What’s BMR and who can qualify?

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I have been asked many times for a question about low-income housing or BMR, such as, “What’s BMR?” or, “Who can apply?” As I have recently helped a client purchased their home under the BMR, here’s an explanation of the program, and how to prepare for the application.

BMR (Below Market Rate) is a homeownership program that provides housing to low and median income families. Therefore, there’re sets of rules such as annual income, assets, first-time home buyer, credit score, debt to income ratio, and homeowner occupancy, etc. Only a household meets those requirements will be considered for the application. The price for this kind of home doesn’t depend on the comparable sales around the neighborhood, but it depends on AMI (area median income). Due to the high demand and low supply, multiple-offer is a common situation in this kind of listing. The BMR house usually has a fixed sales price, which means no overbidding is allowed even in the multiple offer situation. This creates even more challenges to the homebuyer, as no one can offer a higher price to win over the competition. Therefore, to work with an experienced real estate professional on the BMR property is essential.

The process of the BMR purchase is also different than the regular home sale. First, the homebuyer needs to download an application packet from the city website and review the qualification requirements. Second, the buyer needs to work with a lender to get pre-qualified to purchase a home. Please note that the potential financing must meet the city’s requirement. The homebuyer will complete a mandated first-time homebuyer class. Then, work with the real estate agent to find a desirable home for sale, prepare the offer, and submit it to the listing agent. After the offer close date, the city will request a copy of the ratified contract from the seller/listing agent. If the offer is selected to move forward with the seller, the buyer will need to submit a BMR homeownership application to the city’s housing division. Be sure to include supporting documentation for income and asset verification. The city will review the application and qualification materials and determine the eligibility within 10 business days of receipt of completed application. Once it’s qualified, all adult members of the approved household must schedule an in-person consultation with city staff to discuss resale restrictions and ongoing requirements. After the interview, city staff will prepare escrow instructions and submit them to the escrow officer. Buyer will sign the appropriate documents at closing.

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What’s the Difference Between Agents, Brokers, and Realtors?

Screen Shot 2018-10-03 at 2.49.56 PMAs a renter, a buyer or a seller, you’ve probably heard the words agents, brokers, and Realtors used to describe the same person who is helping you buy, rent, or sell your house or apartment. There’s even a chance you’ve used these three terms interchangeably. While an agent, a broker, and a Realtor will all help you buy or sell a home, these terms are not synonyms and do mean different things. When you’re building your real estate dream team, it’s important to know the difference between these three professionals so you can pick which one fits your needs best.

Let’s start off with “broker”: A broker usually has more extensive knowledge of real estate law in their county and state, generally has more education, and has completed more real estate classes. They must pass a difficult test to obtain a brokers license. Once a broker is licensed, they can work independently, open up their own brokerage, and hire real estate agents to work under them.

This brings us to “agents”: Agents are also real estate salespersons, but they always work under a broker. They too need to take classes and pass a real estate exam to become licensed in their state, but they generally take fewer classes than brokers.

The biggest difference between a broker and an agent is that a broker can own and run a brokerage while an agent would need to have a broker on the payroll to open up an independent brokerage.

With this in mind, you should always pick a broker because it requires more classes and an extra exam to pass, right? Not necessarily. If you’re into names and designations then choose a broker over an agent, but if you want to do what’s best for yourself then ask what real experience the agent and broker have selling homes.

So now that we’ve sorted out the difference between a broker and an agent, let’s switch gears towards realtors. You could be an agent or a broker and not be a Realtor, but to be a Realtor, you must be an agent or broker. This is because a Realtor isn’t a type of real estate salesperson but instead a designation given to members of the National Association of Realtors (NAR). Realtors can be either brokers or agents, but they also must be part of the organization, sign a strict code of ethics, as well as maintain an additional professional set of requirements.

As Realtors in California, we are bound to a code of ethics standard and have a requirement of passing the course and test every two years in order to keep our Realtor designation.

A Realtor designation means that your agent or broker has committed to keeping the buyer and/or seller’s interest in mind—not personal profit. Generally, having the designation is seen as a surefire way to enter into a more trustworthy relationship during the home buying or selling process. While searching for real estate and choosing who you work with, whether they are an agent or a broker, you should make sure that they also have the ‘Realtor’ designation.

 

So, next time when you have a need of making the home buying or selling decision, who should you turn to? To me, the answer is clear, a Realtor, the most important thing is finding a person who you can trust!

Your rights as a borrower

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When you shop for a mortgage loan, you have certain rights that are guaranteed by the federal government’s Consumer Financial Protection Bureau.

These include the right to:

  1. Receive a credit decision that isn’t based on your race, color, religion, national origin, sex, marital status, age, or whether any of your income is from public assistance.
  2. Shop for the best loan type for you and compare the fees of different lenders.
  3. Know the total cost of your loan including the annual percentage rate (APR), points and other fees. Interest rates vary according to your credit history and credit scores, the borrowed amount and how much you’re putting as a down payment.
  4. Receive a Loan Estimate and Closing Disclosure Form before you agree to the loan and pay any fees. Compare the exact loan product you want as offered by two or more lenders.
  5. Know which fees are not refundable if you decide to cancel the loan agreement.
  6. Ask questions about loan terms and fees that you don’t understand.
  7. Know the reason if your loan was turned down.

Learn the advantages and disadvantages of each type of loan product to choose the best one for your needs. As always, consult your financial advisor before making any decision.

 

Starbucks may affect housing prices?

An interesting study was done by Harvard Business School using Yelp data to find that each entry of Starbucks into a Zip code was associated with a 0.5 percent increase in housing price. In my opinion, the hypothesis of whether Starbucks has the ability to drive the neighborhood economic change is as controversial as the chicken or egg question. The same observation can also apply to other similar restaurants/stores such as Wholefood Market. What really drew my attention is that the Harvard economists use Yelp data rather than the government statistics, the first of its kind that shows more ways to analyze the economic effect.

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Follow original article from CNBC website
https://www.cnbc.com/2018/09/04/starbucks-openings-predcit-higher-home-prices-says-harvard-study.html?__source=sharebar%7Cemail&par=sharebar

Home Sales Declined in Every Segment Under $500K

July 2018 Year-to-Year data shows that sales have declined on the sub 500k segment. According to the CALIFORNIA ASSOCIATION of REALTORS, this is not due to inventory shortage, but rather the demand issue; I’ll say that it’s an absolutely true statement regarding the housing market in the Bay Area.

To support the CAR statement, there are few numbers we must check. Existing home sales are going down by 4.3%, while the inventory is up 3.1% compared to the same time last year. These numbers suggest that they don’t have a direct relationship since the increased inventory number should have made a positive impact on sales. An average price per square foot has gone up by 7%, median home prices have increased 7.6% and the affordability Index that is down 3% suggests that house prices have continued on the all-time high position and the buying power is getting worse. Other things such as climbing interest rate and the big company moved out of California to a much more affordable place for their new expansion, e.g. Amazon HQ2. The Millennials who fill the majority of entry-level houses are moving out of California, which has caused weaker demand for the sub $500k market.

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Frequently asked questions about 1031 Exchanges

If you are a real estate investor or plan on investing in the real estate business, you should know about 1031 Exchange. Below, I have gathered some common questions that people often ask.

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Q: What is 1031 Exchange?
A
: 1031 Exchange, also known as tax-deferred exchange, is an IRS-authorized process where like-kind business or investment property is exchanged without immediate tax liability to the property owner.

The IRS requires a neutral third party, known as a facilitator, qualified intermediary (QI) or accommodator to be used for facilitating the 1031 Exchange. In most cases, the title company who handles escrow of your property can be used as 1031 facilitator.

Q: How long do I have to own a property before I can exchange it?
A: Unfortunately, there is no safe holding period for property to automatically qualify for an exchange. Keep in mind, the property only needs to be “held for investment” for it to be eligible for an exchange. Time of ownership is only one factor the IRS looks at when determining if the property was “held for investment”. Some tax advisors recommend a minimum holding period of one year.

Q: Can I sell my duplex and purchase raw land?
A: Yes. Holding land for its future appreciation would be considered held for investment. “Like kind” can be any real property used for business or investment purposes within the U.S.

Q: Can I buy my replacement property first?
A: Yes. This requires that you do a reverse exchange. The reverse exchange may be an option provided it is structured according to the safe harbor guidelines.

Q: Can I move into a rental property that was originally purchased as part of a 1031 Exchange?
A: Yes. However, please keep in mind that the IRS will look at your “intent” in determining if your exchange is valid. If the IRS feels your original intent when the property was initially acquired was to use it as a primary residence, you may have your exchange disqualified.

Q: Do I have to reinvest ALL of my cash (equity)?
A: No. However, any cash (equity) that is not reinvested in real estate will be taxable (and is known as cash boot). If you don’t want to pay any taxes, is to reinvest all of your cash and purchase a property equal or greater in value.

Q: How long do I have to complete my exchange?
A: 180 days. However, also keep in mind you will be required to identify your potential replacement properties on day 45 of your exchange. Your timeline starts when you close escrow on the property you
are selling.

Q: Does my Realtor need to do anything special since I am exchanging?
A: Your Realtor needs to make sure the sales contract is assignable and include the appropriate 1031 Exchange language.

Q: May I do a multiple lag exchange?
A: Yes. Several relinquished properties may be exchanged for a single replacement property. The 45-day identification rule and 180-day replacement rule will start running from the date of sale of the first relinquished property.

Q: Do I receive a tax basis in my replacement property?
A: No. The amount of depreciation that can be claimed on a replacement property is based upon the adjusted basis of the relinquished property at the time of the exchange.