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Odd Parcels: Alimony Tax Changes, Neighborhood Regret, More

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | November 23rd, 2018

Nobody likes to pay alimony to an ex-spouse. Come Jan. 1, there will be one more reason to hate alimony.

Beginning next year, the payment to a former mate will no longer be tax-deductible on your federal return, just like child support is not a write-off.

Currently, alimony is a deduction for the payer, which is usually the former couple’s highest earner. And the recipient must declare the payment as income.

But under the Tax Cuts and Jobs Act, that rule goes away. As of the first of the year, alimony is neither deductible nor reportable. In other words, just like child support, the payment will not be visible on your tax return.

What impact this will have is anyone’s guess. But some experts believe that, because they cannot afford to live in different residences, the new rules may have the unintended consequence of slowing the divorce rate: keeping the no-longer-happy couple in the same home, but living separate lives.

Other possibilities: The spouse who wants to move out of the shared house may not be able to afford to, because he or she is losing the write-off. Or there might be a mad scramble to sign the divorce papers before the end of this year.

This change in the tax code is not retroactive. However, if there is an agreement existing prior to the end of this year and it is modified sometime in the future, the law says there will no longer be a deduction.

Please note: This is not intended to be legal advice, only a heads-up. Consult a tax professional or divorce attorney for more information.

Homeowners are staying in their places longer than ever, according to the Census Bureau, further exacerbating the inventory shortage of houses for sale in many markets.

Thirty years ago, sellers remained in place for a median of six years. But in 1997, the median increased to seven years, where it remained until 2008 -- the beginning of the housing meltdown and the Great Recession. Then, the median tenure started bumping up by a year every year. And the longer people stay in their homes, the less inventory is on the market.

The idea of saving for a 20 percent down payment is all but irrelevant today. Many lenders will clear would-be homebuyers who have as little as 3 percent of their own money to put down, as long as they have the income to support higher monthly payments.

Of course, it’s always advantageous to put down as much money as possible, because it will lessen your monthly mortgage outlay. But if you are aiming for 20 percent, you’re going to be a renter for a long time -- perhaps a full decade or more.

Based on a median national home value of $216,000, 20 percent down translates into $43,200. Consequently, a renter earning the median income won’t have enough for 20 percent for 77 months, or almost 6.5 years, according to research from HotPads, a rental-finder website.

But in 13 of the 35 largest metro areas, it could take more than a decade. And in the most expensive markets, such as Los Angeles, San Jose and San Diego, how does 22 years strike you?

The rental site also reports that members of Generation Z, who are just now entering their homebuying years, will spend about $226,000 on rent before they can become owners. That’s more than any other previous generation.

By comparison, millennials can expect to spend $202,000 on rent before buying -- a far cry from baby boomers, who paid landlords “only” $148,000 on rent before buying.

You can changes houses, but you can’t change your new neighborhood. And according to research from Trulia, more than a third of movers regret where they chose to move, and would change locations if they could take a mulligan.

Trulia found that 36 percent of recent homebuyers have “neighborhood regret.” That feeling is even greater in metropolitan areas, where, based on a sample of 1,000 families who moved within the last three years, almost half of all movers are dissatisfied with their choices.

Attributes that led to regret: noise, traffic and lack of public transit. On the other hand, traits that make a neighborhood suitable are its “vibe,” low crime rates and an easier commute to work.

If you are thinking about buying, check out where you want to go first, and then look for a house in those places. Look up neighborhood photos, search for the hot shopping and dining spots and visit your top choices. Once you settle on a location, contact an agent who is an expert in that local market.

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Sometimes, Rules Are Too Harsh

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | November 16th, 2018

The number of homes being built in communities operated by a homeowners’ association (HOA) is rising. But not all the folks who purchase those homes realize what they are getting themselves into.

Common-interest developments -- in which HOAs run the properties after builders sell out all their lots, houses or apartments -- are the country’s fastest-growing form of housing. And whether you like it or not, you must join your association upon purchasing such a home. You can’t opt out just because you don’t use the pool, tennis courts or other community amenities.

According to the Census Bureau, 61 percent of all new single-family houses completed last year were in HOA-run properties, up from 48 percent in 2010. The Community Associations Institute (CAI) says 69 million Americans now reside in such places.

These associations are created to sustain property values, maintain common areas and enforce the rules that govern their communities. Some associations ban owners from parking business vehicles on their driveways, for example. Some HOAs say you can’t park any kind of truck in their communities, even in your own garage.

Keep your garage doors closed, while you’re at it. Make sure your draperies are all the same color and material as your neighbors’. Plant flowers here, but not there, and only this kind of plant. Good luck putting in a window air conditioning unit. Thinking about replacing your roof with a lighter shingle, or painting your front door red? Think again.

Those, of course, are some of the strictest rules an HOA might put into effect. Most rules are fairly benign. According to CAI, a national sampling of HOA residents rated their associations as either positive (64 percent) or neutral (26 percent). Only 1 in 10 had grievances, mostly involving how their particular complaint was handled.

Most HOA rules are in place for good reason. But once in a while, you run into an overzealous volunteer board or paid management company, and that’s when the gloves can come off.

Here, gathered from numerous sources, are some of the most egregious offenders:

-- In Virginia, a 90-year-old Medal of Honor winner placed a flagpole in his front yard, only to be told that it wasn’t allowed. The HOA relented, but only after the issue went public and the veteran received support from members of Congress, the White House and the American Legion.

-- A California man was flagged for having too many rosebushes on his 4.5-acre property. A judge ruled that he was in violation of the community’s architectural design rules. He offered to scale back his plantings, but was still forced to pay the HOA’s $70,000 legal bill, and eventually lost his home to the bank.

-- “For Sale” signs are illegal in many communities. A Tennessee woman was forced to move her lawn sign to her window, even though the builder, still active in the neighborhood, had signs all over the place.

-- When a Florida resident couldn’t afford to re-sod his lawn because the cost of his adjustable-rate mortgage had jumped markedly, his HOA sued him. He lost, and when he ignored the court’s order, he was put in jail.

-- A wounded combat vet in Georgia was set to receive a newly built house, compliments of Homes for Our Troops, when his HOA balked because his slightly smaller house might have lowered property values for his neighbors.

-- One California condo doesn’t allow pets’ feet to touch the floor in any common space, so a 61-year-old resident who walked with a cane was forced to carry her spaniel through the lobby every day. When she could no longer do so, she was fined $25 every time, and was eventually forced to move.

Rabid HOAs don’t always win, though. In Florida, a man whose commercial vehicle didn’t fit inside his garage was nabbed for parking the truck on his driveway. The HOA took him to court, even though he had been parking in the driveway for years. He won, the HOA appealed and he won again. This fracas cost the HOA about $300,000.

A Virginia HOA bankrupted itself in a battle over political yard signs. During the four years the case dragged through the courts, the association boosted the HOA fee from $650 annually to $3,500 -- meaning everyone had to pay for their board being on the wrong side of an argument.

And in another case, the Department of Housing and Urban Development has charged a New Jersey condo association with discrimination after barring an elderly resident from using the front door with her service pet. The woman, who has severely limited hearing and sight, was required to use the service entry -- a violation of the Fair Housing Act, according to HUD.

The takeaway: Living in an HOA-led community is fine for some people, but it’s not for everyone. Before you buy, ask for a sit-down with a member of the association board to discuss how things are run. And look over the rules carefully to make sure you can live with them.

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No-Cost Loan for VA Borrowers

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | November 9th, 2018

Veterans eligible for financing backed by Uncle Sam’s good faith and credit can borrow up to $453,100 without paying a dime for a down payment. But how about paying nothing out of pocket for closing costs, either? All without paying a higher-than-normal interest rate?

A nearly no-cost loan is just one of the latest offerings from lenders. There is also a low-down-payment program that offers borrowers a $2,000 Home Depot gift card plus a $1,500 grant to offset some closing costs, and another that allows borrowers to qualify based on their assets as opposed to their incomes.

Even the academics are getting in on the act, with a proposal for a new type of mortgage they believe will help renters with stable incomes, but no savings, purchase their first homes.

The no-cost loans are coming in the new year from NewDay USA, which only writes mortgages backed by the Veterans Administration. Under a new program, the Maryland-based lender will advise borrowers to ask sellers to pay all of their closing costs. If it is successful, past and present servicemen and women won’t need any of their own funds to buy a house.

Closing costs are expensive, so asking a seller to fork over that much could prove to be difficult. Nationally, according to ClosingCorp, a San Diego firm that supplies closing cost data to lenders, the average charge is $5,651 with property taxes and $3,438 without.

But Rob Posner, NewDay’s CEO, points out that in many markets, sellers often pay at least a share of the buyer’s closing fee, so getting them to pay somewhat more shouldn’t be a problem. In return, the seller will be receiving the full asking price for the home.

“We’ll ask for 5 percent (of the purchase price) back,” Posner said in an interview. “But if we only get 4 percent, everybody will still be happy.”

NewDay won’t negotiate on a borrower’s behalf; that’s the real estate agent’s job. But it will educate clients to ask sellers and their agents to pay their closing costs. On the flip side, the seller will have a buyer who is already fully qualified and approved based on credit and income.

“Even if a VA borrower has the cash, they should ask the seller to pay his or her closing costs,” said Posner. “They’re always better off paying full price, getting the concession and keeping their money in the bank.”

Home Depot is not a direct partner in the 3-2-1 Home loan from San Diego-based Guild Mortgage, which operates in 40 states. But with a Guild-donated $2,000 gift card for use at the big box retailer, would-be buyers can more readily consider a home that needs minor repairs or updates, says Guild President Mary Ann McGarry.

Borrowers applying for the 3-2-1 Home mortgage must put 3 percent down, but that can be funded by a gift. They also must have a minimum credit score of 620, complete a homeownership class and have incomes that fall within certain limits, which vary regionally.

With its SmartFunds loan, meanwhile, New Penn Financial of Columbia, Maryland, now allows high-end buyers to qualify for a mortgage based solely on their assets. To qualify, borrowers must have enough eligible assets to cover their total monthly obligations for five years and meet certain reserve requirements.

The loan is available in amounts up to $3 million with a maximum loan-to-value ratio of 90 percent. It is available for primary residences and second homes, but not for non-owner-occupied investment properties. New Penn is licensed in 43 states.

Elsewhere, a brand-new loan idea stems from the fertile minds of two economists who work in the Federal Reserve system. They propose a new fixed-rate mortgage that they maintain could alleviate affordability issues, boost the chance for renters to move into their own homes and still provide “a highly profitable asset” for lenders and investors.

Wayne Passmore and Alexander H. von Hafften say their idea eliminates the three major flaws with today’s 30-year fixed-rate mortgage: large down payments, the slow accumulation of equity and the expense of refinancing that prevents borrowers from taking advantage of falling rates.

Under their proposal, which they call the Fixed-COFI mortgage -- COFI stands for cost of funds index -- there would be no down payment and the fixed monthly cost would be equal to that of a traditional loan. Additionally, the new loan would not compensate investors for bearing the risk that the borrower would pay off the loan early. Instead, that money would be directed toward lower monthly payments or toward buying costs.

The idea is intriguing, but short on details, and would probably take years to reach fruition. Stay tuned for more updates and innovations.

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