Home Equity Saves the Day

NAR recently reported that the Baby Boomer generation has overtaken Millenials as the largest homebuyer segment in the USA, despite being a smaller percentage of the overall population and having lower income on average than Gen Xers. How are they doing it? By leveraging their home equity. As it happens, almost half of the over-60 crowd have been in their homes for 20 years or more, so not only have they been paying down their mortgages but their home values have increased dramatically. In the past 5 years, in fact, home prices have increased over 40% (on average) nationwide!

Homeowners have been using their home equity in a variety of ways, especially since interest rates started to rise to more stable levels after the pandemic. The most common use has been to roll the proceeds from the sale of one home into the purchase of their next home: in most cases, homeowners have enough equity to end up with a similar or lower monthly payment even if they are purchasing a more expensive property. More equity = larger down payment, or money to pay down other debts in order to increase your credit score and qualify for better loan terms. Another smart use for extra funds during this process is to buy down your interest rate — also known as paying points. This upfront fee buys you a lower interest rate for the length of your mortgage, enabling you to pay down the principal and gain equity more quickly.

Paying down debt or consolidating it is another popular use for home equity, especially with interest rates rising, high inflation, and relatively stagnant wages. Let’s say you have $20,000 in credit card debt spread over three credit cards, and your average interest rate on those is now 20%. If you took out a home equity loan or line of credit (HELOC) instead, your interest rate would be closer to 8%! If you were struggling to make those payments before and making little to no progress on paying down your debt, this lower interest rate should make a huge difference in your ability to pay the balance more quickly while also decreasing the amount of interest you are charged over time. The amount of equity you can use depends on the value of your home and your current mortgage balance, but if you’ve owned your home for 5 years or more, chances are very good that you’ll have enough equity to substantially improve mounting credit card debt.

But what if you love your home and don’t need to move? You can still use that home equity to make improvements to your home: think kitchen or bathroom renovations, new flooring, finishing a basement, adding an in-law suite, replacing your windows, or exterior hardscapes like a paver patio! If you’re not sure which improvements to make first, ask your favorite real estate agent — they’ll have the most up to date information on what buyers are willing to pay a premium for in your neighborhood. But in general, I’d recommend you prioritize like this:

1. If it’s broken or at the end of its life, fix it! Roofing older than 20 years, furnaces older than 15 years, windows and doors that don’t operate quite right, broken garage door springs, faulty electrical wiring…it could be anything, but waiting too long to do maintenance on some of these things can cause major problems.

2. Keep the water & critters outside, and the heating/cooling inside. This would include sealing any small holes or gaps in siding and soffits, adding weather stripping or insulation, regrading your yard to direct water away from the foundation, adding a french drain or basement waterproofing system (don’t forget a battery backup for that sump pump…you can thank me later), recaulking around plumbing fixtures, replacing hose bibs with anti-frost spigots, and more. Replacing single paned windows with insulated double-paned windows, or replacing a basic wood door with an insulated fiberglass door, can make a big impact on your home’s comfort and appearance, as well as on your utility bills.

3. Cosmetic updates, specifically those that positively impact your home value: over time there remain some upgrades that buyers are always looking for, some that are taste- or lifestyle-specific, and others that are appealing to only a small segment of buyers (or only to you!) or only certain areas/climates. Freshly remodeled kitchens, upgraded bathrooms, and finished basements have always been popular selling points; having suffered through some of these remodels myself, I can understand the appeal of finding a home that won’t need that kind of work anytime soon! Keep in mind that the finishes you’re choosing for these remodels need to appeal to a wide segment of people (your agent will be a great resource for this) or your improvements might not result in enthusiastic buyers when it’s time to sell. And if you’re thinking about adding a big ticket item like a swimming pool, pickleball court, pole barn, or elevator, make sure that buyers in your area share your desire for these amenities! Minnesota is not Tennessee, and California is not New York: real estate is local, so it’s important to understand what your local market wants.

Anyhow, that’s an overview of how your home equity can work for you — hope you found it helpful! Remember, even if you’re not ready to move, your favorite real estate agent will be happy to talk to you about your current home value, estimate your equity position, and advise you on the best bang for your buck when improving your home. They can also connect you with a skilled finance professional so you can determine whether using your equity to pay down debt is the best option right now.

Crash Course in Closing Costs

Chances are you have heard the term “closing costs” even if you’ve never purchased a home before, but if you have paid them in the past, did you really understand what they are and how to know if you’re getting a good deal? Thanks to laws passed over the last decade or so, mortgage lenders are required to provide you with a Good Faith Estimate (GFE) detailing all of the potential costs of a mortgage, so it’s easier than ever to compare estimates from multiple lenders. But let’s start with understanding what they are in the first place: closing costs are everything you need to pay, above and beyond your down payment, in order to purchase a home.

• Loan Charges: Lenders charge certain fees to process your loan. These services often include pulling your credit report, getting a flood certification for the property, processing your application, underwriting the loan, paying the appraiser (sometimes you pay for the appraisal when it’s ordered rather than at closing), and recording the mortgage. Other loan charges that are more common now are “points,” essentially pre-paid interest to lower the interest rate for the overall term of the mortgage.

• Impounds: These costs are directly related to setting up your escrow account — that’s the portion of your mortgage payment that goes toward taxes and insurance. I usually see my clients pay at closing three months of their annual homeowner’s insurance, one to six months of property taxes depending on the time of year the closing takes place, and about three months of mortgage insurance if applicable. These amounts may be adjusted if the total impound amount is above the lender’s threshold, noted as an “aggregate adjustment” on the GFE, closing disclosure (CD) and/or settlement statement.

• Title & Settlement Charges: In Ohio and Kentucky, most real estate closings are handled via third party companies called title agencies. They charge fees to both buyers and sellers for guaranteeing the property is transferred with a clean title and that the monies are disbursed appropriately. Buyers usually pay for a portion of the settlement fee, closing protection coverage for the lender, a lender’s policy of title insurance or a title commitment, sometimes an attorney fee, certain endorsements that your lender requests, and an owner’s policy of title insurance if you choose to purchase one. Also, if you can’t be present for the closing, the title company may send you a mobile notary and there will usually be a fee for that service.

• Commission: Depending on your buyer agency agreement and the terms of your purchase contract, you might pay commission to the broker who represented you. Some brokers also charge administration fees that are separate from commission, and if you purchase homes from certain corporate sellers you might have to pay a “buyer premium” or “technology fee”. You should always verify that the amount of commission paid, whether by you or by the seller, matches the buyer agency agreement you have signed: if it’s higher, that is prohibited by law, and if it’s lower, you might be responsible for paying the balance outside of closing.

• Government Recording and Transfer Charges: In Ohio and Kentucky, the buyer is traditionally responsible for the cost of recording the mortgage and the new deed with the county in which the property is located. This fee varies by county but is usually dependent on the number of pages recorded. Some lenders have a standard mortgage on file in some counties to minimize the number of pages that need to be recorded for individual transactions.

• Homeowner’s Insurance Premium: If you didn’t already pay your first year of homeowner’s insurance when you ordered the policy, this will be included in your closing costs.

Depending on the lender, local and state regulations and customs, and your specific situation, your closing costs can vary quite a bit which is why it’s so important to ask about them when you are evaluating which lender to use. You can offset these costs in a few ways: gift funds from a family member or friend, local grants, or contributions from the seller. Knowing your financial needs and limitations up front will help you and your real estate agent negotiate the best terms possible, and help you avoid an unpleasant surprise when it comes time to close the deal.

Preparing Your Home for Sale

If you google the title of this blog post, you’re going to find a ton of advice and it’s all going to sound pretty similar. Most of it is not incorrect, but some of it is impractical, especially when you’re trying to use all available funds to purchase your next home while also juggling a full time job and shuttling your kids around town (for example). So here are my tips for your top priorities on how to get your home to show its best without (hopefully) breaking the bank or your will.

• Clean like you’ve never cleaned before, maybe more than once: scrub the floors, wipe down the walls and baseboards, make those windows and sills gleam. If that stained caulk in the bathroom just won’t get white or clear again, it’s time to re-do it (this is really simple and inexpensive!). Steam clean the carpets. And the curtains. And the sofa. Are you worried about being judged for your obviously used oven, refrigerator and dishwasher? You’re not wrong, so clean those too. Hiring professional cleaners for a one time deep clean might be worth the expense. You can head to the dog park for a day and come back to a neat and tidy home.

• Declutter, donate, and depersonalize: It’s time to go through all those junk drawers and garage shelves and start clearing out what you don’t need! If there are usable items that you don’t want to just throw away, donate them. If there are 10 pieces of decor on the wall, pare it down to 1 or 2. Box up the rest, or for family photos that you love but are ready to replace with more current pics, digitize them and keep the frames for later use. In fact, it’s time to box up anything you can live without seeing for the next 3 months: seasonal clothing, sports equipment, collectibles and keepsakes, etc. Buyers understand that you’re moving, so they’re not going to be shocked that you have a stack of boxes in your basement or garage.

• Complete your “honey do” list: chances are there are projects that you’ve had on your mind that you never ended up completing. If you never finished repainting the bathroom or replacing the flooring in the half bath, or if you already bought new outlets or register covers to replace the old ones, it’s time to get on that. There are probably local handyman services that can help you if the list is a little longer, and paying a few hundred dollars to complete finishing touches can make a huge difference to prospective buyers.

• If it’s broken, fix it: I’m sure you’re used to that faucet that drips if you don’t position the handle just so, but an inspector is going to make a note about it that is going to get some buyers believing that the plumbing is faulty throughout the home. If you have a non-working outlet, leaky faucet, door or window locks that don’t work, cabinet doors that don’t stay closed, or anything that might lead a buyer to believe you haven’t taken exquisite care of this home, please for the love of all the money you’re hoping to make on this sale…just fix it.

• Ask your agent about the best use of your fix-it dollar: if you are considering doing something more substantial to your home before selling (like replacing the roof, updating windows, or renovating a bathroom) and have a specific budget in mind, it’s time to talk to your agent about what buyers in your market are looking for in their next home. It might make more sense to have some items, like the roof, professionally evaluated rather than replaced. Or if that powder room is the last bastion of the 1970s in your home, updating it might have a huge impact. If you’re worried about a big ticket item that could turn away buyers and you can’t afford to fix it, you should probably get an inspection along with a quote for any repairs so that prospective buyers are prepared rather than scared.

But wait, you’re thinking, I thought this was going to be a short and easy list? If you’re questioning the necessity of any of the above, just look at it from a buyer’s perspective: if there’s something in your home that would be a turn-off in a home you’re touring, chances are other buyers feel the same way…so you need to address it.

What To Know When You're Relocating

Over the years, I have worked with several clients who are moving to (or out of) the greater Cincinnati area from another state. Some of them also have homes to sell, and are worried about how to manage the process of buying and selling at the same time. Another concern is how to act fast on a home in the current market when, in most cases, they won’t be available to see it in person. Luckily, today’s technology offers many potential solutions to these problems! Here are some things you should remember when moving long distance:

• Get to know your agents, and introduce them to each other. You’ll need everyone to be comfortable communicating throughout the process of listing your home and purchasing a new one, and your honesty and openness with both agents will ensure that they truly understand your needs. Plus, with your agents already in communication, any last minute hiccups or changes can be quickly communicated without you having to be the go-between.

• Ask ALL the questions. Real estate terms, customs and laws vary greatly between states and even regions within states. If you aren’t sure you understand something your agent said, don’t be afraid to ask for clarification. Let your agents know about any and all concerns you have about a property. Find out what areas of town your agent knows best, what they like to do in their spare time, where their kids go to school or what sports they play, and share as much information about yourself and your family as you can! Agents can be great resources for you beyond real estate, and you’re going to be depending on yours a lot in the near future.

• Do your own research. The internet is a wonderful place, full of free information on property records, individual sellers, historical photos, and more. If you see a home that meets your needs, look at the location on a map, use the street view to take a walk down the street, check out crime statistics and local schools (even if you don’t have children in school, the quality of schools available can directly affect home values). Find the closest grocery store, gas station, gym, park, bourbon bar or cat cafe (whatever you’re into!). Join a Facebook group or two and connect with people in your desired neighborhoods for perspectives that your agent might not be legally or ethically able to provide.

• If you don’t mesh well with your buyer agent, find a better one. Viewing properties over a video call, or with videos created by your agent, can be a little intimidating. You’re about to make a huge decision, and you need to feel comfortable that your agent has your best interests at heart, knows enough about potential issues with a property to gather additional information for you, can give you a clear picture of the local market and the value of any homes you view, and helps you find the right home no matter how many offers it might take. (Note: As of August 17, 2024, agents in Ohio are required to have a signed buyer brokerage agreement before showing any property listed in the MLS. These agreements can be for one property or for a predetermined amount of time. If you desire to cancel that contract, ask the agent directly. If you can’t agree, it’s a good idea to seek legal advice before working with a new agent.)

• Ask if you can send a friend. If you already have a connection in your destination city, ask if they would walk through a property with your agent. Most people love touring homes even when they’re not in the market, and it can be helpful to have a second set of eyes on the home who isn’t a professional — they might ask questions your agent wouldn’t anticipate. Agents love meeting new people, and should understand that having another opinion on the property should make you feel more comfortable whether you make an offer or keep looking. (Note: As of August 17, 2024, you may need to give advance written permission for this person to represent your interests during the showing. Ask your agent for clarification.)

• Don’t waive inspections — do more of them. Your agent probably knows to look out for many signs that a home has some underlying conditions, but they are not usually inspectors. If you can’t tour a home in person, get a professional opinion about every major system in the home. Don’t skimp on separate inspections for the pool, septic, chimney, sewer lines, etc. While you might have had to give up your right to request repairs from the seller to secure a contract, you still have the right to renegotiate the price in most cases, and you definitely will be better off losing $1,000 in inspections than buying a home with serious underlying issues that could cost much more.

• Your listing agent can be the caretaker of your home. If you have to move out of the area before your home is sold, chances are you will need someone to check your mail, take out your trash, make sure the lawn gets mowed, return your internet equipment, and relate information to the new owners at closing (keypad codes, security system information, smart home apps, etc). Your agent can help with a lot of these things, so make sure they have a key, the code for your garage, and the contact information for a neighbor or relative that you can trust to assist as well.

I’m sure there are more factors to consider depending on your situation, but these tips should apply to nearly everyone. Let me know if I’ve missed something in the comments! (Rev. 8-30-2024)