The Ins and Outs of Home Warranties

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When you buy a home, you have the option to include a home warranty in the sale of the property, or purchase it after the deal closes. These warranties cover the repair or replacement of any mechanical systems or major appliances that come with the home and are good for a certain time period.

Depending on the age of the home you’re buying, sellers may include a home warranty in the sale as their promise that there’s nothing wrong with the home they’re selling. If something does happen after you take possession, the warranty may cover you financially.

Don’t Confuse Home Warranties With Homeowner’s Insurance

Coverage for components in the home that may break down sounds like homeowner’s insurance, doesn’t it? But despite their similar definitions, they are different. For starters, home warranties are optional, while insurance is necessary. Lenders require that a home is insured before a mortgage is even extended to a buyer. Insurance is also meant to cover major damage or loss associated with your home’s structure and your personal property that may be caused by theft, vandalism, flooding, fires, or other natural disasters.

On the other hand, home warranties typically cover appliances and systems that break down after normal wear and tear that doesn’t necessarily have to do with any type of major accident or natural disaster. 

With homeowner’s insurance, the cost of the policy depends on things such as your home’s age, construction, location, and your personal belongings. On the other hand, the cost of a standard home warranty in the same location is the same.

What is Covered With a Home Warranty?

Not all home warranties provide the same amount of coverage. Every home warranty policy and company is different. Having said that, basic coverage typically covers things like the furnace, air conditioner, plumbing system, and electrical system. However, coverage varies from one company to the next, so it’s important to look over the details of your contract. 

You can get additional coverage if you upgrade to a better plan, which will subsequently be more expensive. There are also add-on plans that you may be interested in that provide coverage for specific items. For instance, if you want components such as all your major appliances, central vacuum system, pool, hot tub, or irrigation system included, you can do so for an extra cost.

In order for your home warranty to ensure coverage, all the components that you want covered need to be in proper working order when the warranty goes into effect. If you’ve got an old appliance that you want to be covered under a home warranty, you need to have the associated paperwork detailing any known issues with it to make sure your contract covers it.

How Long Do Home Warranties Last?

The length of time that a home warranty lasts will depend on exactly what is being covered. Typically, components such as major appliances, drywall, paint, and stucco are covered for 12 months. Builder home warranties usually cover up to 10 years for structural issues, and two years for plumbing, electrical, and HVAC systems. Again, it’s important to look over your specific contract because plans vary from one company to the next.

You Need to Get Approved For Specific Work to Be Performed

If your home ever experiences a problem that’s covered under warranty, the home warranty company will decide if it’s covered under your plan, and will then send a contractor to your home to diagnose the problem. The contractor will then need to get approval from the home warranty company before making any necessary repairs.

Don’t Forget About the Deductible

While the home warranty company will pay for the repairs needed, you’re still on the hook for paying a deductible when you make a claim. The amount you pay will depend on your plan, but it typically falls within the $50 to $100 range per incident.

Coverage is Transferred to the Buyer if You Sell

If sell your home while the warranty is still in effect, whatever is left on the coverage will be transferred to the buyer. This can be an attractive feature on your listing. If you want to top up the coverage, you can add the difference at closing.

The same applies when you buy: if there is any remaining coverage on the warranty of the home you’re buying, it’ll be transferred over to you at the point of closing.

Should You Buy a Home Warranty?

If the home in question is fairly new, a home warranty might not necessarily be worth it, especially if you’re handy enough to tackle any repairs on your own. On the other hand, if the home is older and you don’t have the home repair skills nor the desire to be responsible for making any repairs, a warranty might be worth investing in. Your decision to buy a home warranty or not will ultimately come down to your ability take care of the repair work on your own and the likelihood of anything breaking down in the near future.

What Mortgage Specialists Want All Borrowers to Know

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There’s a lot that goes into buying a house. Think about the amount of time you’ve put into looking for that perfect abode. And don’t forget about all that effort that your real estate agent has dedicated to helping you find a home, wheel and deal with the seller, and draft up that detailed purchase agreements.

But there are other professionals working diligently to help you realize your dreams of becoming a homeowner: your mortgage specialist. These professionals are tasked with assessing your finances, gathering up all the necessary documentation, finding the right mortgage product for you, and dealing with various lenders that they’ve submitted your application to. Their jobs become exponentially more challenging when they’re working with borrowers who have sub-par credit scores or shaky financial backgrounds.

As the borrower, you can make their life a little easier if you knew a few things about what they can do, and what you should do.

They’re Not the Ones Who Actually Approve Your Mortgage

It’s a common misconception that mortgage brokers are lenders, but they’re not. They’re actually the middlemen between borrowers and the lenders that extend the loans needed to finance home purchases. As such, they are not the ones who are responsible for approving your mortgage or denying it.

The role of a mortgage broker is to provide you with the guidance needed to secure the best home loan for you, get all your documents in order, help you complete a mortgage application, and do the legwork of communicating and negotiating with various lenders. Mortgage specialists are simply doing their very best to not only help you get approved for a mortgage, but to get one with the best terms possible.

Don’t Make Any Major Financial Changes

After the mortgage process has started, the worst thing you can do is make large purchases on credit. Whether you’re thinking about taking out an auto loan or financing brand new living room furniture, you’d be well advised to wait until after everything has been settled with your mortgage application process before making such major financial moves.

Why? Any large purchases on credit will affect your credit score and have a significant impact on your debt-to-loan ratio that plays a key role in whether or not a lender chooses to approve or deny your mortgage application. At the very least, such a move could delay closing.

Don’t Make Changes in Your Employment Status

Similar to putting a hold on making major purchases until after closing, it’s recommended to do with same when it comes to your job. Your employment status, position, and income play a crucial role in the mortgage process. Brokers are working with the information you’ve provided about your job and the amount of money you bring in.

If you make any changes – such as starting a new job or quitting altogether to start a business – this could throw a big wrench into the process. At the very least, it will just postpone your closing date. And the worst case scenario? You could be flat-out denied a home loan.

Be Prepared to Supply a Lot of Documents

When you’re applying for a mortgage, get ready to submit more documents than you ever had to before in your life. From pay stubs, to tax returns, to information about your investments, almost nothing is off limits. While you might feel very exposed by handing over paperwork with such pertinent information, it’s all part and parcel of the mortgage application process. Having all this paperwork easily accessible will make both your job and that of your mortgage broker much easier.

Have at Least a 5% Down Payment to Put Towards the Purchase

Sure, there are programs out there that allow borrowers to put down as little as a 3.5% down payment, but you’d be better off coming up with at least 5% towards the purchase price of your home. Conventional mortgages call for a minimum of a 5% down payment. The more money you can come up with, the better the odds of getting approved for a mortgage. Not only that, you’ll have a smaller loan amount to have to pay back.

It should also be noted that you will need to come with at least a 20% down payment in order to avoid paying private mortgage insurance (PMI) which essentially protects the lender should you fall short of making your monthly payments. PMI usually costs anywhere between 0.5% to 1% of the entire mortgage amount annually.

You Should Call Them First

There’s no sense in pounding the pavement in search of a home in the $500,000 range when you can only realistically afford a home in the ballpark of $300,000. By paying a visit to your mortgage broker first, you’ll be able to identify what this number is so you can focus on homes that you can afford. Not only will this make your real estate agent’s job easier, it will also help you avoid getting disappointed when you fall in love with a home that’s way out of your price range.

Pre-Approval Doesn’t Necessarily Guarantee Approval

Getting pre-approved for a mortgage before you start your search is always a good idea. Not only will it help keep you focus on homes that you can afford, it will also show sellers that you are serious about buying and have taken the extra step towards a successful home purchase.

However, a pre-approval doesn’t mean that you’re guaranteed to be approved for a mortgage. The actual mortgage process starts after you’ve signed a purchase agreement. That’s when your lender and mortgage insurance company will review your mortgage application in great detail and consider it for approval. Anything can happen until you get an actual stamp of approval.

Budget For Closing Costs

In addition to your mortgage and down payment, there are plenty of closing costs that you will be obligated to pay, including fees for title insurance, mortgage application, property taxes, and home inspections, among others. These can add up to be anywhere between 2% to 5% of the purchase price of your home, so be sure you budget accordingly.

The Bottom Line

Your mortgage specialist will work diligently to help you get approved for a mortgage with the best terms possible. But there are things that you can do to help make their jobs a little bit easier. After all, you’re a team that’s working together towards the common goal of helping you achieve homeownership.

7 Questions to Ask Yourself Before Becoming a Landlord

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There’s good money to be made by investing in real estate, and one of the more popular and traditional means of making a profit with real estate is by renting. With the economy continuing to recover and mortgage interest rates still hovering near historic lows, now may be as good a time as ever to invest in a property and collect rental income.

The question is, are you prepared to become a landlord? 

Before you answer that question, there are others that you might want to ask yourself first before making your decision about whether or not being a landlord is something you can handle.

1. Are You Financially Capable of Handling Times of Vacancy (and Therefore No Rent Checks)?

While an investment property is meant to make you money over the long haul, that doesn’t necessarily mean that you won’t experience times when you’re not seeing much money rolling in. After all, you are taking on debt in the form of a mortgage to finance the property. In an ideal situation, you would find the perfect tenant right out of the gates and start collecting a sizeable rent amount immediately to help cover the mortgage and other expenses related to carrying a property.

However, it will be more than likely that your property will remain vacant for at least a couple of months while you screen tenants to find the right one. You’ll also experience vacancies between tenants. If you don’t have a financial cushion to fall back on or are the type to lose sleep over potential debt, perhaps becoming a landlord is not right for you. 

2. How Much Time and Effort Can You Invest?

Even just one rental property can take up a lot of time to manage. You’ll need to regularly visit the property in order to perform regular maintenance and collect monthly rent checks. Then there will be other times when your presence or attention will be needed, such as to deal with a clogged drain or repair an ill-functioning appliance.

Of course, handling tenant issues is another unpleasant task to deal with that will also take up your time, whether it’s because the tenant is not up-to-date on their rent payments or is having issues with an obnoxious neighbor. Make sure you’ve got the time to dedicate your responsibilities as a landlord.

3. Are You Comfortable Being Legally Responsible For the Property?

At the end of the day, you are responsible for your property, and all the legalities that come with it. You need to make sure it’s fit for occupancy and meets building codes. Not only that, there are dozens of rules that you need to follow in order to ensure that you remain in compliance with the laws governing landlord-tenant relationships. If you fail to act within your scope of practice, you could land yourself in hot water if a tenant ever decides to take you to court for whatever reason.

For example, did you know that landlords in California must provide a minimum of 24 hours’ notice before entering the property? Or how about the fact you need to give your tenant three days notice to move out before you can file for eviction? There are a number of other regulations that you need to be aware of before you embark on the journey of becoming a landlord in order to avoid getting yourself into trouble.

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4. How Will You Collect Rent?

Having a rental property all comes down to that coveted rent check every month, but how exactly will you collect it? Will you be picking it up every month in person? Will you ask the tenant to provide you with 12 post-dated checks to cover the year? Or will you agree on bank or electronic deposits? Whatever you decide, it must be agreed upon between both you and your tenant. Collecting rent is a crucial component of being a landlord, since this is essentially how you will be making your money.

5. How Will You Handle Repairs and Maintenance?

Will you take care of these yourself, or will you hire professionals? If you choose the former, make sure you’ve got the skills and know-how to be able to do a good job without making it worse. If you choose the latter, you’d be well-advised to gather a list of contractors that you know of who you can call to take care of these tasks for you on short notice.

6. Should You Pay a Property Management Company to Handle the Property and Tenants For You?

If the answers to the above questions lean more towards steering clear of being a landlord, you might still consider this endeavor by hiring a property management company to take care of all the hassles on your behalf. A property manager can screen tenants, advertise available units, collect rents, arrange for repairs, handle maintenance, and deal with tenant complaints.

This can take a huge weight off your shoulders and free up the time that would otherwise be spent dealing with your investment property. Of course, property management firms will expect to be paid for their services, but it can be well worth the money if it means liberating you from the obligation of dealing with all of these tasks and issues yourself. Of course, you’ll need to factor in this cost and identify how much it will eat into your profits, although you may be able to deduct such expenses come tax time.

7. Are You Willing To Be in This For the Long Haul?

Typically, investing in real estate and becoming a landlord is more of a long-term endeavor. It’s not something that you necessarily get in and out of over a short period of time, predominantly because of the costs involved. Consider whether or not this is something that you are willing to be a part of over the long term before you jump into the role of landlord.

The Bottom Line

Answer these questions as honestly as you can. Think about these answers very carefully before you decide to become a landlord. Even if you’re not necessarily cut out to be directly involved with the property or tenants, don’t forget that there is always the option to hire a property manager to handle the ins and outs of an investment property on your behalf, as long as the budget permits.

What Can You Do About That Dated Popcorn Ceiling?

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Popcorn ceilings were pretty popular from the 1950s through to the 1980s because they were affordable and made finishing a ceiling easy. But these days, popcorn ceilings – which are typically sprayed-on stucco – are nothing more than an outdated eyesore.

Not only are they out of style, they’re also tough to keep clean and repair. If your home still has popcorn ceilings that you want to get rid of, you have a few options.

Scrape it Off

You can get that smooth ceiling finish by scraping all that stucco material off, which is the most common method of removal. It’s generally not recommended to go the DIY route with this method because it requires a lot of intensive work and leaves behind a huge mess.

Without proper technique, the finish may not be as smooth as you’d like it to be. If the popcorn ceiling has been painted over, the scraping process is generally much more challenging.

Once the ceiling has been exposed, it will usually need to be patched up and smoothed out to achieve a desirable effect. Another reason to enlist the services of a professional is because there’s a chance that your popcorn ceiling might contain asbestos if your home was built before the 1980s, so it’s best to use a professional in this case.

Considering how tough it typically is to scrape this material off and how long it takes to do so, you can expect to pay as much as $2 per square foot to have the pros do the job.

If you do decide to scrape it yourself, you’ll need to gather up a 4-inch drywall knife to do the scraping, some joint compound to smooth out any flaws, and a sander to create a seamless finish.

Cover it Up

If scraping the stucco off your ceiling proves to be a nearly impossible task (especially if it has been painted over), covering it up might be your better option. You’ll get a much smoother finish if the drywall is taped properly. Covering up with drywall is especially helpful if the material contains asbestos that could otherwise become airborne.

Ceiling-grade drywall is a popular material of choice in this case, which is simply laid right over the textured ceiling. It is then screwed into its framing then taped for a smooth finish.

Covering up your popcorn ceiling with drywall is a big job that involves a lot of time, heavy lifting, and mess to clean up. It’s certainly a job that a homeowner can do, but you can expect it to take a few days to complete.

Oftentimes, covering up an old popcorn ceiling can save you some money and hassle over the long haul. One of the benefits of covering it up is that you’re able to cut holes in the ceiling without having to deal with impossible repairs later on, which makes it a lot more convenient to install light fixtures, ceiling fans, cables, or electrical and plumbing lines.

For a standard 144-square-foot room (12 x 12 feet), the cost for all materials needed – including drywall, joint compound, and the rental of a drywall lift – will cost anywhere between $150 to $500.

In addition to drywall, there are also other materials that you might choose to use to cover the ceiling, including wood panels or fiber tiles. You can then paint it in the color of your choice and even add some crown molding to achieve a contemporary look.

Create a New Design

You can always swap the prickly texture of your popcorn ceiling with a more contemporary and attractive coat of material. This option is rather easy to do and doesn’t necessarily require the assistance of a professional.

Before tackling this method, it’s important to ensure that the substrate is secure enough to be able to handle the added weight of the added product you’ll be skimming on top. This tactic involves adding drywall mud over the surface of the ceiling, applying joint compound, and lathering on a finish compound with a utility knife.

Replace it

Rather than scraping or covering up the popcorn ceiling, you could replace it altogether. This entails not just removing the sprayed-on stucco, but the drywall underneath it that it’s stuck to. This is definitely a job for the pros, and usually costs anywhere around $5 per square foot. However, this method typically guarantees a smooth finish.

The Bottom Line

Don’t let that tired old popcorn ceiling date your home. Whether you choose to do the job yourself or hire the pros to handle it for you, there are various things you can do to revamp your ceiling and give it a much more modern look.

California Documentary Transfer Taxes 101

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There are a number of closing costs that come with a successful real estate transaction, including appraisal fees, mortgage insurance, and home inspection fees. But you may also be responsible for paying another lesser-known fee: documentary transfer taxes.

When a residential or commercial property exchanges hands between a seller and a buyer, the title is transferred from one party to the other. When this transfer occurs, there’s a “documentary transfer tax” that needs to be paid, which may or may not be your responsibility.

This transfer tax is collected by the county or the city and is typically calculated based on the sales price of the home. In California, counties charge $0.55 for every $500 of the sales price for this transfer tax, or sometimes $1.10 per $1,000. Upon transfer of the property, this amount is reduced by any outstanding mortgage.

Imposed City Taxes at Least Double the Amount Paid

Not only are there county rates that will be imposed, cities can also enforce additional transfer taxes. These city transfer taxes can be even higher than the fees imposed by the county.

How much a particular city charges will depend on its classification; namely, whether it’s a “charter city” or “general law city.” A charter city’s governing system is not defined by California law, but rather the city’s own charter. These cities have a lot of flexibility when it comes to imposing their own tax rates.

General law cities can impose a documentary transfer tax that’s equal to half the rate that its county imposes. If a general law city imposes its own tax, the county’s transfer tax is reduced by the city’s transfer tax so the taxpayer still pays $0.55 for every $500 worth of the property’s value.

There are plenty of charter cities across the state with a tax rate that’s much higher than the associated county rate. No credit for the city’s tax is credited by the county when a charter city implements its own specific tax rate over and above the county’s tax rate.

For instance, in Los Angeles, the city’s transfer tax rate is $4.50 for every $1,000 worth of property value. That’s more than four times the county transfer rate of $1.10 per $1,000 of property value. Homeowners in L.A. must pay a total of $5.60 ($4.50 city rate + $1.10 county rate) for every $1,000 worth of property value.

Who Pays the Documentary Transfer Tax?

The answer to this question will depend on the sales agreement. It is typically calculated when the title documents are filed with the county. That means it may be either the buyer or seller who is stuck with the bill. In California, the general rule is that the seller pays the documentary transfer tax in the majority of jurisdictions. But there are some areas where the opposite is true.

In other localities, there are no regulations at all when it comes to who should pay the fee, at which point the responsible party can be negotiated.

Many times this transfer tax is included in the closing disclosure and may be combined with other charges, which can make it nearly impossible to determine exactly how much you’re paying towards this fee, or who is paying it at all. That’s why it’s important to discuss this fee with your real estate agent so you’re aware of how much this fee is on its own, and whether or not you’ll be the one who is obligated to pay for it.

The Bottom Line

Each county generally stipulates the local regulations as far as who is obligated to pay for this tax. However, it may be possible to negotiate this at the time of offer and acceptance. It’s important that you ask your real estate agent if you will be the one dishing out the extra money so you can budget accordingly.