Archive for August, 2006

Property Taxes — what you need to know.

August 31, 2006

Ah, one of the two certainties of life . . . taxes. 

At this time of year (in Georgia at least) property tax bills are being sent out by county and city governments, and, as is the case each year, the bills create a certain amount of concern and confusion with homeowners.

Here are some things that you need to know about your property tax bill:

1 — Property taxes are paid yearly in either one or two installments.  In Gwinnett County, for example, the tax bill comes out around August 15th and the first 1/2 installment is due on September 15th and the second 1/2 is due on November 15th.  

2 — If you have an escrow account for your taxes as part of your mortgage payment, the due date(s) for your property taxes were taken into account when establishing your escrow account.  If your tax bill $$ amount increases, your monthly payment will go up accordingly. 

3 — If you have an escrow account for your taxes, you still may receive a copy of the tax bill in the mail.  This is normal.  Some counties will send out dual bills — one bill to the mortgage company and one to the homeowner.  If you have an escrow account and you receive your tax bill, simply make a copy of the tax bill and send it in (the original bill) with your next mortgage payment (you keep the copy).  Or, better yet, look to see if your mortgage servicer has a special address listed for property tax bills (usually can be found on the back of your monthly statement or on the mortgage servicer’s website).  If you receive the bill and you do not have an escrow account, then you (stating the obvious) will need to write a check to pay the taxes . . . hopefully, from the account that you set up when you closed on your mortgage to deposit $200 — $300 per month in to in order to make your 4.5% return (in lieu of having an escrow account).

4 — You are responsible for the ENTIRE amount of the bill.  If you purchased your home this year, the proration of taxes (a $$ credit from the seller to you, or a $$ credit from you to the seller) should have been taken care of at closing.  This proration of taxes can be found on the front page of your HUD-1 settlement statement.  The dollar amount is prorated to the day of closing and is based on the most recent issued tax bill.

For example, if you purchased your home this year on July 31st, because the tax bill would not have been issued yet, the tax proration would be based on last year’s tax bill amount.  Your escrow account should have been set up with about 11 months worth of taxes, and with the seller’s 7 month tax credit on the front page (for the time in which they owned the house, but that you are going to be paying the tax bill for – January 1 through July 31st), it should have had you putting (net) about 4 months of your dollars worth of taxes into your escrow account.

In this same situation, because the tax bill had not come out for the year, if the taxes for this year are higher than the taxes for last year, there should be verbiage in your sales contract that would allow you to request the seller to pay the difference (prorated, of course, for the amount of time they owned the house).

5 — The tax bill will usually be in the name of the owner “of record.”  So, if you purchased your home this year, the tax bill will likely still be in the name of the previous owner.  Because most people put a mail-forward on their address when they leave, it is pretty common that the tax bill will be forwarded to the previous owner.  For Georgians, this situation will be corrected when you file for your Homestead exemption (see next point).

6 — In Georgia, homeowners receive a discount to their property taxes for any property which is their primary residence (Homestead exemption).  If the previous owner had this exemption on the property, you will still receive that benefit for the first year.  You will be responsible for filing your own Homestead exemption with the county the following calendar year.  For county specific information related to Homestead exemption, go to my website for helpful links and details.  If your home is within the city limits (and you pay county and city property taxes), check with your county/city tax offices to make sure that your Homestead exemption will filter down to the city records as well. 

7 — If you purchased your home as a newly-constructed house, your property taxes probably had to be estimated.  Property taxes are based on the condition and value of the property as of January 1st, so if your property was a vacant lot at the time, the actual taxes had be estimated to set up your escrow account.  This situation creates the most confusion, because . . . if the taxes were under-estimated, not only will the monthly payment need to increase to make up the difference for next calendar year, but you will have a balance due to your mortgage servicer (in other words, if your tax bill for 2006 was $2,000 and your mortgage company estimated $1,500, your payment will need to increase by $42 per month to get ready for the 2007 tax bill AND you were short $500 for your 2006 tax bill — to which you will need to either write a check or spread the amount over the next few months.  In this situation, most mortgage servicers will give you 3 to 6 to 12 months to pay back the shortage.  So, if you chose to spread it out over the next 12 months, your payment would go up another $42 per month . . . a total of $84 per month . . . ouch.)

8 — If you receive a large escrow refund check as part of a yearly escrow analysis, check all the facts before you spend the money.  Mortgage servicers are required to review your escrow account every 12 months, and because they are only allowed to keep a certain amount of money in your account (based on taxes, insurance and an allowable cushion) refunds sometimes occur.  In the situation above (new construction), if the escrow account were reviewed prior to the tax bill being issued, it could look like the taxes were only $400 for the year (based on a vacant lot) and your escrow account — based on $1,500 for the year — was outside of the limits.  So the escrow account is recalculated; the homeowner receives a refund check for $800 and some change; the mortgage payment is reduced $92 per month and when the actual bill comes out, there are all kinds of problems.

The scenario described above can also happen on a property owned by someone with additional property tax exemptions — a senior citizen exemption, for example.    

9 — Follow your property tax payments to make sure that the bill is paid correctly.  Some mortgage servicers send monthly statements, others provide online-access to your account.  So, double-check your account to make sure that your taxes are being paid correctly.

10 — Review your tax bill for accuracy.  Your property taxes are based on the assessed value of your property (according to an independent assessment by the county).  If this value is too high, then you are paying too much in property taxes and need to find out the process for disputing this information with the county.  Be smart about this one . . . I had a client once call me and tell me he was angry because he thought the county’s assessed value was too high — $350,000 assessed value, almost $50,000 more than he paid for the house.  “How much would you sell your house for today?” I asked.  “Probably not less than $390,000 or $400,000 . . . but that’s not the point,” he replied.  Really?? . . . Seems like the point to me (that’s what I thought I should have said, at least).  I also had a client once call and tell me that the value listed on their assessment was too low . . . yeah, probably not going to want to argue with the county on that one.

So, that’s what you need to know about your property taxes . . . and, as you may already know . . . “knowing is half the battle” (famous show-ending advice from tv-cartoon-super-soldier GI Joe).

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the builder-directed financing hook . . . ouch.

August 24, 2006

“Hey look, a fantastic new house with the builder paying $5,000 in closing costs!  What a great deal! . . . (mouth open in awe and in excitement of the ‘generosity’ of builder) . . . Ouch!  What the heck was that!! (pain invoked by small print and/or asterisk next to the $5,000 in closing costs* only paid with approved lender)”

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In the Atlanta-market (and likely in other markets around the county) builder-directed financing has become the norm.  The builder will pay for some of your closing costs only on the condition that you use a lender from “their approved list.”

There are four different reasons why this is the case — one is legitimate and legal; the second is usually illegitimate but is perfectly legal; the third is both illegitimate and illegal; the fourth is legitimate and legal (although unlikely).

Scenario number one:  The builder has the same name as the mortgage company and is owned by the same entity (legitimate and legal).

If the builder has the same name as the mortgage company (i.e. ABC Homes and ABC Mortgage, etc.), the incentive of you using their mortgage company is a business decision and is an impossible battle to fight.  If you have signed a contract agreeing to this type of arrangement (that the builder will pay closing costs only if you use their mortgage company — which by the way, is probably the only contract available if you want to purchase one of their homes), then the hook has been well-set and the best you can do is prepare yourself.  You will not get a great rate — usually a 0.25% to 0.5% higher than the market rate; you will not get great service — usually phone calls are returned within days instead of hours; and you will not get much service after closing.  But hey, if you love the house, then you love the house . . . what’s a fish to do? 

Here’s an example:  You purchase a $250,000 from ABC Homes and are putting down 20%.  The builder agrees to pay $6,000 in closing costs/prepaids with their “in-house” mortgage company, ABC Mortgage.  On a $200,000 loan amount, a rate increase of 0.5%, will cost you $65 more per month . . . and a total of $23,400 over the life of the loan.  If you were to stay in the house for only 7 years, the additional cost would be just over $5,460.  ABC mortgage company is smart enough to know that you’ll jump-ship if the rate is too-too high, but for $6,000 in closing costs, seems harmless, right?  That’s what the fish said to the little pink worm with the weird-barbed-shinny things on it’s belly.

Scenario number two:  the builder has formed a joint-venture with a mortgage company (not usually legitimate, but perfectly legal . . . for now).

By definition, a joint-venture is a legal organization (a partnership) in which the companies (or persons) jointly undertake a business activity for mutual profit.  It  implies the sharing of costs, of resources, of expenses and of operations. 

Mortgage companies have been forming alliances with builders and real estate companies(legally set-up as joint-ventures) over the past 5+ years.  More recently, it seems to have become the norm for builders.  IF (and I use the word “IF” with great emphasis), if there is a legitimate sharing of costs, resources, expenses and operations, then the joint-venture is similar to the scenario number one.  If it is simply a means/avenue where the builder can share referrals and the mortgage company can kick-back a few $$ per transaction to the builder, then it is completely against what the Real Estate Settlement Procedures Act (RESPA) set out to do — according to Section(8)a of RESPA, it is illegal to accept anything of value in return for the referral of business. 

This is a BIG subject . . . one that deserves it’s own post.  More on RESPA-violations later.

Scenario number three:  the builder is receiving “something of value” in exchange for the referral of business (illegitimate and illegal . . . although quite popular in the past).

Somehow mortgage companies justify this type of arrangement by contributing $$ to a “builder’s marketing fund.”  Sounds like “something of value” and a violation of RESPA, right??  Apparently, there are attorneys who would say otherwise.  A few years ago, an agent (after having a great experience with me) really, really wanted me to get connected with a builder-friend of hers.  I am not exaggerating when I say that the phone conversation last no more than 2 minutes.  He said … “Hello . . . this is ____, I wanted to talk to you about being one of our preferred mortgage folks.  How much do you contribute to a marketing fund per closing?”  After a brief comment or two about my thoughts on RESPA and my desire to keep the law, he politely ended the conversation.  “Well . . . I know you may say it’s illegal, but plenty of people are doing it.  Ok.  Bye.” (click).

Scenario number four:  the builder is preferential to one or two certain mortgage people and is so convicted by their professionalism and friendship that he/she will only pay closing costs if you use one of them.

Because there is no $$ value associated with this type of scenario (allegedly), the choice of the buyer to use one of the “preferred” mortgage company vs. another company should have absolutely no financial impact on the builder.  However, there is a rather common practice (for example) where the builder agrees to “pay” $4,000 in closing costs because the mortgage company intentionally increases the interest rate charged to the consumer and then pays for some of their closing costs for them.  One builder was even bold enough to write this in his contract, although in very small print — that half of the closing costs would be paid by the builder and half of the closing costs would be paid by the lender.

If you have signed a contract under any scenario above, then you are hooked.  You have agreed to it in writing . . . if you use a preferred lender, you get $x,xxx in closing costs . . . if you don’t, you don’t.  You can try your best to get a great rate and great service, but I would shoot more for a good rate and decent service.  You can do the math just for fun — “a higher rate, times 5 years, versus $3,500 in closing costs, means you’ll break even in x years.”  But the preferred lenders are no dummies, if the dollar amount from the builder is $4,000 in closing costs, they know that they can make you $3,999 angry — just not $4,0001 dollars angry.    

The ONLY legitimate scenario is one in which the builder will pay for your closing costs regardless of who you use for your mortgage financing (assuming that you can prove that you are qualified and able to get financing).  The best situation is one where the builder strongly and personally recommends one or two mortgage providers and then allows the consumer (and competition) to decide the outcome.  Some builders will argue that directing where the mortgage is being placed allows them to “keep an eye on things”, “they know it’ll get done”, etc . . . a builder not closing on time and it’s the mortgage company’s fault??  Yeah, only if by “mortgage company” they mean the — (pick one) landscaper’s, painter’s, counter-top guy’s, punch-list guy’s, hardwood floor company’s — fault.

How about this . . . you choose who you get your mortgage from and you guarantee to the builder that you’ll close your mortgage on-time if they guarantee to have your house ready in time?  It is a GREAT concept and there is a GREAT builder — Harcrest Homes — who has done it for years.         

How to get the cheapest mortgage in town

August 18, 2006

Ok.  So, I already have a rather long post completely dedicated to “how to shop for a mortgage” — the post gives great advice on how to compare brokers/lenders, how to make sure that you are comparing apples to apples and how to make sure that the guy (or gal) on the other end of the phone that you are talking with is not simply a recent graduate of two-week mortgage school but is a real-deal, full-time, mortgage professional.  Speaking of mortgage school . . .

Question:  Do you know how many questions are on the Georgia state mortgage broker exam?  Do you know what score you have to make in order to pass?

Answer:  There is no test.

There are certain requirements to hold a mortgage license and certain education/experience requirements for being an officer or manager in a mortgage organization, but for the “street-originator” (to use some mortgage-jargon for you) for him or her, there is no-test — scary but true.  I had someone once tell me that as soon as their relative was done with (insert big-name mortgage company here)’s two week training course that he would be “fully-certified.”  Can you believe it?  Fully-certified?!  A fully-certified what? 

As you might guess, lots of people have come up with ways to disguise their naviete’ . . . and others have figured out ways to charge people a lot of money to be “certified.”  It kind of reminds of one of my all-time favorite movies . . .  

“He’s bonafide! . . . He’s got a job!” 

So, even though I have already written on how to shop for a mortgage, some die-hard-penny-pinching-web-shopping consumers will want a more simplified equation to finding the cheapest mortgage in town.  So, do you want to know how to get the cheapest mortgage in town??

Find the absolute newest loan officer on the planet and petition them to do your loan.  Will you get great advice?  Probably not.  Great service?  Possibly, but unlikely.  A smooth, on-time closing?  50/50 at best.  The right loan product for you?  Maybe.  Follow up after the loan process to help you manage your mortgage?  It depends, but I doubt it. 

If you want to take your chances to be someone’s very first customer, I commend you for your valor and your willingness to save a few dollars at all cost . . . I hope the few dollars in saved fees will make up for the (possible) ten-hour closing.  You laugh; it’s happens all the time.

 

If your house could talk . . .

August 10, 2006

it would probably say something like this . . .

“Help me . . . help you. Help me, help you.”

When people talk about real estate, the first phrase that comes to mind is usually “location, location, location.” While I find this to be absolutely true, if “location” is number one on the list, then home maintenance is number two (although annoying neighbors can supercede number two at anytime depending on distasteful yard-art, lack of lawn care, cars on blocks, etc). Anyway, when general home maintenance is neglected, it is at the expense of not only the quality of your home, but at the expense of the quantity of your dollars you can expect to net from the sale of your house.

So in addition to the old adage, “location, location, location,” I think I would like to add a new buzz-phrase to real estate — courtesy of Jerry Maguire (in the locker-room and very much at the end of his rope talking to an air-drying, prima dona wide-receiver Rod Tidwell). “Help me . . . help you. Help me, help you.”

As the inventory of homes available for sale increases, buyers become more demanding (supply goes up, demand stays the same, prices go down — so said my 9th grade economics teacher) and more demanding buyers will usually call on more demanding home inspectors . . . and more demanding home inspectors can cost you thousands of dollars in repairs. And, hey, if you are going to end up paying for the repairs anyways, why not do some of them while you are in the house so you can enjoy them.

Bottom line — help yourself, help your house, help your bank account.

For a great calendar of “to-do’s” to help keep your home in great shape, check out this list of monthly home maintenance ideas.