Real Estate Information Archive

The value of home improvements has two primary considerations:

• the tangible dollar value that is added to your home compared to costs
• the intangible value of your enjoyment of the improvement

Most homeowners focus primarily on the costs, and whether they are adding dollar for dollar value to their home for resale. Those are legitimate concerns. Let’s break them down…

The tangible costs of a project have many components to consider:

• The first advice to seek is from a Realtor you know and trust. Ask them for some free advice. You want to know what is the likely increase in value you can expect from a project based on what “comparables” are available. You also want their professional opinion about how the buyers in your market are likely to value the improvement. Lastly, you want recommendations about builders you should talk with.
   
• The next step is to talk with at least two builders/remodelers. Ask them to meet at your home. Describe what you are thinking about doing. Ask for suggests they have and for an estimate of what it is likely to cost. Also ask if they do design work, or do you need an architect?
   
• Here are some general considerations to think about:
  • usefulness of the improvements to a future buyer will effect the value
  • if the house is older consider replacing electric wiring and plumbing
  • make sure everything is done professionally, even if done by the homeowner
  • badly done home improvements can actually detract from the home’s value
     
• Lastly, be very careful about re-purposing a bedroom. It should be able to be re-converted back to a bedroom later. The number of bedrooms has a large impact on the value of a home.

The intangible value of your enjoyment is very important. Try to put a dollar amount on your enjoyment value. What benefits will you and your family gain? How long do you anticipate living in your home? What is your enjoyment worth to you in dollars?

Now you’re in a position to add to the tangible cost estimates you have. Add to the tangible costs the dollar value you place on your enjoyment of the benefits. Then compare that total improvement value to what your Realtor has estimated you can get back at resale. You’re now ready to make a decision whether or not to make the improvements.

Information courtesy of Chester County Realtor Scott Darling.

When it comes to borrowing money, many loans offer benefits beyond simple financing. With that in mind, it’s important to understand how one type of loan may be right for making home improvements, while another may be a better match for financing a wedding. The key is to research the various types of loans, know what services they're designed to provide and then choose the one that best fits your financial needs.

Credit card, personal and home equity loans are all great options to help finance purchases and achieve financial goals. Here's a rundown of how each type of loan works:

Credit card – Many people don’t realize that credit cards are actually loans, and users can make those loans as short-term or long-term as they need. Some credit cards provide low- or no-interest, short-term financing as long as the monthly statement is paid in full and on time. Users also have the option to turn their credit card balance into a longer-term loan, which may result in higher interest rates. Some credit cards may also charge an annual fee. Credit card loans can be used for common household expenses like groceries, gas or even to make automated payments for items like a magazine subscription. And if the user's credit limit is high enough, credit cards can be used to fund larger expenses like furniture or electronics.

Personal loan – Having a balance on more than one credit card can be a burden, especially if the rates are high. To help manage their budget, many consumers opt to use a personal loan to consolidate their higher-interest loans. Using a personal loan to pay down debt may save borrowers on interest payments if the rate on the personal loan is lower than on the credit card. Additionally, personal loans can give people more control over the size and timing of monthly payments.

Personal loans can be used to pay for major events or expenses, such as a wedding, a big trip or those unexpected life moments such as a child’s new braces or an emergency car repair. Additionally, approved borrowers can receive their money quickly.

There are also online resources, such as financial calculators, that can help borrowers visualize what their finances will look like when taking on a personal loan.

Home equity loan – Once a homeowner has earned equity in their home, she or he can use that as collateral to get a loan for large expenses. Many homeowners obtain a home equity loan to finance a very costly home repair or home renovation project. This allows them to use their equity to potentially help increase the home’s value, and may increase resale profits. Other uses for home equity loans include consolidating large debt or paying for major expenses like medical bills. Typically, home equity loans have a fixed interest rate, terms and monthly payments. Interest on a home equity loan may be 100 percent tax deductible. Borrowers should consult their tax advisor about any benefits a loan may bring.

Loans can help borrowers regain control of their finances but are not “one size fits all.” Different types of loans should be used for different types of expenses. The key is for borrowers to consider the type of expense they are looking to fund, the available loans and lender offerings, and determine which type of loan is most suitable for them. (BPT)

Information courtesy of Chester County PA Realtor Scott Darling.

Families can decorate their homes with colorful flowers and bring healthy, home-grown foods to the table with gardens. Gardening, however, can use quite a bit of water, and in states struck by drought it’s important to conserve as much water as possible. However, you can still have a garden if you carefully plan what you plant, how you plant it, and how you give it the water it needs. Here are some water-conservation tips for growing a garden and using the least amount of water possible:

• Choose plants that thrive in drier conditions. Vegetables like corn, spinach, mustard greens and some beans are drought-tolerant, and desert rose and snake plant are beautiful landscaping plants that need less water.
• Water only where it's needed so it doesn't go to waste. When you use a lawn sprinkler to water your garden, much of the spray misses your flowers and vegetables and ends up on the grass, the sidewalk or the neighbor's yard. Make certain the water gets to the roots of your plants via a drip-irrigation system. Drip irrigation uses 70 percent less water than underground sprinklers and frees the user from constantly hauling around hoses because the system stays in your garden all summer long.
• Water at night or in the early morning when the sun is least likely to evaporate the moisture. This allows as much of the water to penetrate to your plant's roots instead of evaporating.
• Build beds that encourage soil to stay damp as long as possible. Some ways to do this include digging the bed deeper to help loosen the soil prior to planting. This gives roots the chance to go reach deeper and gain access to where water might be more available. Also, once planted, cover the bed with a good layer of mulch or compost. This will help keep the soil good and moist.
• Raise vegetable crops during the rainy season. Many areas of the country have a cooler rainy season. Peas, leafy greens, radishes and other vegetables with short growing seasons are great for planting early in the spring and sometimes again late in the fall. Because temperatures are cooler and the early and late seasons tend to produce more rainfall, you can grow vegetables using less water.

Drought affects all areas of the country during different years, so even if you aren't living in a drought situation now, you could experience one next year or several years down the road. It's important to know what steps you can take to be more water conservative when it comes to your garden. Apply these tips to your vegetables and flowers this year to see how successful you can be at reducing the amount of water needed to grow your plants. (BPT)

Information courtesy of Chester County PA Realtor Scott Darling.

Homeowners have a variety of reasons for refinancing their homes. Before you make a decision about refinancing your home, you might consider the following questions. Below is a summary of an article in RISMedia by Michele Lerner, a writer for Bankrate.com.

1. What are my financial goals? Are trying to lower your monthly payment? Check out an online mortgage calculator to estimate your new payment. Other homeowners are choosing to refinance for a shorter term to pay of their mortgage faster and save interest.

Before you make the decision to refinance, the professionals advise making sure you contribute to retirement savings and college savings, pay off high-interest debt, and save 6-12 months of expenses, because reducing your mortgage payment period will increase your monthly payment.

2. Do I have equity in my home?

You need at least 20% equity in your home to qualify for a new conventional loan without payment private mortgage insurance. The alternative might be applying for an FHA loan that requires much less equity.

3. Do I have good enough credit?

Credit scores are critical under the new federal lending guidelines. Below a score of 620, you will have trouble qualifying for a new loan at all. It takes a score of 720 or better to obtain the best interest rates.

4. How long do I plan to stay in this home?

Mortgage professionals general tell borrowers to expect to pay 3% to 6% of the loan amount for a refinance. If you divide that loan cost by the annual savings you expect by a reduced mortgage payment, you can find how many years it will take to breakeven. Do you expect to stay in your home long enough to break even?

5. What are the terms of my current loans?

Make sure you know the terms of your current loan. Especially, make sure your existing mortgage does not have a prepayment penalty.

6. Do I have a second mortgage or a line credit?

If you do, there is added complexity to refinancing. You will have to either pay off the second loan or combine the two into one mortgage when you refinance.

Lenders have tightened up the approval process. Be sure to get professional advice from a lender about what levels of income, credit score, and equity you will need to refinance in your specific situation.

Information courtesy of Chester County PA Realtor Scott Darling.

The death of one partner in a marriage can have significant consequences for a mortgage.  Exactly what effect it has will depend on whether it is a single or joint mortgage, what balance remains on the mortgage, and other debts and assets of the deceased.

• In the case of a couple having a joint mortgage, the death of one spouse will simply mean the other spouse becomes the sole mortgage-holder. As long as she can continue making the payments, the property will be unaffected.  Federal law prohibits the lender from calling the entire mortgage due because one spouse has passed away.
   
• If the mortgage is only in the name of the deceased and she had more assets than debts, then the state will pay off the mortgage as part of the probate process. The worst-case scenario is that the house may have to be sold to pay the mortgage off if there aren’t enough other assets to cover the outstanding amount. However, when there is no will and assets are distributed to heirs according to the intestacy laws of the state, the surviving spouse is always one of the first in line to receive the remainder of the deceased’s assets after debts, taxes, and funeral expenses are paid. If the mortgage can be paid off through other assets, in many cases, the spouse would receive the paid-off home as his share of the estate.
   
• If the surviving spouse sells the house within two years of the death, has not remarried prior to the sale, and meets required conditions, she has the right to exclude up to $500,000 of her profit from the transaction.  For further information read US Government Publication 523.
   
• If the surviving and now sole-owner of the home realizes he is not going to be able to continue make mortgage payments for a long period of time, he may want to look into a reverse mortgage.  A reverse mortgage is a loan for senior homeowners that uses a portion of the home’s equity as collateral.  The loan generally does not have to be repaid until the last surviving homeowner permanently moves out of the property or passes away. At that time, the estate has approximately 6 months to repay the balance of the reverse mortgage or sell the home to pay off the balance.

Information provided by Chester County PA Realtor Scott Darling.

There are many factors that go into the decision to buy a home. One of those factors is how long you expect to stay in the home. This applies whether you are a first time homebuyer or stepping up to a larger home. The length of time you stay in a home affects the financial outcome of that ownership.

Here’s a summary of some thoughts from moneyning.com and the 5-year rule for buying a home. There is a tendency for younger buyers to go through 3-year upgrade cycles. Why? Newer and younger buyers typically experience significant increases in income in their younger years.

As income increases their ability to afford a larger mortgage increases and the desire for a larger house sets in. There seems to be an assumption that buying is more cost effective than renting. Click here for a perspective on ownership costs vs. rent. That thought process occurs, on average, every three years.

The 5-year rule states that generally you should plan to stay in a home you’re buying for at least five years. That is for two primary reasons…

• The first reason is closing costs. Every time a home changes hands both the buyers and the sellers put money on the table just to make the transaction happen. These costs can easily add up to thousands of dollars. Those dollars provide no real financial benefit to the buyers or sellers except to allow the transaction to happen.
   
• The second reason is the payment of interest on the mortgage. A mortgage payment has two components – payback of the principal of the loan borrowed and interest on the amount borrowed. Because typical mortgage payments remain the same during the life of the loan the proportion paid on the two components changes. In the early years the payment is almost all going to pay interest and very little to principal. As the principal is gradually paid down the portion going to interest diminishes and the portion going to the principal increases.

According to author Thursday Bram “it isn’t until you’re about five years into paying down your mortgage that you’ve made enough progress on the principal to make it a better deal than paying rent each month.”

Here’s how to beat that average…don’t buy the biggest house you can just because a lender tells you what you can afford. Instead, consider buying smaller and then adding extra money to your monthly payments. That extra money will go entirely to paying down the principal loan – that means you will pay less interest over the life of the loan and you will create more equity because you are diminishing the principal balance faster.

However, if you’re not going to stay in your home five years you should probably consider renting.

Information courtesy of Chester County PA Realtor Scott Darling!