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Real Estate Terminology: Ratios, the Third in a Series

by Melissa Dierks

28 April, 2014

Real Estate TerminologyIn the vocabulary of real estate, various ratios help buyers and mortgage services determine the viability of a purchase. A ratio is a way of expressing the relationship between two values or amounts. Usually, ratios compare how much of one thing there is to another such as a 20 to one student-to-teacher ratio. Expressed as 20:1 or 20/1, it means that on average, there are 20 students for every one teacher. In real estate, there are many sets of ratios used to determine the value of a purchase or sale. Different ratios apply to homebuyers, investment property buyers, sellers, and mortgage lenders. Since ratios are guidelines that can make or break a deal, knowing how ratios affect you and how you can control them will make your real estate transactions smoother. Three that apply to homebuyers are the debt-to-income ratio, the loan-to-value ratio and the price-to-income ratio.

Debt-to-Income Ratio (DTI)

The most important ratio to homebuyers is the debt-to-income ratio. Also called the debt-service ratio, it expresses the relationship between how much money a borrower makes monthly and his monthly long-term debt obligations. Lenders use these figures to determine the maximum amount of monthly mortgage payment you can handle.

The first number, known as the front or top ratio, is the percentage of your monthly before tax (gross) income, and any other regular payments (child support, rental income, trust disbursement, etc.) used to pay your housing expenses, including mortgage principle, mortgage interest, property taxes, mortgage insurance and association dues.

The second number, the back, or bottom ratio, uses the same income and housing expenses as the front ratio, but also adds in any long-term obligations such as school loans, vehicle loans, and other consumer debt (like that couch you bought on a three-year note). It is the percentage of your income used to pay housing and long-term debt expenses.

A commonly used ratio is 33:38 (or 33/38), which means that you spend 33 percent of your income for housing, and no more than five percent more is obligated to consumer debt service. That leaves 62 percent of your income to live on (food, auto, health and life insurance, utilities, clothing and other expenses).

If you make $6000 per month from all sources, for example, you have $1980 (33%) available to spend on housing, and another $300 (5%) available for long-term obligations. As you can see, if your housing costs go down (lower mortgage payment) you can have more available for long-term debt. FHA guidelines are 31:41, and VA guidelines do not have a front-end ratio, but do have a back end of 41. While ratios are simply guidelines, it is important to know where you stand before seeking a mortgage. Since the debt-to-income ratio is entirely in your control, if you are thinking of buying a home in the future, let us help you figure out where you are and put in place some strategies to get you where you need to be to qualify for a loan.

Loan-to-Value Ratio (LTV)

The loan-to-value ratio is a comparison between the mortgage amount and either the appraised value (for refinance) or purchase price (for new purchase) of your home. Lenders factor your loan-to-value ratio into their underwriting considerations. A lower LTV typically allows the borrower to get lower interest rates while a higher LTV is riskier for the lender, so the borrower might pay higher interest rates. A high LTV also often requires private mortgage insurance (PMI) to protect the lender.

To figure your home’s LTV, divide the mortgage amount by the purchase price or appraised value. A conforming loan typically requires an 80% loan to value, so if your purchase price is $200,000 then an 80% loan would be $160,000 and you would need a down payment of $40,000. If the LTV ratio is very high, where the loan amount is higher than the appraised value, the home is “upside-down” (worth less than the mortgage amount).

Price-to-Income Ratio or Price

While the DTI is based on your personal income, and the LTV is based on a specific home’s value, a price-to-income ratio is based on the affordability of housing for a given geographical area. Typically, it is the ratio of median home pricing to the median household disposable income. This numbers lets you determine if a home is over- or under-priced for an area, or if it is a potentially good investment if you plan to sell your home after a short time. It also gives lenders one more factor in determining risk for the size of loan they might offer.

We can help you determine if an area is right for your budget, if your debt-to-income ratio is on target, and if the price-to-income ratio for the community you’re looking at has affordable pricing for the families living there. Call us and we’ll help set you on the right path to home ownership.

Spring Means Servicing Your Air Conditioner

by Melissa Dierks

27 April, 2014

Servicing Your Air ConditionerIn preparation for warmer summer days, spring is the perfect time to have your air conditioner serviced. With regular service, air conditioning units can continue to function in the most efficient and effective way possible. Neglected units are more costly to run and deliver poorer air-cooling quality.

DIY air conditioner maintenance

Several components of your air conditioning unit are easy for you to maintain. According to the US Department of Energy, the most important item is to check your filter. A dirty or clogged air filter reduces normal airflow. When airflow is reduced, the filter no longer outputs cool air at optimum levels. In addition, the blower may force some air around the filter, so the air entering your rooms may have dust particles, pollens and other allergens that a clean HEPA filter would block.

Some air conditioner filters are reusable and can be removed and rinsed out with a hose. Others require replacement, so you may need to check them more than once during the warm season. You especially may need to replace them after times of high pollen or dust, or if your pet sheds. Some filters are located in the air conditioner unit itself, and some are located in the grates or grills. Filters in room air conditioners typically are located behind the grill that faced the room.

Another component that homeowners can easily care for are the coils. As dirt and grime builds up on the coils, they become inefficient at absorbing heat. Clean the evaporator coils, located in the unit, annually.

Check outdoor condenser coils, usually enclosed in a cover with fins, and clean dirt and debris from the fins gently with a broom. Better yet, purchase a fin comb at a local big box retailer or HVAC dealer to clean built-up debris from your air conditioner’s fins. If any of the fins are bent, they can block airflow and reduce your efficiency. The fin comb will straighten bent finds, opening up the airflow. Remove any weed or plant overgrowth from the coil casing. Trim foliage at least 2 feet away so that the condenser has adequate airflow.

If you have a room air conditioner, check the seals that connect to the window to make sure there are no leaks. Use foam window sealing strips to fill in the space so that no warm air enters around the cooled air.

If you have access to your air conditioner’s drain channels, clean them with a stiff wire occasionally to make sure water deposits do not block them and cause excess humidity in your home.

When to call an expert

Always call an expert if your air conditioning unit makes strange noises, does not cool at all, or cycles too frequently. A certified HVAC technician will inspect wiring, mechanical parts like fans and motors, and test and refill the refrigerant lines.

Servicing your air conditioning system now will insure that your home is comfortable once temperatures hit the 80s.

Compliments of Virtual Results

Smart Selling to Today’s Homebuyers

by Melissa Dierks

27 April, 2014

Smart SellingIf you’re considering selling now that the housing market outlook is improving, take a few moments to consider how buyers have changed what they look for in the home buying process. During the past six years, changes in how buyers communicate, share information, research, and decide what they’re looking for, mean that you need to provide them with the information and buying experience they seek. We can guide you in each of these areas because we know the strategies that are working best in your home’s neighborhood.

Today’s younger homebuyers have survived the housing turbulence just as you have. They have watched prices go up and down and up again, foreclosures rise, interest rates drop, rules and requirements from mortgage lenders change, and the availability of information increase. According to USA Today, they are beginning to buy, but they are both smart and cautious. Most of all, they are used to waiting. Research supports the idea that Gen X and Y homebuyers begin investigating as much as a year and a half ahead of when they’re ready to buy. That indicates you won’t find a sense of desperation: instead, you’ll find that they will research, compare and make careful offers. Since we are professionals with inside information on the local market, we can help you navigate the new terrain.

Set the Right Price

A wrong price can derail a home sale, adding days to its time on the market and making it less desirable to savvy buyers. The mistake many sellers make is setting the price too high. Of course, you want to get the most from your home that you can, but if you choose too high a price at first, a potential buyers’ online search criteria might exclude it. Assuming buyers will make a lower offer from which you can negotiate does not take into account the vast amount of data now available to buyers. These days, homebuyers can see what the home originally sold for, what price all the houses in the area most recently sold at, if the home was ever a rental, and a vast amount of information about both the property and the neighborhood.

Conversely, lowballing the price in hopes of a quick sale make turn off many prospective buyers. Their inherent skepticism will make them suspect potential problems that they have neither the time nor inclination to deal with. Since we deal with pricing information all day long, rely on us to help you set the right price to get your home sold.

Pay Attention to Images

Online shoppers make quick decisions based on the images they see. If the photos of your home are blurry, busy, cluttered, or dark, they may pass over them in search of home postings with better, brighter photos. Worse yet is a listing with no photos at all. Gen X and Gen Y homebuyers are skeptical of listings without images. We can guide you in how to prepare your home for a photo shoot. Remember, for many modern buyers, the online images are their version of an open house, so take time to put away personal objects, clean windows to make the inside brighter, and pay attention to curb appeal. When online images don’t satisfy homebuyers, you won’t get them to look further.

Staging Your Home

The information age and reality TV have changed younger buyer’s perceptions of how a home should look. Be sure your home looks it’s best before you put it on the market. According to Money Smarts, savvy online shoppers may use older images via Google Street View or Bing 3D to check out curb appeal, nearby homes or businesses, and to see if the home shows improvements. Check out the street view yourself by searching on your address in Google or Bing and choosing the various views. If the street view is out of date—such as old fencing or exteriors, overgrown landscaping, or empty lots, make sure your description addresses the improvements and changes.

Put yourself behind the buyer’s computer screen. That is, make sure you know that the buyer is seeing before you put your property on the market. Remember that younger buyers’ caution means they arm themselves with information before they make an offer. We can help you address any issues relating to how your home shows up in searches, images, and other online locations, so give us a call and we can get started.

Preparing to Sell Your Home

by Melissa Dierks

24 April, 2014

Your Home for saleLeaping into the sale of your home may work for some, but most home sellers would rather take it slow. Questions on pricing, staging, the current market, and all the steps involved in your home sale are bound to be a bit worrisome.

The right agent can walk you through the entire process and assist you in a relatively stress-free sale of your home, while understanding your timeline. And though you may be anxious to sell while home prices are higher, take the time to walk through the process with your agent to make the best sale.

With recent increases in home pricing, it is more important than ever to make sure your home pricing is on par with your area. No matter the condition of your home, whether being sold in prime shape or as-is, with record low inventories, you may find your home attracts more interest than you had planned.

If you are seeking top dollar on your home, you need to make sure it is properly staged. Touch up paint, tend the landscape, clean up everything, and shift furniture as directed by your real estate agent to have the best success. The sooner your home is ready to show, the more interest you will have since fewer properties are available for sale now.

Over the last month mortgage interest rates have dropped, as well, allowing home buyers to qualify for better rates and larger amounts. Click here to see average current rates as reported by Freddie Mac and good luck in your home sale!

First Things First … Choosing Your New Neighborhood

by Melissa Dierks

24 April, 2014

Choosing Your New NeighborhoodWith all of the tools available online and off for finding your new home, you can spend lots of time thinking about the type of house you want, planning how many bedrooms, what type of flooring, what appliances come with the kitchen, and if it has a fireplace. But… before you get that far, perhaps you should stop and consider the neighborhood you want to live in first. You can find the perfect house, but if it is in the wrong neighborhood, it can be like a badly fitting shoe: very stylish, great to look at, but so uncomfortable you rarely want to wear it.

Figure Out What You Want

Start by making a list. In the first section, write down what is important to you now about where you live. If you are single, it might mean access to activities, nightlife, colleges or universities. Determine how long of a commute you prefer, if public transportation is necessary, or if parking is important. For many people, living in the perfect home in the perfect neighborhood means a longer commute, or extra expenses for a vehicle and parking. It may be worth it to you, but make sure you actually consider its impact on your lifestyle.

Do you care if your home is in a walkable area? Check out a potential neighborhood’s walkability. If you prefer easy access to shopping, that eclectic coffee shop or local eateries and other amenities, don’t fall in love with a house in a neighborhood that requires driving to everywhere. You’ll love the house, but won’t spend much time there. On the other hand, if you like a quiet, rural setting away from the noise and bustle of the city, that beautiful old Victorian might not work for you. Older homes tend to be nearer to the center of the city with its accompanying sounds, traffic and narrow streets.

Determine What You Don’t Want

Along with what you desire in your neighborhood, make sure to determine what you won’t or can’t live with. So check out crime statistics, sex offender registries, and search on “noise pollution” and your city’s name to see if your potential neighborhood has noise levels rated. If you work from home and need quiet, make sure to check out potential neighborhoods for daytime noise. If you need quiet to sleep, make sure there are no factories with night shifts, or all-night clubs in earshot.

Plan For the Future

A home purchase isn’t just about what you want today, it is about what you want tomorrow and next month and next year. Living out in the country or on a hillside is great in the summer, but do you want to plow snow from your half-mile long driveway to get to work in the winter? Choosing a hip urban neighborhood is great for today, but what if you have a baby in a year or two? Will late-night music drifting from the local hot spot keep her up all night?

Talk to a Professional

We’re here to help you through all these details, so talk to us before you fall in love with that ill-fitting shoe. We’ll show you how to find the one that fits perfectly.

Do you Want to Buy an Older House?

by Melissa Dierks

24 April, 2014

Do you Want to Buy an Older House?With many older neighborhoods experiencing revitalization, an older home might be a smart investment. So, whether you’re a first-time buyer or looking to flip a house for cash, an older home in an established neighborhood might be perfect for you. Here are some things to think about when comparing an older home to a new house.

Location, Location, Location

Urban neighborhoods with older homes often provide easier access to public transportation and easy access to shopping, schools, places of worship and local businesses. Most older neighborhoods have sidewalks, mature trees, and loads of character and charm. Some even have rear alleys, which allow moving driveway and garage access to the rear, and making front yards, sidewalks and boulevards safer for children. New construction tends to be further from shopping and downtown workplaces, and often cannot access buses or trains.

Taxes

There are two types of tax savings you might find in an older neighborhood. The first is a tax beak or tax abatement. Sometimes a municipality uses tax breaks and abatements as an incentive to buyers to move in help revitalize an older neighborhood where empty houses and vacant lots can lead to crime and blight.

Another tax break is freedom from new-construction taxes imposed on new developments to pay for infrastructure such as water and sewer lines, roads and drainage and schools along with other municipal costs.

Property taxes on older homes may seem higher upon first perusal, but taxes on older homes have less chance of massive increases than a newly constructed home. Typically, you pay property taxes in arrears, so you pay on the property assessment from the previous year. Unless you make massive changes to the property such as adding an addition or a second story, your tax rate should remain relatively stable year to year, only rising with a new levy. In new construction, the first year’s taxes may be based on undeveloped land, but at the second year, the full taxation for the house and developed property will kick in and could raise taxes four-fold or more.

Ambiance

Many older homes have the charm of certain eras of construction: Craftsman, Cape Cod, Colonial, Victorian, Tudor or Cottage-style homes often populate very old neighborhoods, while other neighborhoods may sport traditional ranch homes, or “contemporary” styles built in the 1950s through 1970s. If these styles appeal to your personal esthetic, you’ll find an older neighborhood may suit you well. Older homes, ranch-style homes in particular, lend themselves well to additions and upgrades. Check out these ranch remodel photos. In addition, you may find several of these styles all in the same neighborhood, offering a unique eclectic vibe.

New construction, conversely, typically adopts one style (French Country, brick traditional, etc.) with variations on the same theme. While this give a new neighborhood continuity, it doesn’t offer much individuality.

So, if an older neighborhood appeals to you, we can help you find just the right one for you. Give us a call and we’ll get started.

Drought Tolerant Landscaping Ideas for New Home Owners

by Melissa Dierks

24 April, 2014

Landscaping IdeasIn the excitement of buying and decorating a new home, remember to plan for the long-term when you start landscaping. With the recent widespread drought problems, installing sustainable, drought-tolerant landscaping not only saves water, it means your efforts will survive season to season, saving you both time and money.

What to keep and what to remove

Making your landscaping impervious to drought does not always mean ripping out everything. For example, if you have large trees, do your best to keep them since they supply a shade canopy for your home, conserving energy. In addition, they provide a protective habitat to native birds and other wildlife, and a cover for other plants. For the most drought tolerant option, consider removing your turf grass. A standard lawn requires constant watering to stay green. Replacing just part of your lawn with a rock garden interspersed with native plants and ground cover can reduce your water bill and increase your environmentally responsible footprint.

What to plant

For the best results, plant species native to your region. Finding the right plant is not difficult thanks to websites like Plant Native that list regional plants, and the nurseries that can supply you with the right species and give you expert advice state by state. In addition, they provide lists of community service organizations that offer classes and tutorials on local flora. Other places to find information include local universities, plant nurseries and garden shops.

Add ground cover

Removing turf and non-native plants that require consistent watering is just part of the process. Covering exposed ground with lava rock and mulch helps it retain water and reduces erosion. Consider installing ground cloth under your rock and mulch to reduce weed growth and retain additional moisture. According to the University of Ohio, property mulching reduces the soil temperature and adds nutrients to the soil, making existing plants more drought tolerant and less susceptible diseases, or to attacks by insects.

Try compost

Adding compost to your soil before you mulch increases the likelihood that the rain or irrigation waters absorb into the soil rather than running off. According to the Arboretum and Public Garden at UC Davis, composting is second only to mulching to save water and improve drought survival.

Update your irrigation system

An old or faulty irrigation system wastes precious water and costs money both in increased utility bills and lost landscaping, so have it inspected to be sure it is operating properly. Make sure to water according to the landscaping and soil, including less frequently on clay soils since they store water, and more frequently at smaller amounts for sandy soils. Install modern smart technology controls taht automatically sense rainfall and other conditions, and adjust both the water amount and watering frequency. Consider using a grey-water irrigation system that uses water from your household sinks, tubs, showers and washing machines to water your landscaping. Since this water is not exposed to toilet waste, it generally is beneficial to plant life if combined with biodegradable soap and detergent use.

Proper landscaping increases your home’s value and curb appeal. We can help you find local professionals to advise you on the best drought tolerant ideas for your landscaping.

Compliments of Virtual Results

How to get Clean Sparkling Windows

by Melissa Dierks

22 April, 2014

How to get Clean Sparkling WindowsThe warming days of spring are the perfect time to bring some light and air into your home. Whether you are planning to sell your home now or sometime in the future, having clean bright windows gives a home a whole new look and transform a dull interior into a bright living space. Take the time to get yourself a few good tools and you can make window washing a breeze. Clean your windows when the sun is not shining directly on them since the sun will heat the glass causing your soap’s suds to dry too quickly and streak. So if you have a lot of windows that might take you most of the day, start on the South and West sides and move to the North and East as the day progresses, or choose an overcast day.

Find a Soft-Bristled Brush

Throughout the winter, windows collect grime and stains from the weather, masonry run-off, fingerprints and even the dog’s inquisitive nose. Instead of wearing yourself out rubbing those stubborn spots with a sponge or rag, get a brush on a telescoping pole so that the tops of the windows are within easy reach.

A Bucket of Soapy Water

For the first step, you’ll want to use warm, soapy water with a detergent that dissolves grease and stains. A good dishwashing liquid will work, but choose one with fewer suds. Remove your window screens to protect them and give you access to your windows. Fill your soft-bristled brush with soapy water and gently rub the glass and frame to loosen debris, grime and stains. For hard-to-remove stains, use a stainless steel scrubbing pad to rub the stain without scratching the glass.

Hose with Sprayer Nozzle to Rinse

You can use a garden hose with a good spray nozzle on the end to rinse the loosened grime and soapy water from your windows. Be careful not to set the spray jet too strong since you might loosen the seals around your window.

Get a Good Squeegee

There’s a reason professional window cleaners use squeegees. If you have picture windows or large single-pane windows, you’ll want a larger squeegee. If your windows have multiple panes, you’ll need a squeegee the size of the smallest pane. Clear water and remaining soap from large windows by dragging your squeegee from the top left or right of your windowpane in an “S” or reverse “S” from top to bottom of your window. After every sweep of the squeegee, wipe the rubber blade with a soft, lint-free cloth.

Natural Chamois or Synthetic?

Professionals use a chamois to wipe off that last bit of water and polish out any remaining streaks. A natural chamois is made of soft sheep leather and has both drying and polishing properties. If a natural chamois is out of your price range, many synthetic chamois or drying clothes will work just fine. Use the chamois on the glass, but dry the sill with a soft cloth.

Clean Your Window Screens Too

While your screens are off the windows, they are easy to clean. Using your warm soapy water and your bristle brush (remove the pole), gently brush screens from both sides. To rinse, spray with water using a medium-strength nozzle and allow to air dry before putting them back up.

Now that your windows are shiny and bright, give us a call and we’ll help you determine your home’s fair market value and get you on the road to a sale.

Can I Afford to Be a Landlord?

by Melissa Dierks

22 April, 2014

Can I Afford to Be a Landlord?According to Freddie Mac, the Federal Home Loan Mortgage Corporation (FHLMC), multifamily rent growth should level out to its long-term average performance as interest rates increase. That does not mean that investing in a multifamily property is a bad idea, it just means that the supply and demand conditions are varying by location and adjusting to job growth or stagnation. Since most rental housing demand comes from 25- to 34-year-olds, the FHLMC expects the need for rental property to grow by up to 1.6 million as the employment picture improves.

You do not have to be a high-level investor to participate in the expected rental housing increase. Younger investors, especially those in the under 40 range, might consider purchasing a property and renting out rooms, or buying a duplex, living in one side and renting out the other. While being a landlord has some hazards and pitfalls, having a constant income stream that helps to pay the mortgage, offers some tax advantages and also provides a place to live might be a great start to your real estate investment future.

We can help you locate potential single-family homes with multiple bedrooms to let to students or others, or multi-family properties that might be an excellent investment for you. Location is important since many renters prefer to live nearer to where they work, shop, worship or attend school, while owners often are more willing to live further away in order to afford their mortgage.

Is a Duplex a Good Investment?

Buying a duplex, for example, might take a little more work than a single-family home, but the process is similar. In fact, FHA (the Federal Housing Administration) will loan up to 96.5% of a duplex’s value as long as the owner intends to occupy one of the units for at least a year. The Federal Housing Administration credits the buyer with as much as 75% of the rental income as part of their qualifying income and will finance as much as $347,000 for a two-unit property in some locations.

The most obvious advantage of owning a duplex is help with the mortgage payment via the rental income. In addition, however, duplexes are more affordable than larger apartment complexes, and often cost the same as a single-family home. If you have an elderly parent or adult child, you can rent to them so that family members have privacy, but share in the cost of the family property.

Disadvantages include close proximity to your tenant. If you have a needy tenant, you might find yourself continuously interrupted by a knock on the door. Your rental income is not a guarantee since there is no certainty that you will find a tenant, and when the unit is vacant, you are still responsible for your entire mortgage.

Landlord Responsibilities

Just as in your own home, you are responsible for all of the repairs, upgrades to appliances, maintenance and general upkeep of either a single-family rental unit or a duplex or multi-family unit. Since most states and counties—and some cities—have specific rules about cleaning, repainting and other costs between tenants, make sure you know the rules and regulations for your location.

So, whether you are looking for a single-family home to rent or a duplex to live in while you rent the second unit, we can help you with the information you need to find the best property for your needs.

The Regal Team Sponsors Little League Baseball

by Melissa Dierks

19 April, 2014

PhillieBanner

We are excited to announce our sponsorship of of the Sidewinder Little League  Minor Team “Phillies”! Supporting local organizations such as Sidewinder Little League is an opportunity to contribute back to community.

Our kids are our future! We believe in playing a part in the overall success of children.  Sports is just one of the ways kids stay active, increase self esteem, create friendships, learn the concept of teamwork, aim for goals, and so much more.

We look forward to a long relationship with Sidewinder Little League!  Go Phillies!

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Melissa Dierks
The Regal Team of RE/MAX Professionals
7111 W Bell Road, Suite 101,
Glendale AZ 85308
Direct: (623)229-0154
Office: (623)643-1092
Fax: (623)201-7562

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