Pittsburgh Real Estate Blog | Pittsburgh Homes R Us

Now that it has become more challenging for buyers to get loan approvals, it would be helpful to have an idea of what lenders look for in the financial status of buyers.

Although the criteria will vary from lender to lender, the following is becoming fairly standard when applying for a mortgage loan.

Here’s a brief summary of what you’ll need:
 

* Employment - Two years of verifiable employment.

* If you’re self-employed you’ll need the past two years of tax returns and year-to-date profit and loss statement certified by an accountant.

* If you’re using bonus, commission or overtime money to qualify, this money must be verified by your employer as a continuing source of income and must appear as income on your last two years of tax returns.

* Income tax returns - last 2-3 years.

* Alimony or Child Support - documented evidence if you’re receiving these payments and intend to use the money to help you qualify for a loan.

* Divorce - if you’ve been divorced, you need to verify that you are not paying alimony or child support.

* Rental income - if you own rental property, you’ll need copies of all leases and income statements for the past two years. Lender may require that you have at least 30% equity in the property.

* Full explanations for any large deposits into your bank accounts within the last 3 months.

* Closing costs - you’ll need proof that you have the money to cover closing costs. Cash-on-hand will probably not be considered an acceptable source.

* Gift money - if you’re getting some money to help you pay closing costs you’ll need to fill out a form, signed by both you and the donor and a verification that the donor has sufficient funds to cover the gift and that the funds have been deposted into your account.

* If any money to close is coming from the sale of another property, you’ll need a copy of the signed sales agreement for that property and a copy of the HUD-1 (statement of closing costs) from that sale.
 

Again, requirements may vary from lender to lender - and there may be other documentation you’ll need aside from what I’ve stated above.

Despite the current problems in the economy and the housing market, if your credit is solid and you can provide documentation for just about anything, your chances for a loan approval are still excellent.

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In a previous blog, I mentioned the Homebuyer Tax Credit for first-time buyers which is included in the housing bill recently passed by Congress - the Housing and Economic Recovery Act of 2008.

To recap - the bill provides a credit of up to 10% or $7500 (whichever is less) for first-time home buyers. The "credit" is actually a loan which is paid back over 15 years in equal payments. If you sell your home before the credit is paid back in full, the balance is due at time of sale.

The credit applies to the purchase of a home made between April 9, 2008 and July 1, 2009.

Here are a few more details on this credit:

Residency - The home you buy must be your primary residence until you pay back the credit. So, if you’re thinking of buying and then renting out the property, you’ll have to pay the balance of the credit in the year that you first rent it out.

Repayment - Starts two years after the year in which the residence is purchased.

First-time homebuyer - According to the CCH Group (a tax advisory company), "a person is considered a ‘first-time homebuyer’ if he or she (or spouse) had no ownership interest in a principal residence during the three-year period before the new home is purchased."

Income Eligibility (based on adjusted gross income) - For married couples, you can receive the full tax credit if your income is less than $150,000/year. The credit is then phased out up to an income limit of $170,000. If you’re single, you can receive the full credit if your income is less than $75,000/year; the credit is then phased out up to a limit of $95,000/year.

Claiming the credit - The credit is claimed after you purchase the home, so it cannot be applied to your closing costs.

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In case you missed it, part of the Fannie Mae/Freddie Mac bailout included some measures that will affect buyers and homeowners.

• A $7,500 tax credit for first-time homebuyers - note that this is based on 10% of the sale price, up to a maximum credit of $7,500.  However, don’t get too excited - this money is more of a loan, in that it will have to be paid back over the course of 15 years. But at least it’s interest-free. This will apply to home purchases made between April 9, 2008 and July 1, 2009.
• A tax deduction for homeowners who don’t itemize deductions on their income tax returns - estimated deductions will be between $500 and $1,000.
• Higher limits on mortgages insured through Fannie Mae and Freddie Mac - up to $625,000 beginning January 1, 2009. The current temporary limit of $729,750 will stay in effect until the end of this year.
• Mortgage refinancing for distressed homeowners - allows homeowners facing foreclosure to apply for lower fixed-rate mortgages backed by the FHA. However, the original lenders would have to agree to potentially take a loss on their loans.

On the darker side of all this are provisions in the 600+ page bill that will require the fingerprinting of mortgage loan originators (broadly interpreted to include anyone who takes a mortgage loan application) and the requirement for payment systems nation-wide to report online transactions to the IRS. This includes eBay’s PayPal, Amazon.com, and Google Checkout, as well as the major credit card companies.

Some bloggers (you can Google the topics) are questioning these provisions, especially wondering what that last one is doing in a housing bill.

Based on some research I did, it does not appear that either of these provisions will be removed from the bill when it is finally signed by President Bush.

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I suppose that anyone who doesn’t yet know we’re living in the Information Age must be living in a cave.

Not that there’s anything wrong with that.

In any case, in the area of real estate, the impact of this information overload over the last few years has been significant.

For example, buyers and sellers can go on line and within a short amount of time can find out what’s for sale, what’s been sold, and where it’s all happening. This information is offered, no doubt, to help people crunch numbers when it comes to making an offer on a property or determining a selling price for a property they’re thinking of putting on the market.  All, presumably, without the assistance of a real estate agent.

Will the wonders of technology ever cease?

While some people see this as a boon for the consumer, there are certain things that one needs to be aware of. One of those things is the accuracy of the data that is available.

Zillow has become one of the popular web sites for property listings and valuations.  As I’ve mentioned elsewhere, the accuracy of their "Zestimates" can be a bit dicey.

Now Realtor.com, the number one web site for property listings, has thrown their hat into the ring with their "Find Home Values" feature.

For the edification of the readers of this blog, I decided to do a comparison of the two sites to see how close they come to reality.

Using one of my current listings, this is what I found:

First, some background.  My listing (MLS # 713690, for anyone who may be interested) is a 9 year-old, 3800 square-foot, 4/5-bedroom home in Plum Boro.  It’s in excellent condition and loaded with extra features and upgrades, such as an eat-in kitchen with an $8,000 Sub-Zero fridge, 1st floor laundry, a custom-designed lower level with an in-law suite, an elevator (!), outdoor sauna, pool, and 3-car garage, just to name a few of its many attributes.  The listing price is $235,000 - a major bargain, even if I do say so myself as the listing agent.

I began with Realtor.com. I typed in the address and - Voila!  Their estimated value of this home came up as $38,547.

Hmmm. Perhaps they left out a digit.

I also wonder if that’s the reason they haven’t been heavily advertising this new feature.

I should mention that the home next to my listing is valued at $245,000 - so there’s obviously a glitch somewhere. However, for a consumer who is not looking carefully they could miss this.

On to Zillow.  Their estimate is $411,500.

For comparison and fairness, I checked another 10-year old, 4-bedroom in the same area, which is listed for $243,000 - a fair price in my opinion.  This home is identified on both web sites as a 3-bedroom home with a value of around $208,500 on Zillow and $203,000 on Realtor.

I don’t believe that either of these sites has provided information to allow a consumer to make an accurate and informed decision about the value of these properties.

Zillow does have a disclaimer about their estimates, stating that they can be affected by the amount of information that is available about a property. They also state that in Pittsburgh their valuations average about 80% of the actual sale price of homes that have Zestimates (not all properties have this).

Based on that average, my listing in Plum Boro should have a market value of about $329,000.  While that might be the case in a much stronger market than what we have today, that would still be stretching it. And an accuracy rating of 80% is not very good.

All of this is to say: Caveat Emptor - Let the Buyer (and Seller) beware.

While real estate information on the Web can be of value to consumers, there’s just so much of it out there that there’s really no substitute for a real estate agent who can accurately interpret it.

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Tip #1 - If you’re concerned about environmental issues that may affect you as a homeowner or home buyer, you can get an environmental report for any address in the Pittsburgh area - or for anywhere in the U.S.

Go to http://www.prudential.com/realestate and type in any address. Then click on Environmental Profile and it will tell you if there are any environmental concerns associated with the property - at no charge. A detailed report will cost you $99, but if no concerns are reported you probably don’t need to purchase the report.

The U.S. Environmental Protection Agency also offers information on environmental hazards. Their EnviroMapper lets you search by zip code, city or county. You can find it at http://www.epa.gov/enviro/emef/.

If Sellers are aware of any environmental issues affecting their property, they are required to disclose this in the Sellers Disclosure. However, if they don’t know about it, they can’t be held accountable. In that case the Buyer is responsible for using their own due diligence in uncovering the information.

Tip #2 - Ready to leave city life behind? The US Department of Agriculture, Rural Development division, offers home loans for low-income buyers in rural areas.  These loans are referred to as Section 502 loans. The program provides funds for repair and renovation of homes as well as funds for the purchase of a home or land on which to build a home.

You can find more information about this program by going to http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?NavKey=home@1

These loans are intended for what the USDA refers to as "modest" residences. So, they probably won’t lend you money to purchase or build that mansion you’ve been dreaming about.  Still, it could be a useful resource if you’re income-eligible and the property is located in one of their approved areas.
 

Tip #3 - So, you’re out on the road and you’re hungry and you remember someone telling you about this great restaurant.  You remember the name and the area but don’t have an address or phone number.

Or, your agent told you about a home for sale and you have a street address but you’re not sure how to get there.

If you have your cell phone with you, you can find just about anything you’re looking for in a matter of minutes by using Google Mobile.

You can search for businesses, get maps, even get the latest score of the Pirate game. Their web site at  http://www.google.com/mobile/ will give you all the info you need to learn how to use this pretty slick service.

Keep in mind that the availability of some of the Google services may be dependent on the type of phone and/or the phone service you have.

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Sometimes, the issue of what property is included in a real estate sale can be a source of disagreement and contention between a Buyer and Seller. When a Buyer looks at information in the MLS, he/she should not assume that the items stated there to be included in the sale will necessarily be there after closing. The agreement of sale is the only document that can be used to determine the terms of the sale.

In Pennsylvania, the Standard Agreement for the Sale of Real Estate contains the following section (paragraph 4), to which both Buyer and Seller need to pay close attention:

4. FIXTURES & PERSONAL PROPERTY (9-05)
(A) INCLUDED in this sale are all existing items permanently installed in the Property, free of liens, including plumbing; heating; lighting fixtures (including chandeliers and ceiling fans); water treatment systems; pool and spa equipment; garage door openers and transmitters; television antennas; unpotted shrubbery, plantings and trees; any remaining heating and cooking fuels stored on the Property at the time of settlement; sump pumps; storage sheds; mailboxes; wall to wall carpeting; existing window screens, storm windows and screen/storm doors; window covering hardware, shades and blinds; awnings; built-in air conditioners; built-in appliances; and the range/oven unless otherwise stated. Also included:

(C) EXCLUDED fixtures and items:

Fixtures are defined as any article that was once personal property but has been attached to the land or a building in such a way that the law interpets it to be a part of the real estate.

There is a legal test as to what constitutes a fixture (real property). The guidelines are: Intent, Method of annexation, Adaptation to real estate, and Agreement. Let’s briefly look at these.

Intent - refers to the intention of the person who installed the item. Was the intention to have the item be permanent or to be removed at some future time?

Method - refers to the permanence of the method of attachment.

Adaptation - refers to the character of the item. Is it being used as real or personal property?

Agreement - refers to agreement between the Buyer and Seller as to whether or not an item is real or personal property.

So, for example, let’s say the Seller has an expensive chandelier hanging in the dining room that he does not want included in the sale. The chandelier can easily be regarded as a fixture. During the time of the listing, the Seller should tag the fixture with a note that the chandelier is not part of the sale and indicate that in the sales agreement.

In order to avoid legal haggling over what may be considered real estate versus personal property, both Buyer and Seller should make sure that paragraph 4 of the sales agreement (or an addendum to the agreement) explicitly states which items will remain with the property and which items the Seller will take.

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