5 Common (but Terrible) Reasons for Overpricing Your Home

home-price

We know, we know—you love your house. The kitchen is the perfect size, your weekly summer barbecues give your neighbors patio envy, and your ’70s-style conversation pit is totally coming back into vogue—as you knew it would.

You’ve seen the comps for your neighborhood, but you just know your home is worth more, so you’re going to list it at a higher price.

This is one of a few reasons why sellers overprice their home, and none of them is smart. If you price your home too high, it’ll take longer to sell, raising doubts in buyers’ minds about whether there’s something wrong with it, and you’ll probably have to drop the price eventually anyway. So don’t fall for any of these five common justifications sellers use to inflate the price of their beloved property.

1. You have the Midas touch in decor (you think)

The reason that interiors are often painted white or neutral colors before a sale is that that allows potential buyers to envision what colors would make it their home. Your quirky or colorful touches might not be for everyone, and can actually devalue your house.

Alexandra Axsen, owner and managing broker of Lake Okanagan Realty in British Columbia, Canada, listed a home whose bathrooms were all sorts of strange colors—olive-green toilets, a purple bathtub, and a pink sink. When Axsen recommended to the seller a price that factored in the cost of necessary updates, things got a little heated.

“He got very upset and argued with me that his colorful fixtures added value, because people are tired of the all-white, stale hospital look,” Axsen explains.

So they tried the seller’s way first, listing it for his desired price. It didn’t sell, and buyers gave feedback that the home was overpriced. After weeks on the market, the seller finally agreed to lower the price. It sold within a month.

2. You’re nitpicking comps

Comps (or comparable market analysis) are valuable reference points that allow you to compare your home to similar nearby homes in order to price it right. But some sellers place too much value on ultimately negligible differences between their home and the comps.

Bruce Ailion, a real estate agent in Atlanta, lists a few he’s heard: “My home has a 60-gallon hot water heater; every other home has 40. My deck is 60 feet larger. My den has real barn wood paneling.”

Small features like this might be worth pointing out to potential buyers, but they’re not going to make or break a deal—and trying to price your home based on the size of your deck is a setup for disappointment. Plus, you might not see the flaws in your home—your deck might be big, but it might also need work.

“By nature, we see life through rose-colored glasses,” Ailion says. “Sadly, it can cost us significantly when it comes to selling our home.”

To be safe. ask your agent for their opinion on comps in your area. You might be surprised by what they say. (Don’t have your agent yet? Here’s how to find a real estate agent in your area.)

3. You’re too focused on your ROI

A house is an investment, and everyone wants a return on their investment. Couple that with emotional attachment, and you’re primed to mark up your home’s value.

“Sellers think that their house is worth what they want or need to sell it for, but the harsh reality is that a home is worth whatever a buyer is ready, willing, and able to pay for it,” says Will Featherstone, a real estate agent in Baltimore, MD.

Even in a seller’s market, there’s no guarantee that you’ll make money on your house. And just because you need $450,000 to buy that house on Greener Pastures Lane doesn’t mean you can sell your house for the same amount.

4. You built it yourself, so you’re emotionally invested

Speaking of emotional attachments, if you built your home yourself, you might have some serious issues with overpricing your property.

Case in point: Ariel Dagan, an associate broker in New York City, co-listed a property for a woman who priced a townhouse she built herself at $18.5 million. Dagan’s team tried to get the woman to lower her price, but she was adamant about sticking with the high price tag and ultimately dropped Dagan and his team from the property.

“Shortly after we were dropped from the listing, the price dropped from $18.5 million to $16.9 million,” Dagan says. “Eight months later, the listing sold for $15.5 million—or 19.35% less than the original asking price.”

Ouch.

So, why does that happen? Dagan calls it the “Ikea effect.”

“Most people who buy furniture from Ikea and assemble it themselves think it’s more valuable than it really is, because they built it,” he explains. “Same thing happens in today’s real estate market.”

5. You’re imagining you’ll haggle

Perhaps the most common reason people overprice their home is because they’re looking to negotiate.

On paper, it sounds like something you’d see on “Pawn Stars.” You offer up a vintage silver tea set at an inflated price. Rick Harrison offers you 25% of that, but he eventually goes up to 30%. OK, maybe “Pawn Stars” is a bad example, but you get the idea: You price your house 10% higher, fully expecting a buyer to try to lowball you, netting you the price you wanted all along while the buyer walks away thinking he got a bargain.

It doesn’t work like that in real estate.

“It’s much better to price it right and create such interest and demand where buyers are chasing you, versus you chasing the market backward [and] searching for the demand,” Featherstone explains.

So don’t be afraid to price your home fairly, or even underprice it—which is likely to attract buyers and boost the price to where it should be.

“Everything sells when it’s priced right,” Featherstone says.

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How To Get a Mortgage With Bad Credit (Yes, You Can)

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Finding home loans with bad credit isn’t for the faint of heart—or at least not something you should do without some serious homework. But there’s good news if you’re wondering how to buy a house with bad credit: It can be done!

A good credit score typically means you’ll get a great mortgage. A bad credit score means you’re in trouble, but you shouldn’t just throw in the towel. From low credit score mortgages to cash options to down payment strategies, this crash course explains how to buy a home with bad credit. Yes, it can be done.

What is a bad credit score?

First things first: While you may have a vague sense your credit score is bad, that’s not enough. How bad is it, really?

Ideally, you should check your credit report long before meeting with a mortgage lender. Your credit score is based on the information that appears on this report, and you’re entitled to a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) at AnnualCreditReport.com.

Credit scores, also called FICO scores, range from 300 (awful) to 850 (perfection).

If your credit score is 750 or higher, “you’re in the top tier” and positioned for the best interest rates and the most attractive loan terms for home buying, says Todd Sheinin, mortgage lender and chief operating officer at New America Financial in Gaithersburg, MD.

good credit score is from 700 to 749. If you fall below that range, lenders will start to question whether you’re a risky investment as a potential borrower.

“If your credit stinks, you’re at an immediate disadvantage and may have trouble qualifying for a home loan,” says Richard Redmond, a mortgage broker at All California Mortgage in Larkspur and author of “Mortgages: The Insider’s Guide.”

So, what next?

Check for errors

If your credit rating is subpar, that’s no reason to beat yourself up (at least not immediately), because you may not even be to blame for all of those blemishes.

Creditors frequently make mistakes when reporting consumer slip-ups. In fact, 1 in 4 Americans finds errors on credit reports, according to a 2013 Federal Trade Commission survey. So make sure to scour your credit report for slip-ups that aren’t your own. From there, you’ll need to contact the organizations that provided the erroneous info (e.g., a bank or medical provider) and have them update it. Once that’s done, your credit score will rise accordingly on your credit report.

As for any mistakes that are your fault? If they’re one-time mistakes, it never hurts to call and ask that they get removed from your record.

The only fix for major mistakes (darn chronic credit card debt), however, is time. Banish bad credit by making payments by their due date (late payments truly are the devil for hopeful home buyers), and you will gradually see your credit score rise. Just don’t expect to rewrite your credit history overnight. You have to prove to lenders that you’re up to the task of making those mortgage payments on time—all while saving for a down payment, of course. Nobody said this would be easy!

Pay up for a home loan for bad credit

Depending on your credit score, you might still qualify for low credit score mortgage options—but you should expect to pay a higher interest rate, says Sheinin. Getting a mortgage with a higher rate means you’ll pay your lender more money in interest over time, of course, but it at least enables you to join the home-buying club.

With interest rates still historically low (check yours here), it could make sense to buy now and take the higher rate.

Get a low credit score home loan

Federal Housing Administration loan is one option for prospective home buyers with poor credit, as the FHA typically offers these mortgages for less-than-perfect credit scores and first-time home buyers. The FHA requires a minimum 580 credit score (and other requirements) to qualify, but FHA loans also enable you to make a down payment as low as 3.5%.

The big drawback? Because the federal government insures these low credit score home loans, you’ll pay a mortgage insurance premium, which is currently assessed at 1.75% of the base FHA loan amount. However, depending on your actual credit score, certain conventional loans may still be available to home buyers with low credit, and these loans may require a slightly smaller down payment than the FHA loan minimum. Be sure to do your homework when exploring the FHA option.

Increase your down payment

If you have poor credit but a lot of cash saved up, some mortgage lenders might be willing to approve you for a home loan if you make a larger down payment.

“The more you put down, the more you minimize the risk to the lender,” says Sheinin.

So, by increasing your down payment to 25% or 30% on a conventional loan—instead of the standard 20%—you’ll strengthen your mortgage application, making yourself far more attractive to a lender. Just remember that your bad credit score can still negatively affect your mortgage loan’s interest rate.

Still, though, the chance to own your own home may outweigh those downsides any day. So if you’re convinced your credit history is sure to dash your home-buying dreams, chin up! Put in the work to overcome your bad credit—develop a healthier relationship with credit cards, work with a knowledgeable lender, and explore all of your mortgage options.

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Earnest Money Deposit vs. Down Payment: What’s the Difference?

earnest-money-vs-down-payment

When you buy or sell a home, you get used to hearing words you’ve never heard before. The mortgage lenders and insurance agents who help you through the process will throw around so much real estate jargon, somewhere along the way you might wish you had brought a dictionary—or maybe a translator.

Two rather vague but very important terms for buyer and seller alike are “earnest money deposit” and “down payment.” Both have to do with cold, hard cash, but what’s the difference? Here’s your cheat sheet on earnest money deposit vs. down payment.

What is earnest money?

Earnest money—also known as an escrow deposit—is a dollar amount buyers put into an escrow account after a seller accepts their offer. Buyers do this to show the seller that they’re entering a real estate transaction in good faith, says Tania Matthews, an agent with Keller Williams Classic III Realty in Central Florida.

Another way to think of earnest money is as a good-faith deposit that will compensate the seller for liquidated damages if the buyer breaches the contract and fails to close.

How much is a typical earnest money check?

Earnest money deposits usually range from 1% to 2% of the purchase price of a home—depending on your state and the current real estate market—but can go as high as 10%. If a home sales price is $300,000, a 1% earnest money deposit would be $3,000.

The buyer’s financing can also dictate the amount of an earnest money check. For example, if a buyer makes a cash offer, the seller may request more earnest money to show a true “buy-in” from the purchaser, says Matthews. In that instance, the seller of a $300,000 home might want a 3% deposit (or $9,000) versus the 1% deposit for an offer financed through a mortgage.

In any case, the seller can either accept, reject, or negotiate the buyer’s suggested earnest money amount, says Bruce Ailion, a Realtor® with Re/Max brokerage in Atlanta.

The earnest money deposit process

Earnest money deposits are delivered when the sales contract or purchase agreement is first signed. They are often in the form of the buyer’s personal check.

The check is held by the buyer’s agent, title company, or other third party (but never given directly to the seller) and is sometimes never even cashed, says Brian Davis, co-founder of SparkRental.com.

If the check is cashed, the funds are held in an escrow deposit account. The money will be shown as a credit to the buyer at closing and will offset part of the down payment amount or closing costs.

So here’s the real crux of the matter: If a prospective buyer backs out of the deal, the seller might be able to keep the earnest money deposit.

Matthews advises sellers to comb through the contract to see if they can take legal action. But keep in mind that if the buyers back out for any reason allowed by the contract or purchase agreement, they are legally entitled to get their earnest money back.

What is a down payment?

down payment is an amount of money a home buyer pays directly to a seller. Despite a common misconception, it is not paid to a lender. The rest of the home’s purchase price comes from the mortgage.

The money you put down can come from the buyer’s personal savings, the profit from the sale of a previous home, or a gift from a family member or benefactor.

Down payments are usually made in the form of a cashier’s check and are brought to the closing of a home sale or wired directly from the buyer’s bank.

Typical down payment amount

The exact amount of a down payment is often determined by the lender in relation to the overall loan amount. The minimum down payment required by mortgage lenders is 3% of the house’s price, and a 20% down payment is recommended by real estate agents.

Your purchase contract offer generally states how much you intend to put down, and a seller may be more likely to accept your offer if you are putting more money down.

But that’s not to say you have to put down 20%. After all, that’s a large chunk of change to have on hand, especially for first-time home buyers.

Be aware that the down payment is not all you need to buy a house. You also need to budget for closing costs, appraisals, and other expenses when you purchase real estate.

Is a 20% down payment mandatory?

For decades, a 20% down payment was considered the magic number you needed to be able to buy. It’s an ideal amount, but for many people it’s not realistic. In fact, many financing solutions exist, so you can consider that myth busted.

“Putting [down] less than 20% is OK with most banks,” Christopher Pepe, president of Pepe Real Estate, in Brooklyn, NY, told U.S. News & World Report.

Of you’re putting down less than 20%, however, there’s a catch. You will probably have to also pay for mortgage insurance, an extra monthly fee to mitigate the risk that you might default on your loan. And mortgage insurance can be pricey—about 1% of your whole loan, or $1,000 per year per $100,000.

Still, nothing compares to the feeling of owning your own home, so if you have your heart set on buying, there are options out there to help you achieve your dream of homeownership.

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6 Things Your Mortgage Lender Wants You To Know About Getting a Home Loan During COVID-19

Close-up doctor's hand is wearing a disposable white gloves with a blue surgical mask protecting the home and family. Medical objectives protected from coronavirus (COVID-19)

Getting a mortgage, paying your mortgage, refinancing your mortgage: These are all major undertakings, but during a pandemic, all of it becomes more complicated. Sometimes a lot more complicated.

But make no mistake, home buyers are still taking out and paying down mortgages during the current global health crisis. There have, in fact, been some silver linings amid the economic uncertainty—hello, record-low interest rates—but also plenty of changes to keep up with. Mortgage lending looks much different now than at the start of the year.

1. Rates have dropped, but getting a mortgage has gotten more complicated

First, the good news about mortgage interest rates: “Rates have been very low in recent weeks, and have come back down to their absolute lowest levels in a long time,” says Yuri Umanski, senior mortgage consultant at Premia Relocation Mortgage in Troy, MI.

That means this could be a great time to take out a mortgage and lock in a low rate. But getting a mortgage is more difficult during a pandemic.

“Across the industry, underwriting a mortgage has become an even more complex process,” says Steve Kaminski, head of U.S. residential lending at TD Bank. “Many of the third-party partners that lenders rely on—county offices, appraisal firms, and title companies—have closed or taken steps to mitigate their exposure to COVID-19.”

Even if you can file your mortgage application online, Kaminski says many steps in the process traditionally happen in person, like getting notarization, conducting a home appraisal, and signing closing documents.

As social distancing makes these steps more difficult, you might have to settle for a “drive-by appraisal” instead of a thorough, more traditional appraisal inside the home.

“And curbside closings with masks and gloves started to pop up all over the country,” Umanski adds.

2. Be ready to prove (many times) that you can pay a mortgage

If you’ve lost your job or been furloughed, you might not be able to buy your dream house (or any house) right now.

“Whether you are buying a home or refinancing your current mortgage, you must be employed and on the job,” says Tim Ross, CEO of Ross Mortgage Corp. in Troy, MI. “If someone has a loan in process and becomes unemployed, their mortgage closing would have to wait until they have returned to work and received their first paycheck.”

Lenders are also taking extra steps to verify each borrower’s employment status, which means more red tape before you can get a loan.

Normally, lenders run two or three employment verifications before approving a new loan or refinancing, but “I am now seeing employment verification needed seven to 10 times—sometimes even every three days,” says Tiffany Wolf, regional director and senior loan officer at Cabrillo Mortgage in Palm Springs, CA. “Today’s borrowers need to be patient and readily available with additional documents during this difficult and uncharted time in history.”

3. Your credit score might not make the cut anymore

Economic uncertainty means lenders are just as nervous as borrowers, and some lenders are raising their requirements for borrowers’ credit scores.

“Many lenders who were previously able to approve FHA loans with credit scores as low as 580 are now requiring at least a 620 score to qualify,” says Randall Yates, founder and CEO of The Lenders Network.

Even if you aren’t in the market for a new home today, now is a good time to work on improving your credit score if you plan to buy in the future.

“These changes are temporary, but I would expect them to stay in place until the entire country is opened back up and the unemployment numbers drop considerably,” Yates says.

4. Forbearance isn’t forgiveness—you’ll eventually need to pay up

The CARES (Coronavirus Aid, Relief, and Economic Security) Act requires loan servicers to provide forbearance (aka deferment) to homeowners with federally backed mortgages. That means if you’ve lost your job and are struggling to make your mortgage payments, you could go months without owing a payment. But forbearance isn’t a given, and it isn’t always all it’s cracked up to be.

“The CARES Act is not designed to create a freedom from the obligation, and the forbearance is not forgiveness,” Ross says. “Missed payments will have to be made up.”

You’ll still be on the hook for the payments you missed after your forbearance period ends, so if you can afford to keep paying your mortgage now, you should.

To determine if you’re eligible for forbearance, call your loan servicer—don’t just stop making payments.

If your deferment period is ending and you’re still unable to make payments, you can request delaying payments for additional months, says Mark O’ Donovan, CEO of Chase Home Lending at JPMorgan Chase.

After you resume making your payments, you may be able to defer your missed payments to the end of your mortgage, O’Donovan says. Check with your loan servicer to be sure.

5. Don’t be too fast to refinance

Current homeowners might be eager to refinance and score a lower interest rate. It’s not a bad idea, but it’s not the best move for everyone.

“Homeowners should consider how long they expect to reside in their home,” Kaminski says. “They should also account for closing costs such as appraisal and title insurance policy fees, which vary by lender and market.”

If you plan to stay in your house for only the next two years, for example, refinancing might not be worth it—hefty closing costs could offset the savings you would gain from a lower interest rate.

“It’s also important to remember that refinancing is essentially underwriting a brand-new mortgage, so lenders will conduct income verification and may require the similar documentation as the first time around,” Kaminski adds.

6. Now could be a good time to take out a home equity loan

Right now, homeowners can also score low rates on a home equity line of credit, or HELOC, to finance major home improvements like a new roof or addition.

“This may be a great time to take out a home equity line to consolidate debt,” Umanski says. “This process will help reduce the total obligations on a monthly basis and allow for the balance to be refinanced into a much lower rate.”

Just be careful not to overimprove your home at a time when the economy and the housing market are both in flux.

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The 5 Biggest Mistakes Veteran and Military Home Buyers Make

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Having a place to call your own—whether you’re going to be there for four years or forever—is an essential part of the American dream. The U.S. Department of Veterans Affairs offers plenty of great programs to help those who have served in the military get a home loan, but the process isn’t foolproof. First-time home buyers aren’t the only ones who make buying mistakes. Even people buying their second home, or their 10th, can be thrown off course when buying a new home and dealing with lenders.

You can avoid your own buyer’s tale of woe (or headbanging frustration) by avoiding those mistakes before you start your home search. We asked VA-savvy real estate agents to tell us which missteps they see the most—and how you can avoid them when you apply for and get a VA loan.

Mistake No. 1: Not using a VA-savvy real estate agent

If you’re getting a VA loan, make sure you work with a real estate agent who understands the VA home loan process.

“I see a lot of people go with an agent who doesn’t understand the VA system,” says Katie Fraser, a Realtor® with Trident Realty Group Northwest in Seattle. “The VA won’t underwrite [just] any house. It is a huge, huge, huge deal to use an agent who understands the VA home loan system, the VA appraisal process, and what that all really looks like.”

When you’re buying through the Veterans Affairs department, you’ll need to find a home that meets VA home loan property requirements. A VA loan program appraiser will have specific criteria (e.g., fixer-uppers, and even some newer homes, won’t qualify). An agent experienced with home loans for veterans will also know about VA loan limits, the debt-to-income ratio lenders will expect you to have to qualify for a home loan, and other essential information.

Save yourself the headache of making an offer on a house that may not get approved, or for which you may not qualify for a VA loan, and work with a VA-experienced real estate agent from the start. Ask another veteran for a referral, or get help from Veterans United Realty to find the right real estate agent.

Mistake No. 2: Not communicating with your lender

Veterans have access to arguably the most powerful home mortgage option on the market, but about 33% of home-buying veterans don’t know they have a home mortgage benefit, according to the VA.

When you first meet with your lender, be sure to discuss your service member status so you can be informed about all of the potential advantages for veterans.

One of the biggest benefits you’ll get with a VA loan is the ability to buy with a 0% down payment (yes, we’re totally serious). Not having to make a down payment can make it possible for veterans  to buy a first home, often years sooner than if they had to save up for a down payment first.

VA loans also come with low-interest-rate mortgages, don’t require mortgage insurance, and have more forgiving credit eligibility requirements.

“Veterans should ask their lender if they offer any incentives for veterans,” adds Alissa Gerke, broker and owner of Select Realty Group, in Columbia, MO. “I’ve seen lenders waive appraisal fees, offer a waiver of origination fee if the veteran has a certain credit score, or other lender credits.”

Pretty much everything will get easier as soon as your lender knows your eligibility for veteran status, so speak up!

Mistake No. 3: Forgetting about all upfront home-buying costs

While you’ll have a ton of financial advantages with your VA loan, you willhave some borrower costs to deal with.

“Probably the biggest mistake I see is active-duty members coming into the home-buying process and not knowing there are other closing costs and fees necessary for buying a home,” Fraser says.

When you’re buying a home, even if you have little or no down payment, you’ll likely have to plunk down a bit of cash for things like a home appraisal and inspection. It might not cost much in the large scheme of things, but it’ll help speed things along if you come prepared knowing what you’ll have to shell out for.

Mistake No. 4: Not thinking of your home as an investment

Maybe you think there’s no sense in buying if there’s a chance you might be relocated in the next few years. But that doesn’t mean you shouldn’t buy; in fact, that home could end up being a smart investment.

By searching in high-demand areas or choosing a popular home style and size (say, 1,500 to 2,000 square feet), you’ll give yourself a better chance at resale if you need to move later. Or, you can hang on to it and rent it out.

My clients and I “often go out and look for their first rental home, not just a home for their family,” Fraser says. “With so many in transition, they’re able to purchase a home and it becomes an investment property for them when they go on to their next duty station or they move.”

Don’t like the idea of becoming a landlord? A VA loan is assumable (meaning you can transfer the loan and the property to another vet), or you can just sell the home to a nonmilitary buyer. And don’t forget: You can use your VA home loan benefits again and again, so you can own a rental property and a new home. You can even refinance a VA loan if you are an active-duty service member. You may want to refinance if you have a non-VA loan, to increase your loan amount and tap into your home equity, or if you can get a better interest rate with a new VA loan.

Mistake No. 5: Making other big purchases before closing

Once home buyers find a home and their offer is accepted, they can be excited about moving in and making it theirs. Maybe you have an eye on a new big-screen TV, and you’re looking into financing a new living room set you love. But don’t do that until you’re really a homeowner, even if your lender has approved your mortgage loan.

It’s easier to get a VA loan than a conventional, non-VA loan, but you still must meet lender requirements.

“Opening a line of credit or making a big purchase after mortgage approval is a common mistake,” Gerke says. “This can oftentimes change the veteran’s credit score and make them ineligible for the loan.”

Wait until after closing to make any other financial moves, just to be on the safe side and to keep your loan on track.

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Can You Break a Lease Because of COVID-19? What Renters Need To Know

break a rental contract

In this uncertain time of the novel coronavirus, many renters, eager to change their living situations, may consider breaking their lease. Some may be interested in moving from their city apartments and to less populated areas, while others may find themselves suddenly unemployed and forced to look for cheaper housing options.

But can you break a legal lease because of COVID-19?

Generally, it can be difficult and expensive to break a lease. Tenants are typically responsible for paying the rent until their lease is up—so if you’re three months into a one-year lease, you’d still have to pay rent for the remaining nine months.  And the same laws still hold right now: If you end a lease early, even in the era of COVID-19, you’re still responsible for your rent until the end date in your contract.

“It’s bad news for tenants these days,” says Craig Blackmon, a real estate lawyer based in Seattle. “Generally speaking, the pandemic does not relieve a tenant from having to pay rent, even if the tenant feels compelled to move out.”

That said, the coronavirus might make landlords more flexible on ending leases early than they may have been in the past. Here’s why—and how you can use this to your advantage.

What happens if you break a lease without a landlord’s permission

For starters: If you’re thinking of just stopping your rent payments and running for the hills without your landlord’s blessing, that’s certainly one way to break a lease. But be warned: Leaving your last place on bad terms could spell trouble when it comes to finding a new place, and it could severely affect your credit rating.

“Many landlords will want to contact prior landlords,” says Denise Supplee, a real estate agent and property manager in Philadelphia. “Whether tenants like it or not, tenant screening is available virtually. And if a renter breaks a lease without a landlord’s blessing, this will certainly not bring a positive reference.”

So if you want to break a lease early, it is important that you check with your landlord first.

Why COVID-19 might let you break a lease early

While you might be legally on the line for your rent until the end of your lease, landlords might be more flexible these days because many tenants can’t pay rent right now.

In the past, such tenants who couldn’t pay rent would be evicted—but COVID-19 has led to the CARES (Coronavirus Aid, Relief, and Economic Security) Act, which prevents landlords of certain residences nationwide from evicting tenants from March 27 to July 25, 2020—and perhaps beyond that. This means that for the time being, many tenants not paying rent can stay put.

“The CARES Act suspends evictions for any properties secured by federally backed mortgages,” says G. Brian Davis, director of education for SparkRental.com. “That includes conforming Fannie Mae and Freddie Mac mortgages, FHA loans, and VA loans.”

So if your landlord has such a loan, you’re safe. Plus, Davis adds, “it also suspends evictions for Section 8 landlords and those taking the Low-Income Housing Tax Credit.”

Even if your rental doesn’t fall into one of those categories, Davis says it’s a good idea to check with your city.

“Some cities and towns have also temporarily suspended evictions,” he adds. “Plus, many other jurisdictions have temporarily closed civil courts, preventing landlords from scheduling a rent court hearing.”

Bottom line: Having lost the threat of evictions, landlords may be more lenient about a whole lot of things, including rent due dates and breaking a lease, since the alternative may be that these tenants can otherwise just occupy the unit for free.

“If a tenant calls their landlord and explains that they lost their job and can’t pay rent and asks to move out early, landlords would be wise to let them out, given their inability to enforce evictions right now,” explains Davis. “The landlord can then sign a new lease agreement with an employed renter.”

And even if you can pay rent but just want to break your lease to find a cheaper or more remote apartment elsewhere, a landlord may still show more flexibility than usual rather than put up a fight. With so many now wishing they could end their lease quickly and more conveniently, Davis says that many landlords and tenants alike may find comfort in shorter-term lease agreements.

“It’s a time of great uncertainty, and in times of uncertainty it pays to stay as flexible as possible,” Davis says. “It goes for tenants facing an uncertain employment market, and it goes for landlords, too.”

So how should you approach breaking a lease?

If you’re ready to ask your landlord about breaking your lease, here’s what to do:

  • Be upfront about your situation, whether you’ve been laid off or just want to move. Since landlords may be getting skipped or late payments from many tenants, they may appreciate your being honest with them and willing to negotiate. If you can pay one more month’s rent but that’s it, say so and see what your landlord says. There may be a solution.
  • Even if your landlord won’t let you out of your lease early, try for a middle ground. “You could also try to negotiate a lower amount for early termination than the lease calls for,” says David Reiss, academic programs director for the Center for Urban Business Entrepreneurship at Brooklyn Law School. “You could also forfeit your security deposit.”
  • Of course, you could always offer to try to find a new renter, or to sublet your place. While this could be a difficult task in this unpredictable time, however, you might get lucky. You never know until you ask around.
  • If your landlord does agree to new terms, get everything in writing and keep a copy for your records. Don’t trust any nonverbal agreements because, when push comes to shove, it’ll be the landlord’s word against yours. The last thing you want is to move out and end up with some legal trouble down the road.
  • Finally, ask for a letter of reference. Remember that finding a new lease may be difficult, especially if you’re currently unemployed. A good reference from your landlord could help you get into your next home.

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What Is a No-Fee Mortgage?

Real estate concept - businessman signs contract behind home architectural model

When you apply for a mortgage or refinance an existing mortgage, you want to secure the lowest interest rate possible. Any opportunity a borrower can exploit to shave dollars off the cost is a big win.

This explains the allure of no-fee mortgages. These home loans and their promise of doing away with pesky fees always sound appealing—a lack of lender fees or closing costs is sweet music to a borrower’s ears.

However, they come with their own set of pros and cons.

No-fee mortgages have experienced a renaissance given the current economic climate, according to Ralph DiBugnara, president of Home Qualified. “No-fee programs are popular among those looking to refinance … [and] first-time home buyers [have] also increased as far as interest” goes.

Be prepared for a higher interest rate

But nothing is truly free, and this maxim applies to no-fee mortgages as well. They almost always carry a higher interest rate.

“Over time, paying more interest will be significantly more expensive than paying fees upfront,” says DiBugnara. “If no-cost is the offer, the first question that should be asked is, ‘What is my rate if I pay the fees?’”

Randall Yates, CEO of The Lenders Network, breaks down the math.

“Closing costs are typically 2% to 5% of the loan amount,” he explains. “On a $200,000 loan, you can expect to pay approximately $7,500 in lender fees. Let’s say the interest rate is 4%, and a no-fee mortgage has a rate of 4.5%. [By securing a regular loan], you will save over $13,000 over the course of the loan.”

So while you’ll have saved $7,500 in the short term, over the long term you’ll wind up paying more due to a higher interest rate. Weigh it out with your financial situation.

Consider the life of the loan

And before you start calculating the money that you think you might save with a no-fee mortgage, consider your long-term financial strategy.

“No-fee mortgage options should only be used when a short-term loan is absolutely necessary. I don’t think it’s a good strategy for coping with COVID-19-related issues,” says Jack Choros of CPI Inflation Calculator.

A no-fee mortgage may be a smart tactic if you don’t plan to stay in one place for a long time or plan to refinance quickly.

“If I am looking to move in a year or two, or think rates might be lower and I might refinance again, then I want to minimize my costs,” says Matt Hackett, operations manager at EquityNow. But “if I think I am going to be in the loan for 10 years, then I want to pay more upfront for a lower rate.”

What additional fees should you be prepared to pay?

As with any large purchase, whether it’s a car or computer, there’s no flat “this is it” price. Hidden costs always lurk in the fine print.

“Most of the time, the cost for credit reports, recording fees, and flood-service fee are not included in a no-fee promise, but they are minimal,” says DiBugnara. “Also, the appraisal will always be paid by the consumer. They are considered a third-party vendor, and they have to be paid separately.”

“All other costs such as property taxes, home appraisal, homeowners insurance, and private mortgage insurance will all still be paid by the borrower,” adds Yates.

It’s important to ask what additional fees are required, as it varies from lender to lender, and state to state. The last thing you want is a huge surprise.

“Deposits that are required to set up your escrow account, such as flood insurance, homeowners insurance, and property taxes, are normally paid at closing,” says Jerry Elinger, mortgage production manager at Silverton Mortgage in Atlanta. “Most fees, however, will be able to be covered by rolling them into the cost of the loan or paying a higher interest rate.”

When does a no-fee mortgage make sense?

For borrowers who want to save cash right now, but don’t mind paying more over a long time frame, a no-fee mortgage could be the right fit.

“If your plan is long-term, it will almost always make more sense to pay the closing costs and take a lower rate,” says DiBugnara. “If your plan is short-term, then no closing costs and paying more interest over a short period of time will be more cost-effective.”

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Regulators ease restrictions on homeowners in coronavirus mortgage bailout program

  • Federal regulators have changed rules and cleared up some confusion about limits placed on the more than 4 million borrowers in the mortgage relief program the government rolled out to contend with the coronavirus’s economic onslaught.
  • Lending rules that were in place before the pandemic left borrowers with little clarity about how they could get future mortgages or refinance their loans.
  • Yet on Tuesday, the director of the Federal Housing Finance Agency announced that borrowers may now refinance or buy a home with a new mortgage if they have started making payments on their current mortgage again.

A sign advertising home mortgage services at a Bank of America branch in Manhattan Beach, Calif.

Federal regulators have changed rules and cleared up some confusion about limits placed on the more than 4 million borrowers in the mortgage relief program the government rolled out to contend with the coronavirus’s economic onslaught.

Lending rules that were in place before the pandemic left borrowers with little clarity about how they could get future mortgages or refinance their loans. Yet on Tuesday, the director of the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, announced that borrowers may now refinance or buy a home with a new mortgage if they have begun to make payments on their current mortgage again.

They can do this if they’re in the forbearance program, or also if they have gotten out of it already. But they have to have made at least three months’ worth of payments. The previous guidelines had said borrowers must be current on their mortgage for at least a year.

“Homeowners who are in COVID-19 forbearance but continue to make their mortgage payment will not be penalized,” said FHFA Director Mark Calabria. “Today’s action allows homeowners to access record low mortgage rates and keeps the mortgage market functioning as efficiently as possible.”

There had been some confusion on the part of lenders and servicers as to when borrowers now current on their loans could get back into the market. In addition, some borrowers claimed they had been unknowingly put into the forbearance program just by calling to ask for information about it.

“We appreciate clear guidance from FHFA and feel these responsible parameters will allow lenders to serve well-qualified borrowers in their purchase of a new home,” said Debra Still, president and CEO of Pulte Mortgage, a division of one of the nation’s largest homebuilders.

The FHFA is also extending Fannie and Freddie’s ability to purchase single-family mortgages that are in forbearance. They can now buy forborne loans, with note dates on or before June 30, as long as they are delivered to the two by Aug. 31, and have only one missed mortgage payment. The previous policy was set to expire on May 31.

“These welcome moves ensure that homeowners who continue to make on-time payments – and those who have successfully exited forbearance – can benefit from near record-low mortgage rates,” said Bob Broeksmit, CEO of the Mortgage Bankers Association. “It also keeps the mortgage market functioning efficiently and helps ease current credit availability constraints.”

Borrowers may apply for mortgage forbearance with no proof of hardship, only declaring that they are unable to make their monthly payments. While the number of borrowers continues to increase, now with just more than 8% of all borrowers in forbearance, according to the MBA, the weekly volume of new applicants is shrinking.

Diana Olick

 

How to sell your home in the age of coronavirus

  • For the week ending March 9, new listings were down 29% annually, and the total supply of homes for sale was down 19%, according to Realtor.com.
  • As states reopen, new home listings are starting to pick up, along with open houses.
  • Strategies like employing virtual technology, staging and moving out are ways that can help land a buyer in the age of social distancing.

Not a lot of homeowners want to put their homes on the market in the midst of a pandemic, but some do need to move, and it’s not the worst time to sell. Demand for housing is still incredibly strong, despite the hit to the economy, and supply is at a record low.

For the week ending March 9, new listings were down 29% annually, and the total supply of homes for sale was down 19%, according to realtor.com. But now new listings, along with open houses, are starting to pick up as states reopen.

Selling a home is stressful enough, but selling in the age of social distancing may seem even worse, but it doesn’t have to be. Simple strategies can help.

First, staging the home to sell has never been more important, even if you’re not letting people in.

“You must double-down on every good practice they had prequarantine, and make sure the house is even more prepared, if anything, than it was when the majority of people would be visiting it actually versus virtually,” said Paul Legere, a real estate agent with The Joel Nelson Group in Washington, D.C.

Sellers should resist the urge to save on staging now and may even want to step it up. Virtual technology is a must, and some agents are now using the latest in 3-D touring, which allows buyers to move through the home on their own.

“As we headed into quarantine, we invested in a 3-D Matterport camera so that we can shoot our own virtual tours and not rely on scheduling a photographer,” said Legere.

Sellers should also make sure the agent they choose is willing to do personal, live virtual tours. Dana Rice, a real estate agent with Compass in Maryland, has been walking buyers through her listings over a smartphone or tablet so the buyers can ask questions in real time. Others are doing Facebook Live showings for groups.

“The whole virtual tour thing is not just hosting a Facebook Live, because nobody wants to sit through that,” said Rice. “So there are a few lessons to take from doing them over the past seven weeks: It has to be private enough for a buyer to join in without feeling exposed, but open enough that people can easily participate. And the host [agent] should have an assist from another person who is reading comments and making notes of questions.”

While not all sellers can move out of their homes before selling, it certainly helps today. That way buyers can tour the homes on their own. Homebuilders are definitely benefiting from the ability to open up their models to individuals touring alone.

Several companies now offer smart lockboxes with onetime codes to let buyers access the home through their smartphones. Minimal furniture can be left for staging, but nothing small enough to be stolen easily.

Sellers who are allowing individual buyers into the home while they’re still living there should make sure to vet those buyers carefully weed out the neighbors who might just be snooping around. For open houses, masks, sanitizer, shoe coverings and wipes should be made available at the front door.

Sellers should also be very careful not to overprice their homes. There may be little to choose from on the market right now, but with the economy in free-fall, bidding wars are few and far between.

“Buyers are not desperate, so the pricing strategy still must be sound,” said Rice.

Home prices have not started to fall yet, not nationally, anyway, but the big gains going into this year are gone. Buyers today are more likely to jump at a bargain than they are to pay a premium.

Diana Olick

Real estate is still a popular investment pick. Here’s what you need to know about buying in a downturn

The coronavirus pandemic has made us all a lot more familiar with our homes. But it has also thrown up a great number of questions over the future of the property market.

While global markets were thrown into turmoil in the early days of the outbreak, the property market, broadly speaking, has remained resilient. As of April, the median U.S. house price rose 8% year on year to hit $280,600.

That’s good news for investors. Real estate continues to rank as the top investment pick for the majority of Americans (35%), ahead of stocks and bonds (21%), savings accounts (17%) and gold (16%).

But the coronavirus has shuttered construction sites across the globe, adding to existing supply shortages. And with many industries and individuals now facing uncertain futures, the phrase “safe as houses” has been shaken.  

CNBC Make It spoke to the experts to find out just what might lie ahead for the future of real estate.

Buying a home

Buying a home is often seen as one of the most important and prudent financial investments you can make.

During times of economic distress, that conventional wisdom can be thrown into question. The 2008 global financial crisis, which originated in the property market, was a major knock on confidence. However, financial experts broadly agreed that this downturn will not hurt housing in the same way.

“In most historic recessions, the property market has either remained largely resilient or was only impacted across certain real estate sectors,” noted Dhruv Arora, CEO of digital wealth manager Syfe.

Notwithstanding the short-term difficulties of conducting in-person viewings, that means that now remains a reasonable time to think about buying a home once cities and states reopen.

With interest rates slashed in a bid to stimulate global economies, the cost of borrowing has become cheaper, which could make mortgages more affordable for those with adequate finances. The same goes for refinancing a current home.

Trent Wilshire, economist at Australian property site Domain, said that could encourage more people to get back out into the market. It is already starting to happen in Australia, where lockdown measures are easing, he noted.

“Transactions will start rising again in coming weeks but are still likely to be sluggish compared to late 2019/early 2020,” he said. “We’re already seeing a pick-up in recent weeks, with new ‘for sale’ listings rising the past few weeks and rising enquiries on Domain from potential buyers.”

That said, the nature of the coronavirus pandemic remains uncertain, and it’s important to look into the specifics of the local and national market of the city in which you’re looking to buy.

Buy-to-let real estate

A buy-to-let property can offer a great source of passive income, via rental payments, and capital growth, through price appreciation. It can also offer an alternative route onto the property ladder for first-time buyers who are unable to buy in their preferred area.

Those fundamental attributes remain true in the current climate. Indeed, the economic slump has likely exacerbated existing trends, which have priced many young people out of buying and inflated the renters’ market.

The best investment opportunities will be in those places where the labor market is the least damaged.

That offers opportunities for those in a position to invest. However, with the global economy on the rocks, so too is the renters’ market. Prospective landlords should be cautious that some tenants may struggle to make their payments.

“It’s all going to be about location. The best investment opportunities will be in those places where the labor market is the least damaged,” said David Lebovitz, global market strategist at JPMorgan Asset Management.

As with residential homes, buy-to-let properties suffer the same logistical hurdles right now in terms of conducting viewings and processing sales.

Commercial real estate

Commercial real estate, which encompasses the hard-hit hotel and retail sectors, potentially poses the biggest risk for investors.

So far this year, the commercial real estate market has fallen almost 28%, with hotels & resorts and retail spaces down 48% and 40%, respectively.

Syfe’s Arora said the drop-off will take some time to correct. That recovery is likely to be “gradual” — or U-shaped rather than V-shaped — as economies embark on phased reopenings, he said.

However, where there are downsides there are also opportunities, Arora noted.

“As always there will be investors who look at the long-term potential of these real estate sectors,” he said.

Sectors with “strong fundamentals,” such as industrial, residential and specialized real estate, show particular signs of resilience, said Arora. Meanwhile China — initially at the forefront of the outbreak and now leading the charge on economic reopening — offers cues as to which sectors thrived under the pandemic, chiefly health care and logistics.

“We still see value in direct real estate as a source of income, and more broadly, as a portfolio diversifier,” added Lebovitz, highlighting direct purchases and real estate investment trusts (REITs) as some of the best options.

“We believe it is about combining REITs and direct real estate, particularly given that REITs provide greater exposure to more forward-looking sectors,” he said.

Building the foundations

Before embarking on any financial investment, real estate or otherwise, it’s important to get the foundations right.

Typically, financial advisers recommend setting aside roughly three months’ salary in cash to tide you over in case of an emergency. In the current economic environment, six months’ worth might be a safer bet, however, according to personal finance expert Ramit Sethi.

“An emergency fund is money saved for any unexpected expenses. It gives you the piece of mind knowing you have a hedge against the worst financial disasters,” he writes in his blog “I will teach you to be rich.”

Additionally, it’s important to set aside extra funds to cover the legal and transactional costs associated with buying a property.

Karen Gilchrist