What disclosures do sellers need to make when selling?

A: Sellers, through various forms and reports, disclose any conditions known to them which might negatively affect the value and desirability of the property for a prospective buyer.

Mandated property disclosures include:

  • The Transfer Disclosure Statement (TDS): As the seller of a one-to-four unit residential property, you are required to furnish prospective buyers with a TDS setting forth the physical conditions and any other value-affecting facts regarding the property, its improvements and its surrounding area. The TDS is handed to prospective buyers as soon as practicable (ASAP) — when negotiations to purchase your property commence.
  • The Natural Hazard Disclosure (NHD) Statement:The NHD statement is a mandated form prepared by a third-party NHD expert used by you and your agent to disclose public-ably available natural hazard information such as potential flooding, fire hazards and earthquake fault zones.
  • The Lead-Based Paint (LBP) disclosure: The federal LBP disclosure form is required for all pre-1978 residential construction. LBP disclosure rules set forth the requirements for you to disclose any known LBP hazards and the buyer’s right to investigate them.

You may obtain additional reports to best disclose your property’s conditions to a prospective buyer. These reports, which your seller’s agent will advise you about, provide additional information to include in the TDS:

  • The Home Inspection Report (HIR): A home inspectorconducts a physical examination of your property to determine the condition of its components and systems. On completion of their examination, they hand you an HIR on their observations and findings. In turn, you use the HIR to prepare your TDS, and then attach it to the TDS to avoid claims of misrepresentation against you and your agent.
  • A Structural Pest Control (SPC) report: A report disclosing the existence of termites or structural damage due to a termite or fungal infestation.
  • Whether you or the buyer will pay for corrective actions and repairs outlined in the SPC report is negotiated between you and the buyer in the purchase agreement.
  • A neighborhood security disclosure: A form disclosing the known security conditions or criminal activity affecting the property and its surrounding area.

Further, your duty to disclose your knowledge about adverse conditions cannot be waived by your placing an “as-is” disclaimer in the purchase agreement.

Property cannot be sold “as is” without disclosure. Note: you and your agent are both liable for monetary losses in pricing or costs incurred by the buyer due to the failure to disclose defects you or your agent knew or should have known existed when you entered into the purchase agreement.

VA Loan Basics

VA loans are becoming increasingly attractive home financing options for military borrowers faced with tough credit and down payment requirements. These flexible loans, which come with some significant financial benefits, are at an all-time high in terms of average loan amount and guaranty amount.

More than 740,000 military borrowers obtained a VA-backed loan in 2017, and the program’s growth is likely to continue in the year ahead. But as with any mortgage product, it can’t be all smiles and sunshine. Both VA loan pros and cons are a part of the game. Let’s take a step back and look at some of each.

If you haven’t gotten started on your VA home loan application, talk to Veterans United today. We’ll walk you through the process.

VA Loan Pros

Here are some of the major advantages of the VA home loan program:

  • No down payment: This is such a significant benefit. Qualified borrowers in most parts of the country can purchase homes worth up to $690,000 without making a down payment. FHA loans typically require a 3.5 percent minimum down payment, and for many conventional loans it’s a 5 percent minimum. On a $500,000 home purchase, that’s a $17,500 down payment for FHA and a $25,000 for conventional.
  • No private mortgage insurance (PMI): This is required for conventional borrowers who can’t put down at least 20 percent. FHA borrowers have a couple forms of mortgage insurance, one that’s paid up front at the time of purchase and another that’s paid monthly. PMI typically disappears once you have about 20 percent equity in your home. There is no PMI on a VA loan.
  • Higher allowable DTI ratio: Lenders will look at the ratio of your total monthly income to your total monthly expenses. The VA typically wants to see a debt-to-income ratio of 41 percent or less. That benchmark is higher than what you would see on conventional and even FHA loans. And it’s possible for qualified borrowers with a DTI ratio greater than 41 percent to still secure VA financing.
  • No prepayment penalty: You can pay off your VA loan early with no fear of getting hit with any prepayment penalties.
  • Refinance options: The VA home loan program has a pair of refinance loans that can help qualified buyers lower their monthly payments or get cash back from their equity. The Streamline refinance, also known as the Interest Rate Reduction Refinance Loan (IRRRL), is for homeowners with existing VA loans. The VA Cash-Out Refinance allows VA and non-VA homeowners to refinance and get cash at closing to pay down debt or take care of other needs.
  • Flexibility with bankruptcy and foreclosure: Some borrowers who qualify can be eligible for a VA home loan two years after a bankruptcy or foreclosure. The wait can be much longer for different loan types.

VA Loan Cons

Now here are some of the potential drawbacks of the VA loan:

  • VA Funding Fee: All VA loans come with a mandatory VA Funding Fee charged by the VA. This fee goes directly to the agency and helps keep the VA home loan program running for future generations. It’s a cost you can finance into the loan, and borrowers with service-connected disabilities are exempt from paying the fee. But this isn’t something you’ll pay on a conventional loan or FHA loan. You can learn more about how much the VA Funding Fee is, who pays what and who is eligible for a refund.
  • They’re intended for primary residences: This isn’t a loan program you can use to purchase a second home or an investment property.
  • Sellers aren’t always on board: Some home sellers aren’t open to receiving offers from VA borrowers. A lot of this undoubtedly has to do with some of the myths and misconceptions surrounding VA loans.

How Much Home Insurance Do I Need? What Every Homeowner Should Know About Their Coverage

Have you ever wondered, “How much home insurance do I need?” Well, you might, especially when you’re faced with a lengthy list of policy options from your insurance agent. Do you really need all that coverage?

On average, at least 6% of homeowners make a claim to their home insurance company each year. This might not seem like many, but those claims are far from small. The Insurance Information Institute estimates that insurers paid out an average of $10,592 to homeowners last year, covering everything from fire and lightning damage to theft.

Choosing the right level of insurance is key—if you don’t buy enough, you’ll be out of pocket for any shortfall. Buy too much, and you’ll be paying for coverage you don’t need.

Here’s how to make sure your major costs are covered in case of an emergency, and why taking a close look at your policy can save you money and heartbreak down the road.

So really, how much home insurance do I need?

The goal of any home insurance policy is to ensure you’re covered in case of a total loss of your home, says Ralph DiBugnara, president of Home Qualified.

“This means if the home was destroyed, the policy will cover the cost to completely rebuild it to the exact condition of when it was insured,” DiBugnara explains.

If you have a mortgage on your home, your lender will likely require your coverage to equal 100% of the replacement cost of the home. And even if your home is paid off—or no requirement is in place—it’s still a good idea to buy enough coverage to cover complete replacement, DiBugnara says.

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What are digital signatures?

Digital signatures are like electronic “fingerprints.” In the form of a coded message, the digital signature securely associates a signer with a document in a recorded transaction. Digital signatures use a standard, accepted format, called Public Key Infrastructure (PKI), to provide the highest levels of security and universal acceptance. They are a specific signature technology implementation of electronic signature (eSignature).

What’s the difference between a digital signature and an electronic signature?

The broad category of electronic signatures (eSignatures) encompasses many types of electronic signatures. The category includes digital signatures, which are a specific technology implementation of electronic signatures. Both digital signatures and other eSignature solutions allow you to sign documents and authenticate the signer. However, there are differences in purpose, technical implementation, geographical use, and legal and cultural acceptance of digital signatures versus other types of eSignatures.

In particular, the use of digital signature technology for eSignatures varies significantly between countries that follow open, technology-neutral eSignature laws, including the United States, United Kingdom, Canada, and Australia, and those that follow tiered eSignature models that prefer locally defined standards that are based on digital signature technology, including many countries in the European Union, South America, and Asia. In addition, some industries also support specific standards that are based on digital signature technology.

How do digital signatures work?

Digital signatures, like handwritten signatures, are unique to each signer. Digital signature solution providers, such as DocuSign, follow a specific protocol, called PKI. PKI requires the provider to use a mathematical algorithm to generate two long numbers, called keys. One key is public, and one key is private.

When a signer electronically signs a document, the signature is created using the signer’s private key, which is always securely kept by the signer. The mathematical algorithm acts like a cipher, creating data matching the signed document, called a hash, and encrypting that data. The resulting encrypted data is the digital signature. The signature is also marked with the time that the document was signed. If the document changes after signing, the digital signature is invalidated.

As an example, Jane signs an agreement to sell a timeshare using her private key. The buyer receives the document. The buyer who receives the document also receives a copy of Jane’s public key. If the public key can’t decrypt the signature (via the cipher from which the keys were created), it means the signature isn’t Jane’s, or has been changed since it was signed. The signature is then considered invalid.

To protect the integrity of the signature, PKI requires that the keys be created, conducted, and saved in a secure manner, and often requires the services of a reliable Certificate Authority (CA). Digital signature providers, like DocuSign, meet PKI requirements for safe digital signing.

Here are five things you may not know about VA loans.

1. They’re reusable.

Even if someone has used a VA loan in the past, they’re still eligible for a new loan. Service members can reuse the loan as many times as they like as long as they pay each previous loan off. Furthermore, service members with bankruptcies and foreclosures can still get a VA loan, even if it was a VA loan they foreclosed on.

2. Only certain homes are eligible.

VA loans are primarily designed for move-in-ready homes that will be the service member’s primary residence. While there are a few exceptions, commercial properties, investment properties, and vacation homes are typically ineligible.

3. The VA doesn’t issue the loans.

The VA doesn’t actually provide the loans; they just guarantee the loans (usually up to 25 percent), making lenders more confident and allowing service members to get better terms and rates.

4. No mortgage insurance required.

The VA’s guarantee eliminates the need for service members to purchase mortgage insurance for their loans, saving them thousands of dollars. However, there is a mandatory fee of about 2 percent of the loan amount for VA loan recipients. This fee helps keep the VA loan program going and can be rolled into the loan amount or waived for those with service-connected disabilities.

5. They have co-borrower restrictions.

Having a co-borrower who isn’t the spouse of the service member or another veteran with VA loan entitlement who will also live in the home will require a down payment on the home.

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Household appliance life expectancy

As much as we don’t like to think about it, household appliances need to be upgraded at some point. Most warranties offer an easy solution to this problem, but it isn’t always so simple. Regular maintenance while planning for replacements can help extend the life of your appliances and prevent financial and emotional shock when they break down.

Air conditioner: Good-quality central air conditioners can last up to 20 years, with many replacement parts readily available.

  • Filter cleaning or replacement improves efficiency and protects the health of the evaporator coil. The coil should be cleaned once a year.
  • Problems may also arise from incorrect installation resulting in leaky ducts and low airflow. Consult an HVAC professional to ensure your AC is functioning properly.

Dishwasher: Dishwashers usually last no more than 10 years.

  • Pay attention to lime buildup — use a lime descaler once a year to extend the life of your appliance.
  • Clean your dishwasher’s filter every six months to greatly improve its cleaning ability.

Refrigerator: Refrigerators need to be replaced about every 15 years.

  • Clean dusty condenser coils twice a year to improve performance and extend the life of your refrigerator.
  • Clean door gaskets to ensure a tight seal and prevent stress to the refrigerator’s motor — gasket repairs can be costly.

Washer/Dryer: At an average of one load per day, all newer model washing machines and dryers can last up to 14 years.

  • Avoid overloading your washer to reduce the strain placed on its moving parts and extend its life.
  • Clean the lint screen on your dryer after every load to improve circulation and eliminate fire hazards — use the long nozzle on vacuum to clean lint missed by the screen.
  • Clean the dryer vent ducting once a year so it flows cleanly.

Water heater: Depending on the type of water heater in your home (standard storage, tankless, heat pump or solar) it can last anywhere from 10 to 20 years.

  • Water heaters are subject to rust and mineral buildup. Flushing sediment from the tank and checking the anode rods once a year will help improve efficiency and longevity. Replacing the anode rods when needed can save you hundreds of dollars.
  • Experts recommend repairing rather than replacing your water heater up until 10 years of use. When problems become more complicated after that, it’s time to consider upgrading.

What is the purpose of the TDS?

A: A seller’s broker and their agents have a fiduciary agency duty owed to their seller to diligently market the listed property for sale and do what is necessary to locate a buyer.

On locating a prospective buyer, the seller’s agent owes the prospective buyer and the buyer’s agent a general duty to provide factual information on the listed property, collectively called disclosures of material facts.

The seller’s agent is required to gather facts about a property that affect the property’s value, and actively take steps to make specific disclosures to prospective buyers when marketing a one-to-four unit residential property for sale.

Fact gathering activity of the seller’s agent includes:

  • Conducting a visual inspection of the property to observe conditions which might adversely affect the market value of the property;
  • Entering any observations of adverse conditions inconsistent with or already noted by the seller on the the Transfer Disclosure Statement (TDS);
  • Assuring seller compliance with the seller’s duty to deliver statements to prospective buyers as soon as practicable (ASAP), including a TDS, by providing the seller with statutory forms at the listing stage to be filled out, signed by the seller and returned to the agent for inclusion in the marketing package to be handed to prospective buyers on their inquiry into additional property information; and
  • Reviewing and confirming, without further investigation or verification by the seller’s agent, that all the information and data in the disclosure
  • Documents received from the seller are consistent with information and data known to the seller’s agent, and if not, correct the information and data by either investigating and clarifying the information or disclosing in the documents their uncertainty about the information.

A seller’s agent’s duty owed to prospective buyers to disclose facts about the integrity of the physical condition of a listed one-to-four unit residential property is limited to prior knowledge about the property and the observations made while competently conducting the mandatory visual
inspection.

Accordingly, all property information received from the seller is reviewed by the seller’s agent for any inaccuracies or untruthful statements known or suspected to exist. Corrections or contrary statements by the seller’s agent
necessary to set the information straight are included in the document or the document corrected before the information may be used to market the property and induce prospective buyers to make an offer to acquire the property.

What is a balloon payment?

A: Final/balloon payment mortgages contain due date provisions calling for final payment of the principal balance in a lump sum before the principal is fully amortized through periodic payments.

For homebuyer mortgages, a final/balloon payment mortgage has a scheduled final payment that is more than twice the amount of any of the six regularly scheduled payments immediately preceding the balloon payment date.

Final/balloon payments on consumer-purpose, homebuyer mortgages have become rare due to consumer mortgage legislation, known as Regulation Z (Reg Z).

When your mortgage complies with Reg Z qualified mortgage (QM) standards, your mortgage needs to be fully amortized in substantially equal
regular installments, a rule eliminating the inclusion of a final/
balloon payment provision.

Business-purpose mortgages often have a due date for a final/balloon payment as they are not subject to federal consumer mortgage law.

When your consumer mortgage has a final/balloon payment, your lender needs to document their good faith effort to determine your ability to actually repay the mortgage when it is due.

A consumer or business mortgage with a term exceeding one year which is secured by your primary residence and contains a final/balloon payment due date is required to include a 90/150-day due date notice provision.

The notice reminds you of the final/balloon payment and gives you an opportunity to modify, refinance or pay off the remaining principal balance before the final/balloon payment becomes due.

The notice needs to be delivered at least 90 days, but not more than 150 days, before the due date (hence the term 90/150). When the notice is not timely delivered, the due date of the final/balloon payment is extended until 90 days after proper notice is delivered. No other terms of the note are affected. Thus, the accrual of interest and the schedule of periodic payments remain the same during the extended due date period.

Difference between Re-course and Non Re-course loans

A: Mortgage lenders are limited in their ability to recover losses incurred when the value of the property securing the mortgage is insufficient to satisfy the mortgage debt.

On any default, the lender must first foreclose and sell the property to determine their loss on the mortgage. The lender’s ability to collect their loss from the owner depends on the type of debt the mortgage represents.

One type of debt called a nonrecourse mortgage, also known as purchase-money debt or anti-deficiency debt, includes:

  • Purchase-assist financing by a lender on a one to four unit residential property to be occupied by the buyer;
  • Carryback mortgages evidencing the installment sale of any type of property; and
  • Refinanced purchase-money mortgages, to the extent the funding is applied to pay off the replaced purchase-money mortgage.

When a lender forecloses on a nonrecourse mortgage by either a trustee’s sale or a judicial sale, the lender is barred from obtaining a deficiency judgment in any amount.

Thus, when the value of the secured real estate becomes inadequate to fully satisfy the debt, a condition called negative equity, the risk of loss shifts
from the owner to the lender.

A nonrecourse mortgage retains it nonrecourse status for the life of the mortgage unless it is:

  • Subordinated to a construction loan; or
  • Secured by other property, in whole or in part.

The other type of mortgage called recourse debt is any debt not classified as nonrecourse debt. When the lender on a recourse mortgage forecloses by a trustee’s sale, the lender may not pursue the homeowner for a loss due to a deficiency in the value of the secured property. However, the lender may only recover a deficiency when they complete a judicial foreclosure
sale of the property, if:

  • The court-appraised value of the property at the time of the judicial foreclosure sale is less than the debt; and
  • The bid at the judicial foreclosure sale is for less than the debt.

Residential Security Deposits

BEFORE Rental/Lease:

What is a security deposit?
A security deposit is a payment, fee or deposit that a landlord collects from a tenant at the beginning of a lease or rental to compensate the landlord at the end of the term if the tenant (i) does not pay rent, (ii) damages the property, (iii) breaches the agreement or (iv) does not leave the property clean.

Is there a legal limit imposed on residential security deposits?
Yes. For an unfurnished unit, the maximum a landlord is permitted to collect in advance is the equivalent of two months’ rent. For furnished units, the landlord is permitted to collect up to three months’ rent.

May a landlord collect a cleaning fee or pet deposit or other amount in addition to a security deposit?
Regardless of how the security deposit is labeled (cleaning fee, pet deposit, last month’s rent or something else) or how it is divided into different categories, if at all, money that is used by the landlord to protect from financial or other damage is all considered a security deposit and falls within the above 2 or 3-month rent equivalent limits for unfurnished or furnished units.

May security deposit be made in multiple payments?
Yes, if allowed by the landlord. If all payments are due before the commencement date of the lease or rental, but have not been paid, the landlord may have the right to terminate the agreement.

DURING Rental/Lease:

May the security deposit be increased during the lease or rental term?
Yes, for a month-to-month rental, if proper notice is given and provided the overall amount stays within the 2 or 3- month rent equivalent legal limitation, and if no other restriction, such as rent control, applies. A landlord may use.

END of Rental/Lease:

What happens to the security deposit after the tenancy has terminated?
Within 21 days after the tenant vacates the property, the landlord is required to give the tenant a written statement identifying (i) the amount of security deposit received, (ii) the amount of security deposit spent, or anticipated will be spent, along with itemized statements for the expenditures, and (iii) the amount being returned to the tenant.

Is there anything a tenant can do to minimize potential reductions from the security deposit?
Yes, the tenant can clean the property and repair any damage arising during the tenancy. To help identify potential deductions from security deposit, the landlord is required to give the tenant a notice of a right to have an inspection prior to termination.