Home Ownership Now

HOME OWNERSHIP NOW
• Everything you wanted to
know about owning a home
on Kauai... and then some

WHAT WE’LL TELL YOU
ABOUT:
• Insuring your mortgage
• Current Kauai housing market
• The sales and escrow
• What are distressed properties
process
• Budgeting and ﬁnance • Put the kids on the
• Pre-approval deed?

• Trusts and life estates
• Rent vs. Buy
• Q&A

OUR SPONSORS AND
PRESENTERS

• Sharon Gerber

• J. Michael
Seniors Law
Ratcliffe
Program
• Ron Margolis, R, CDPE, ABR

HOUSING PRICES HAVE
INCREASED AN AVERAGE OF
MORE THAN 5% PER YEAR
Percent Change in U.S. Home Prices Since 1975

Source: FHFA, August 25, 2009

KAUAI MARKET HISTORY
Median Price 1991 thru 2011

THE HOMEBUYING PROCESS

• 1. Put your team together - lender, realtor



• 2. Financing, ﬁnancing
, ﬁnancing - get pre-approval and
learn what you qualify for.




• 3. Shop to purchase your property




• 3. Shop to purchase your property

• 4. Submit your best offer on the property

• 5. Negotiate to a “meeting of the minds”


• 6. OpenEscrow - the process of your real estate
purchase with a neutral third party that looks out for
everyone’s interests.



• 7. Go through the contract contingencies




• Appraisal




• Appraisal

• Inspection




• Appraisal

• Inspection

• Loan

WHAT IS ESCROW
Escrow is an independent third
party who performs all
required services impartially,
protecting the Buyer and Seller,
acting on instructions with
Lenders, Attorney, Brokers, and
Agents involved in the transfer
of property.

WHY DO I NEED ESCROW
• EscrowOfficer reviews contract for special conditions
and notifies parties of those conditions.

• Escrow Officer reminds parties of due dates for terms
set forth in Sale Contract

• All
monies are collected and held in the Escrow
account assuring that bills for services are paid

• EscrowOfficer will assess to each party, payments for
the property taxes, association dues, and special
assessments

• Escrow Officer will pay Buyer’s creditors upon
instructions from Lender

• 8. Meet all the loan conditions


• 9. Final walkthrough of the home



• 10. Close and recording of the property



• 10. Close and recording of the property

• 11. HAVE A HOUSEWARMING PARTY

IS IT A “BUYER’S” MARKET?
INDUSTRY STATISTICS

Mortgage(Delinquencies(1(National(Numbers!

Quarter(3(1(2011!
!
All(Mortgages:(

4.43%(in(Foreclosure((((((((8.2%(in(Default((30+(days(late)( 12.63%(Total(

Prime(Mortgages:(

2.56%(in(Foreclosure((((((((4.49%(in(Default((30+(days(late)( 7.05(%(Total(

Subprime(Mortgages:(

10.82(%(in(Foreclosure((((((21.78%(in(Default((30+(days(late)( 32.6%(Total(

FHA(Mortgages:(

3.27%(in(Foreclosure(((((((12.66%(in(Default((30+(days(late)( 15.93%(in(Default(

VA(Mortgages:(

2.25%(in(Foreclosure((((((((6.92%(in(Default((30+(days(late)( 9.17%(Total(in(Default(

Mortgage(Bankers(Association(
National(Delinquency(Survey(
http://mortgagebankers.org(
! Based(on(44,000,000(mortgages(C(Non(Seasonally(Adjusted(
All(Mortgages(–(2011( ( (
( ( (
(
Total(Distressed(Mortgages:( 6,298,000*( *Based(on(default(percentage(for(all(mortgages(
Total(Predicted(Sales:( 4,970,000**( **NAR,(Lawrence(Yun((September)(

OUR KAUAI
HOUSING MARKET
3 TYPES OF PROPERTIES

OUR KAUAI
HOUSING MARKET

•Opportunities

OUR KAUAI
HOUSING MARKET

•Opportunities

•DEALS

OUR KAUAI
HOUSING MARKET

•Opportunities

•DEALS

•Everything Else

DEALS =
DISTRESSED PROPERTIES

• BANK-OWNED (REO)

• SHORT SALES

• PRE-FORECLOSURES

REO (BANK-OWNED)- DEAL

• Musthave pre-approval, sometimes
with banks lender

• Must show proof of funds

• Usually AS-IS

• No Seller’s Disclosure

SHORT SALES
A homeowner is ‘short’ when:

A borrower owes an amount on his property that
when combined with closing costs and commission is
higher than the current market value.
A short sale occurs when:
A negotiation is entered into with the homeowner’s
mortgage company or companies to accept less than
the full balance of the loan at closing. A buyer closes on
the property and the property is ‘sold short’.

SHORT SALES
• Require patience

• Submitting multiple offers

• Know any additional costs

• Termites - Staking

• Repairs

• Delinquent HOA fees - Tax liens

• OTHERSTAKEHOLDERS CAN CHANGE
THE DEAL!!

FINANCING AND LOANS

Sharon Gerber - Branch Manager/Loan Ofﬁcer

Home Ownership NOW
Loan Pre-approval Process
Purchase Options
Home Equity Investing

03/12/12

Pre-Approval Process
Gather your documentation:
• W-2’s for past two years
• Income Award Statements, such as Social Security or Disability
• Paystubs covering last 30 days
• Federal Tax Returns for last two years
• Self Employed-business federal tax returns for last two years
• Bank statements, most recent two months, ALL PAGES
• IRA/401K statements, most recent two months, ALL PAGES
• Properties Owned-mortgage statements, property taxes and insurance

03/12/12

Pre-Approval Process
Make an appointment with Loan Officer
• Complete loan application process
• Credit report is pulled
• Be very honest about your financial picture
• At this time, all of the information can be run through a desktop underwriter to
determine eligibility
• Loan officer will help you to determine how much you are eligible to borrow,
and what loan product works best for you

03/12/12

Purchase Options
There are many purchase options available. We call the products:
• Government loans include:
 FHA
 USDA
 VA (VA jumbo)
• Conventional Loans-20% down and loan amounts up to $625,500
• Conventional Loans with Mortgage Insurance
• Adjustable Rate Mortgages-conventional and jumbo
• High Balance Conforming
• Jumbo Loans

03/12/12

Types of Loans
• Conventional, up to $625,500, 20% down, 30 year fixed
• FHA, up to $625,500, 3.5% down, 30 year fixed, must pay an upfront fee
that can be financed into the loan. Monthly mortgage insurance
• USDA or Rural Housing, up to $625,500, income restrictions, all of Kauai is
considered rural, must pay an upfront fee that can be financed into the
loan, Annual fee (similar to mortgage insurance, but much lower payment)
• VA, must be eligible based on military service, 100% financing, up front fee
can be financed, no mortgage insurance
• Jumbo, above $625,500. Typically will need to put 25%-35% down, up to
$4,000,000
• Portfolio, these are for properties like condotels (any condo that offers
transient vacation rental). 35% down, rates are typically 1.25% higher than
conventional.

Purchase Options
What Criteria will we be looking for?

• Credit score: 740 and above is excellent, 680-720 good, etc. Lowest credit score that I can
lend on is 620

• Debt-to-Income Ratio: 45% or below

• Occupancy: Primary Residence, 2nd home, Investment

• Property: Single Family Residence, Condo, Condotel, Multiple unit

• Cash: savings, gift money, retirement savings, one time bonus

03/12/12

Making Home Affordable
• Fannie Mae and Freddie Mac have been offering these for
several years.
• Borrower can be “underwater” on home, but still reﬁnance
to a lower rate
• New loan-to-value guidelines available Now, which should
help for those that were not able to reﬁnance in the past
• Cannot get cash out with this product
• Still only applicable if address is a match in
– www.fanniemae.com/loanlookup/
– www.freddiemac.com/mymortgage

How long after….
• How long after a borrower has completed a short
sale, foreclosure, deed in lieu of, bankruptcy, Chapter
13, can they apply for a mortgage.

• Many suffered during the Great Recession,
experiencing a foreclosure, bankruptcy or short sale.
This does not mean you can never own a property.

• Please see me for a handout based on loan type

Home Equity Investing
• If you have equity in a property, it is still possible
to do cash out reﬁnances

• I can do loans in Hawaii and California

• Make sure this is a “make sense” investment. With
interest rates so low it may make sense to borrow
against a property, but do your homework ﬁrst!

PUT THE KIDS ON THE DEED?

• J. Michael Ratcliffe, Esq. -

• Seniors Law Program - non-
proﬁt to assist seniors

• What exactly do you do with
your home as you get older to
make sure your family beneﬁts
from your hard work to
acquire the home

The Kids get the House in the
Trust...So they are already on the
deed..Right?
➲ WRONG! The trust avoids probate and gets
the house to the kids when you die...But while
you are alive ...Your trust is the owner of the
house.
➲ To put the Kids on the house by trust can
mean big trouble if you are trying to qualify for
medicaid long term care

Long Term Care coverage

➲ Medicare does not cover LTC beyond 100
days
➲ Medical Insurance does not cover LTC
➲ LTC insurance often does not really cover LTC
➲ Medicaid does cover LTC but you have to be
“Poor”

What is Poor?
➲ Non institutionalized spouse can keep about
$113,640 in resources and a little over $2,000
in income.
➲ Single person....$2,000 resources
➲ Can keep house if under about $786,000 if
not in trust.
➲ If in trust...House is an asset

Not Only does the trust not put the
kids on the deed...It might lose the
house for them when you die.
➲ To qualify must deed back to husband and
wife
➲ If out of trust has to fall back on will and that
means probate with all the humbug that is
➲ Once out of trust will qualify for LTC but the
state will put a lien on the house for LTC costs
➲ Could be up to $13,000 a month...You do the
math

So... The trust may be the worst place
to have your house

But sometimes it may be the best
choice you have

➲ If you are planning on selling and moving
when your spouse dies
➲ If you think you might have to take a mortgage
or a reverse mortgage
➲ If think you might change your mind about
who you want to give it to
➲ If you have a disabled child or a kid who
wants to get a first time homeowner loan
➲ Or many other specific situations

What are the other choices that really
put the kids on the deed?

➲ Outright deed
➲ Joint Tenancy
➲ Tenancy in Common
➲ Life estate Remainder
➲ Outright deed with Leaseback

Any of these choices could be best for
you...Or could be a horrible
mistake!

Let us look at choices one by one

Outright Gift Deed
➲ Creates a current transfer of all title to a third
party
➲ Has Property and Gift tax consequences that
have to be dealt with
➲ Does allow party receiving gift to deal with the
property immediately ....Mortgage, building
permits, etc
➲ Reduces the taxable estate
➲ Makes it final...No going back and no pressure

Biggest Problem.....It ain't yours

➲ You have absolutely no rights to the property...
Even if it was yours and you gave it to your kid!
➲ They can Kick You Out!
➲ They can Charge you Rent!
➲ They can move in their awful, foul mouthed boy/
girl friend and you can do nothing!

You can wake up to this in your
living room

Or this in your bathroom

. .

I am of the Billy Holiday school of law

God Bless the Child that has his own!!

So what if you don't give it all away
and make the children “joint” on the
deed?

You can give the kids a percentage of the property
and then you and the kids would be co-owners of
the property.

You can do this several ways...Be careful of the
word “joint”...You can be co-owners and not joint
owners. Joint tenancy has a very special
meaning. Lets us look at tenancy in common first.

Tenancy in Common

Tenancy in common lets you have different folk
owning different percentages of the whole but that
does not mean you can give the front to one kid
and the back to another. Does not work that way.

Tenancy in Common does not avoid
probate with your share when you die

➲ So, lets say you give one kid 25%, one kid 25%
and you keep 50% as tenants in common.
➲ When you die, your 50% goes to whoever you left
it to in your will. If you have no will it follows the
will the State has already written for you called
Intestate Succession. In either case you have a
probate
➲ You also have gift and long term Capital Gain Tax
problems.

But that is not the worst...The worst is
you are in bed with your kids

But
➲ The one on the end is getting a divorce
➲ The one on the other end is being sued
➲ The one next to the end is going bankrupt
➲ The one next to the other end has a sick kid and
wants to sell
➲ The one in the middle just wants his money and
never liked you much anyway.
➲ The one next to the middle is really cool but his
wife runs the show and SHE wants the money

All of these situations could make you
80+ and homeless

Again...God Bless the Child that has his own!

Ok ...How about making the kids
“Joint Tenants” on the deed?

➲ Well...You do avoid Probate because Joint
Tenancy has the “right of Survivor-ship”..
➲ You can not give children and you different
percentages of ownership. All joint tenants must
have the same percentage of ownership

But joint tenancy still puts you in bed
with your kids
➲ All the same exposure from Divorce, Creditors of
your kids, Wives and Husbands of your kids, and
of course..the kids themselves, as you do with
tenants in common.
➲ Same gift tax and Long Term Capital Gain
problems as with tenants in common deed.
➲ Any joint owner can force a sale by filing a
Partition action.
➲ You can again lose your home

So is there any way to put the kids on
the deed without having your pants
completely down?

A couple but they both have
drawbacks
➲ Life estate/Remainder
➲ Outright gift/Lease back

The methods are conceptually very different but
they result in the senior having quite similar
protections to keep pants up as well as saving
the house from medicaid liens.
➲ Let us examine them in order

A life estate/remainder deed is a deed
that divides real property by time not
percentages

The Life estate holder has complete
control of the property during their
lives

➲ The Remainder holder has a vested interest in
the real property that will become a fee simple
upon the death of the life estate holder.
➲ Neither interest has contact with the
other....whatever happens legally to the
remainder interest does not effect the life estate
holder and vice/versa

So The life estate holder is not
effected by:

➲ Divorce of the remainder holder
➲ Bankruptcy of the remainder holder
➲ Remainder holder being sued
➲ Greedy remainder who wants his/her money

Most important of all...YOU are still the
ruler of YOUR house

The Remainder gets two big
advantages as well
➲ First and probably most important, if you go to
long term care and a lien is put on your home for
the costs of your long term care (6 to 13 grand a
month) it does not touch the remainder interest
➲ The remainder still retains a stepped up value for
long term capital gain tax.

So you basically save the house for
the kids without losing control

So the Bad Stuff is:
➲ You can't change your mind (any of these deeds
are forever)
➲ You are disqualified for Medicaid coverage of LTC
for a period of 5 years from the deed.
➲ You can not mortgage or reverse mortgage the
property
➲ You can not sell (without their consent and you
don't get all the money)

There is no set age to do the deed

It is a place in life, not an age
➲ When you are sitting on the porch with your loved
one and say:
➲ You know...We ain't ever going to move
➲ We are never going to change our mind on who
we want the house to go to
➲ We are never going to mortgage the house
➲ We are never going to get a reverse mortgage
➲ And we have at least 5 years before we need
long term care

That is the perfect time to do the life
estate remainder deed

But if you do not know one of these
things for sure then whatever you do
is a gamble and could be smart
or ...Could be ...A mistake

So is the outright gift with a lease
back any better?
➲ It operates pretty much like the life estate
remainder deed with some differences
➲ The remainder holder has a better ownership of
the property for the purpose of getting loans and
building etc
➲ The remainder holder is better able to show it as
an asset.
➲ Property tax stuff should stay the same as long
as you maintain the leasehold

But
➲ You are no longer an owner you are a lessor. As
such you have the obligations of a renter and if
you fail to perform your obligations you can be
evicted.
➲ If you forget to renew the lease...You can end up
with a property tax problem for the owner
because he or she may have to pay taxes on his
rate rather than yours....

So what have we learned about
putting the kids on the deed.

➲ You need to be sure the attorney doing the deed
is representing you and not your kids!

These are tough choices...And
whatever you do you are rolling the
dice
➲ I am not saying the kids are out to get you..
➲ But there are many, many things to
consider...And many things to balance...And you
could end up without a roof if you guess wrong
and you can lose the house for your kids if you
guess the other way wrong.

Bottom line...Don't sign anything
unless you have been advised by your
attorney..And when you have made
your choice.....Relax and don't look
back

WHAT WE TOLD YOU:
• Current Kauai housing market • The sales and escrow
process
• What are distressed properties
• Put the kids on the
• Budgeting, reduce debt deed?
• Pre-approval • Trusts and life estates
• Rent vs. Buy • Q&A

Home Ownership Now

More Related Content

Viewers also liked

Similar to Home Ownership Now

Recently uploaded

Home Ownership Now

Editor's Notes