bing or Yahoo.

#6-MEET THE NEIGHBORS

Be a Social Butterfly, get the skinny on the fat and speak to the people in the neighborhood. This process might reveal information about everything you want or need to know, but sometimes, you might find out things you don’t want to know. Like calling a previous employer that has been referred as a resource, however, this may not result in the revelation of any information. But, if you are lucky, you’ll find that person who loves to gossip and maybe, that neighbor can share what it’s like to live in a specific neighborhood.

#7-HIRE AN EXPERIENCED REAL ESTATE ATTORNEY TO REVIEW CONTRACTS BEFORE THEY ARE SIGNED
Before you bind yourself to the largest purchase you will every make during your life, have an experienced and qualified real estate attorney review the real estate contract BEFORE you sign the contract. Unfortunately, once you sign the contract, your ability modify or make changes to the major terms of the agreement are diminished, greatly. We have seen this too many times where a client comes to us AFTER the contract is signed and they wish to make changes. Unfortunately, after the contract is fully executed by all parties, it’s usually more difficult to make changes to the major terms, such as the purchase price. Get a real estate attorney involved early on in the process to avoid any unhappiness later.

#8-GET A HOME INSPECTION AFTER THE CONTRACT IS SIGNED

You can’t really do a physical inspection of the home until after the contract is signed, but this is an integral part of home buying and should be done early on in the process. What is a home inspection? A home inspection is where the potential buyer gets an opportunity to analyze the structure and integrity of the real estate. You may see a visually appealing home on the outside or something with awesome curb appeal, but unless you have a qualified inspector go through the property with a fine-tooth comb, you may never know that the plumbing is failing, the air-conditioner is on its last leg, that the foundation is cracking or that the roof has leaks that are not easily identifiable. A qualified inspector will make every effort to determine the integrity of all the major aspects of the property.

So, after reviewing this checklist, you will be armed with the tools you need to find the right home. But remember, before you sign that contract, let a real estate attorney review the terms to make sure you get what you bargained for. Khani & Auerbach is a law firm with experienced real estate attorneys and we are here to help.

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Millennials Consider Love, Marriage and Real Estate, Oh My!

Posted on by khaniauerbach

First comes love, then comes marriage, then comes a mortgage in the baby carriage! While we have traditionally heard that old ditty a different way over the years, traditions change and for many Millennials (ages 18-34) the family expansion has to wait. Not only does the baby have to wait, but for many Millennials, even marriage has to take a proverbial number. Many Millennials are holding off on marriage to save up for a down payment on residential real estate. A recent survey shows that 38 percent of American Millennials said that they would, or have, put off a wedding or honeymoon in order to afford to buy a home. This statistic isn’t very surprising considering that the average American wedding can cost around $30,000. This figure doesn’t even include the honeymoon.

Unfortunately, the decision to hold off marriage before getting a mortgage might be more complicated than the Millennials may have first thought. Take note, I wrote this article to inform, not admonish the reader. I want you to have all the information about making one of the largest investments you’ll probably ever make in your lifetime. Initially, it sounds like it makes more financial sense to put the mortgage ahead of the marriage, but if the relationship goes south between these unmarried Millennials, be sure that divorce is much easier than breaking up real estate encumbered by a mortgage held between two unmarried people. In other words, think before you ink.

Rather than go into the details of how incurring the debt makes financial sense before marriage, if you expect a return on your real estate investment, ensure that your relationship with this significant other can withstand the financial commitment. Here’s an interesting statistic, according to the CDCP, 27.4 percent of couples who co-habitate before marriage break up by the third year of living together. In other words, think before you ink.

UPDATE on 2/20/15:

On 2/19/15, we posted this article about the risks of investing with someone you are romantically involved with before getting married.  On 2/20/15, less than a day after posting the article, our office was presented with a legal situation that clearly exposed the pitfalls associated with couples buying residential real estate before marriage.  Below are the facts:

In 2012, Boyfriend and Girlfriend purchase a home. They finance the purchase and both are considered borrowers (read: jointly and severally liable for the debt).  In other words, both are on the hook for the debt separately and as a couple.  Boyfriend and Girlfriend break up and Girlfriend moves out. Boyfriend continues to make payments on the debt and some years later, Girlfriend transfers her interest. The transfer is made to Boyfriend without any money exchanging hands, via Quit Claim Deed, to Boyfriend. Minimum documentary stamp tax was paid upon recording, not documentary stamp tax based upon half the balance of the principal amount remaining on the mortgage, as would be required by the Department of Revenue. There was no refinance or change in liability on the debt.

Fast-forward to 2015, where the Department of Revenue does an audit of the transfer referenced above. The Department of Revenue questions the Boyfriend about the minimum documentary stamp tax and now wants him to pay taxes based on half the balance of the principal amount remaining on the mortgage. This figure requested by the Department of Revenue most probably includes penalties for not paying the correct documentary stamp tax upon transfer. Now, here is a real life situation that probably could have been avoided by being informed of the risks before taking on the mortgage. Technically, it is our opinion that the Department of Revenue is entitled to collect on the unpaid balance of documentary stamp tax, but however you look at it, there is a problem that needs to be addressed. Think before you ink.