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Real Property Easements, An Overview. the Purpose & the Risks? (Part 2)

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Image from Pixabay

By Dan Harkey
c 949 533 8315 e [email protected]

Real estate development patterns on a going-forward basis:

Laws have changed, sometimes dramatically, as we have experienced in California. California leadership has recently passed multiple laws to modify the nature of housing occupancy by the public. The changes include urban and suburban housing. The goal is to replace single-family buildings with high-density stack-and-pack cluster apartments and homes. Parking requirements and setbacks have been eliminated to pack them in.

Image from Pixabay

Many developers prefer high-density or cluster zoning and housing to maximize density, space, and profits. Cluster housing was initially defined as housing placement near each other, reducing individual land parcels and yard space to increasing open space and common area amenities. Larger areas of open space within the development form a buffer for adjacent land uses- additionally, cluster housing with homeowner associations would be responsible for the infrastructure maintenance.

There is a distinction between the written physical layouts or placement of easements and written usage agreements memorializing rights and responsibilities between the parties. A well-written agreement is designed to understand the terms and conditions and enforce them among the parties.

A part of centralized development planning is to determine the need and locations of property usage easements. They will be plotted and engineered as part of the approval and development process.

Suburban areas have historically consisted primarily of low-density residential, commercial, and industrial communities away from urban areas but within commuting distance for employment. Suburban communities have had their own political and governmental services jurisdictions.

Populations grew in suburbs because people wanted autonomy from the tightly controlled rules and hectic and congested lifestyles in densely populated urban settings. Suburbs usually provide an overall higher standard of living for a comparable income than the metro or urban lifestyle. Traffic congestion, commercial corridors, shopping, schooling, environmental issues, and freedoms that go with more land and open space make it worth the cost for people to commute into a city for work.

Image from Pixabay

Past President Obama issued a regulation known as AFFH (Affirmatively Furthering Fair Housing). The objective is to create progressive mini-urban cities within the suburbs. The objective was to have suburbs swallowed up by larger cities. These new mini cities would be subject to federal regulations and mandates taking control of zoning and development. This includes eliminating single-family zoning and forcing the building of medium to high-density low-income housing, thereby creating mini-urban-styled downtowns.

Eliminating local government control is the plan to destroy the suburban lifestyle.

Affirmatively Furthering Fair Housing (AFFH) works by holding the development process hostage to the U.S Department of Housing and Urban Development (HUD’s) Community Development Block Grants and federal-planning demands. Suburbs will be prohibited from receiving millions of dollars in HUD grants unless they eliminate single-family zoning, install low and moderate-cost housing, and consolidate and densify commercial and residential districts into stack-and-pack neighborhoods. Highway funds are also planned to be withheld for failure to comply.

Any objections by a local municipality will get municipal leaders of the suburbs sued for discrimination by civil rights groups and by the federal government.

The current administration has reactivated and placed Obama’s AFFH strategy a high priority.

Municipalities commonly use a tool of extortion to gain easements on specifically targeted properties. When the owner applies to process a tentative tract map, the city planners frequently condition the approval to include easements that have little or no benefit to the property owner. In many cases, property owners are even required to pay for the improvements. An “eminent domain action” is frequently used to force property owners to sell their property or allow specified easements. I refer to this as “easement by extortion.” In many cases, property owners are forced to pay for the improvements

In many cases, multiple parties who own adjacent properties, shopping centers, retail centers, industrial, and historic registry facades all require written easement agreements for mutual benefits to protect the interest of all participants. Examples include easements for parking, reciprocal access of ingress/egress corridors, access for installation and maintenance of utilities, operation and management of common areas, and many others.

https://www.nps.gov/tps/tax-incentives/taxdocs/easements-historic-properties.pdf

Actual case studies:

1) Two adjacent property owners who were friends owned and occupied two separate contiguous industrial parcels. The properties are in Gardena, CA. Each land parcel was 40 ft wide by 100 ft deep. The property owner on the right side wanted to build a zero-lot-line building structure that was 40 in width. A zero-lot-line means that the property was initially built-up to the property line with no setbacks. The left-side property owner agreed to construct his building only 30 feet wide so that there would be 10 feet available for ingress/egress of automobiles for use by both properties. The actual physical location for ingress/egress was only 10 feet of the left-side property. The right-side property possessed no other method of entry other than his left neighbor’s property. No written agreements existed, but merely two good old boys who agreed with a handshake and hopefully an occasional cold beer at the local Kelsey’s bar.

An argument and litigation for a prescriptive easement right would be justified since the buildings were built in the 1960s. The original owners and subsequent owners have operated that way ever since.

The right-side property owner owned his property free and clear. The left-side property owner had the first lien of $300,000. A lender suggested that the property owners hire a civil engineer and a lawyer to draft a reciprocal usage easement for ingress/egress. The owners must submit the plans and agreement to the building and planning department for approval. Upon city approval, the reciprocal easement agreement could be recorded. Once the contract was signed and recorded, the easement would remain on the property title.

In this fact-specific case, the problem was that the newly drafted easement would be recorded in the first lien position on the right-side property but as a second lien position on the left-side property. The left-side property’s recorded easement would be in a second lien position behind a $300,000 first trust deed lender. If the borrower on the left side defaulted on his loan and the property was lost in foreclosure, the recorded usage easement would be foreclosed, extinguished, or ceased. Subsequent owners would be damaged and have no right of access. Lack of access for automobile ingress/egress would drastically diminish the functionality and desirability, and the value would be severely affected.

Image from Pixabay

2) An auto body and fender shop fronted on a busy street but had no direct access to the auto storage yard. Entry into the repair shop was available only through an alleyway. All the properties along the street have the same issue and potential risk.

The lender’s task in processing and underwriting a requested loan was to verify that the alley right-of-way was either a publicly owned street or a written reciprocal easement agreement signed and approved by the property owners who required continued access through the alleyway. The recorded easement was verified that it existed and did run with the land. Risk abated.

Image from Pixabay

3) A barbershop operator had the chance to purchase the real property at the location of his operating business. The location was an A+ situated at the entry to a regional shopping mall. Part of the lender’s processing and underwriting staff’s task was to verify a reciprocal parking easement agreement for all the tenants in the shopping center and the inline retail shops near the entry. The recorded easement was verified and did, in fact, run-with-the-land. Risk abated.

4) A small shopping owner and adjacent church struck an informal deal to use each other’s parking. An informal letter arrangement was arranged between two property owners who mutually benefited by being able to use the other owner’s property. The informal agreement does not run with the land. The arrangements are usually for a specified time and are cancellable with a 30/60/90-day notice. Although Sunday mornings were problematic, a large church occupied one side of the street, with marginally adequate parking. Church attendees were able to use the available parking across the street. There is a shopping center across the street with semi-adequate parking, although Saturdays are problematic. A letter agreement was drawn up for common usage of parking rather than an easement. The agreement specifically spelled out the terms of times for needed use of both parties and was cancellable by either party with a 60 days’ notice. There is an unsolved risk because of the informal nature of the agreement.

5) Land loan. A lender made a commercial loan on a vacant parcel adjacent to a large shopping center. The parcel was located strategically at the most prominent entry to the shopping center.

Image from Pixabay

An appraisal was obtained that reflected values as a developed small commercial for drive-through fast food or coffee establishment.

The parcels necessitated every square inch for development with little flexibility. Parking was adequate because it was adjacent to the large shopping center with no prohibitions on the number of spaces. There were no parking easements, but there was also no prohibition.

The borrower’s attorneys drafted an agreement. The principal property owner made a deal with the largest shopping center tenant to place prominent entrance monument signage on the subject parcel without the knowledge of the land lenders. The property owner/borrower attempted to strongarm the land lender into signing it the subordination agreement making the land lender’s first lien junior to the signage easement.

Image from Pixabay

What a preposterous and foolish request! But the borrower/owner of the property was looking for a fool of a lender. How about a massive unforeseen risk for a lender? The lender rightly refused the request.

If the lender had agreed to sign the subordination and allowed a colossal monument sign in the middle of the vacant commercial parcel, the parcel value would have plummeted to a small park to donate to the local municipality as a feel-good exercise.

Understanding easements in relation to real estate ownership and development is full of complex issues. Civil engineers and land planning lawyers specializing in this section of real estate law should assist in drawing the property boundaries, alignments, and applications for municipal approvals. Work with a title company to have the easements recorded and insured. Assess the benefits and risks. Do not circumvent best practices.

Thank You

Dan Harkey

This article is an overview for a general educational purpose only. The information presented should not be relied upon without the advice of counsel.

Dan Harkey is a contributing author to Weekly Real Estate News and is a Business & Financial Consultant. He can be contacted at 949-533-8315 or [email protected].

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.

Real Property Easements, An Overview. the Purpose & the Risks? (Part 1)

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Image from Pixabay

By Dan Harkey

c 949 533 8315 e [email protected]

This overview of real property easements has relevance to property owners, real estate agents & brokers, mortgage agents & lenders, insurance agents & brokers, escrow officers, and title insurers.

What are real property easements?

An easement is a non-possessory right conveyed from one property owner (#1) to another property owner (#2) to use, enter, or cross over a parcel (or a portion) that is owned by the party (#1). Non-possessory means that party (#2) possesses a right to use, enter, or cross but does not own or have no property ownership claims. claims of ownership to the property.

A non-possessory interest in a property restricts its free use because it is an encumbrance on the property. The non-possessory interest (easement) is generally recorded against the property in municipal public records and serves to cloud the title.

There are two types of possessory interest: freehold and leasehold estates.

Fee ownership Interests are generally subject to certain easements such as utilities and public rights of way.

“A public right of way easement gives the public or organization the right to access and use property in specific situations for limited purposes. A right of way is an easement that established the freedom to use a pathway or road on another person’s property without conferring ownership.”

Easements generally run with the land into perpetuity (for all time) unless expired or canceled by the parties. They may be expressed, implied, by necessity, or by prescription.

https://www.forbes.com/advisor/mortgages/what-is-an-easement/

https://www.lorman.com/resources/easements-in-california-creation-of-easements-16986

https://www.clta.org/page/article6/A-Legal-Introduction-to-Easements.htm

What are reciprocal usage easements?

Reciprocal easements are non-possessory interests conveyed between two or more property owners. An agreement establishes the terms for easements, restrictions, and covenants between two or more different parties. The agreement is mutual between two or more parties to benefit each other, usually equally.

Using the example above, property owner (#1) may use the owner’s (#2) property. Reciprocally owner (#2) may use the owner’s (#1s) property. You scratch my back, and I will scratch yours for mutually beneficial purposes.

https://www.davis-stirling.com/HOME/reciprocal-easements-defined

What are reciprocal easement agreements?

Image from Pixabay

https://www.coxcastle.com/news-and-publications/2013/fall-2013-retail-perspectives-newsletter/understanding-reciprocal-easement-agreements#:~:text=Typically%2C%20reciprocal%20easement%20agreements %20(%22,as%20an%20integrated%20shopping%20center.

https://www.contractscounsel.com/t/us/reciprocal-easement-agreement

Consider two adjacent commercial parcels, each with 20,000 square feet of land. One land parcel has a local grocery store, and the other has a restaurant. The owners structured a reciprocal easement agreement to allow both parcels to provide entry to commercial supply trucks and for parking. With the building footprint, required setbacks, and parking, there is not enough room for large trucks to deliver supplies without overlapping parcels.

What are prescriptive easements?

Conflicts and litigation may arise to prove what may be referred to as claimed rights to pass over a property. A “prescriptive easement” is a “claim of possessory right to pass” across another person’s real property that was acquired by continued use without permission of the owner for a legally defined period. Usually, a claimant has the burden of proof of the elements necessary to establish that the easement has been created over time by prescription (California Code of Civil Procedures 321). In California, a claimant is required to adequately prove that they have possessed the prescriptive easement by continuous use for at least five years. Other states have similar regulations.

The statutory time for prescriptive easements varies from state to state. Each claim is fact-specific, with the possibility of winning some and losing some. Proving the claimant’s rights can take time, resulting in litigation and being fraught with the risk of losing. All this frustration could have been avoided with well-documented agreements.

The issue of exclusive vs. non-exclusive easements must also be proved-up. Will the easement run with the land and bind all future owners? In California, 2d 872 (2002). California Civil Code 1104 provides that a transfer of real property passes all easements attached thereto.

There are many types of easements for dozens of different purposes:

https://en.wikipedia.org/wiki/Easement

Are easements transferable from one party to another?

Image from Pexels

Most easements are recorded and are a matter of public record. When a property is transferred to another party the easements are transferred and remain on title. An easement generally remains with the property.

https://www.findlaw.com/realestate/land-use-laws/easements-and-transfer-of-land.html

Why should property owners, real estate brokers, and lenders make such a big deal about easements? What’s so important?

Owners, realtors, and lenders should be aware of the vast reservoir of property usage limitations caused by property easements limiting property usage and reducing a property’s development potential and value.

“Easements are like having a giant network of squid-like tentacles on your property that you can’t touch, see, or hear but had seriously better handle. Failure to deal with each easement (tentacle) could result in catastrophic consequences, including diminished property value and limited or total inability to develop the property.”

Easements are clouds on the title. An easement is an encumbrance against a property referenced by agreements and claims to enforce rights and obligations. Whether recorded or not, the easement still reflects a clouded title.

When a realtor or lender drives up to a property, they may admire the beauty and tranquility of the setting. The home elevation, topography, floorplan, panoramic views, and hardscape are outstanding. The property location may be the best. Selling the sizzle is appropriate but limited to the realtor’s spectacle performance and buyer’s immediate response. But there is a large prohibitive easement for a neighborhood storm drain running across the yard where the purchaser planned on placing a nice swimming pool. They were not disclosed of the storm drain easement.

Legal risks for an agent may be devastating. “I am the buyer’s agent. I did not read the preliminary title report, ask the title company for copies of all easements, nor ask them to chart out all easement placements on the property.” But the buyer’s confession that they did not read the preliminary title report does suggest a breach of fiduciary duty and constructive fraud. Failure to disclose was felony stupid.

Image from Pexels

“Constructive fraud comprises of any act or omission or concealment involving a breach of legal or equitable duty, trust or confidence which results in damage to another, even though the conduct is not otherwise fraudulent.” Salahuddin vs. Valley of California, Inc. (1994).

Constructive fraud means that fraud was created because any reasonable real estate fiduciary should possess this knowledge or know about these facts/circumstances. Failure to disclose constructive fraud.

What lurks underneath the ground is a web of easements that limit land usage, building size, and economic feasibility, inhibiting overall value. A 100,000 sq ft parcel may only have 10,000 square feet of a buildable pad because of restrictive easements.

A 20,000-square-foot property that appears to be worth $100 per foot, but 80% has limited use because of restrictive easements. Only 20% of the parcel is buildable. A buyer may not be willing to pay $100 per square foot for 20,000 of land when only 4,000 square feet are buildable.

Risk and liability flash red for the principal parties and their agents:

Image from Pixabay

Knowledge is the key. On any transaction, the parties should obtain a preliminary title report, obtain written copies of all easements, and request a survey performed by the title company to determine survey boundaries and potential adverse effects on the property. An appraiser will be interested in the results.

Principal buyers and their agents will decide what easements are appropriate and acceptable and what easements are not. Accepting the property as-is, renegotiating the price, or outright rejecting the purchase are possible options.

History:

Image from Pixabay

Many buildings that were constructed in the earlier part of this century, before the 1960s, lacked adequate parking and, in most cases, lacked formal agreements about common on-site usage for ingress/egress for walking and automobiles. In property law, ingress/egress refers to the rights of a person to pass over a real property for entry, leaving, and return across the property.

Familiar transportation sources were walking, bicycles, horseback, and horse-drawn carriages. Building growth clustered around the center of town was standard. The advancement of the automobile, which made transportation more flexible, had not yet matured. The requirement for expanded parking areas had not matured.

In days gone by, two or more property owners might verbally agree that they would build adjacent buildings and use a small portion of one of the land parcels for ingress/egress, as oral agreements tend to do. Many old verbal agreements have gone wrong, as oral agreements tend to do. Handshake agreements broke down, and conflicts arose with future ownership. Problems also arose when descendants and partners disagreed with the interpretation and or benefits of the original verbal easement agreement.

https://www.findlaw.com/realestate/land-use-laws/express-and-implied-easements.html

Municipalities, property owners, and lawyers began memorializing the agreements in written form. At the same time, the creation of municipal planning departments and zoning ordinances came into being. Owners were then required to hire civil engineers to draft a written placement of physical easements and obtain approval from the municipality. It is common practice to hire a land planning lawyer to handle the application process for various approvals with the respective city planning department.

Upon approval by the city, the agreements and drawing of physical placement of the easements encumbering the property were generally recorded in public records. The objective was for the recorded agreements to provide public notice that the easement existed and would bind all future owners in perpetuity.

Many older structures were built prior to creating and enforcing building and zoning ordinances. Zoning ordinances were adopted in California as early as the 1920s and have continued to evolve. Prohibitions related to setbacks, height & density restrictions, floor area ratios, required parking, deed restrictions, necessary amenities, and acceptable building materials all have occurred over time. Laws have been passed that now control aspects of ownership.

(to be continued…)

This article is an overview for a general educational purpose only. The information presented should not be relied upon without the advice of counsel.

Dan Harkey is a contributing author to Weekly Real Estate News and is a Business & Financial Consultant. He can be contacted at 949-533-8315 or [email protected].

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.

Cash-out mortgage refinancing: How it works and when it’s the right option

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Image from Pexels

By Zach Wichter
Special Submission from Bankrate.com

What is cash-out refinancing?

Cash-out refinancing replaces your current home loan with a bigger mortgage, allowing you to take advantage of the equity you’ve built up in your home and access the difference between the two mortgages (your current one and the new one) in cash. The cash can go toward virtually any purpose, such as home remodeling, consolidating high-interest debt or other financial goals.

How a cash-out refinance works

The process for a cash-out refinance is similar to a rate-and-term refinance of a mortgage, in which you simply replace your existing loan with a new one for the same amount, usually at a lower interest rate or for a shorter loan term, or both. In a cash-out refinance, you can do the same, and also withdraw a portion of your home’s equity in a lump sum.

“Cash-out refinancing is beneficial if you can reduce the interest rate on your primary mortgage and make good use of the funds you take out,” says Greg McBride, CFA, Bankrate chief financial analyst.

For example, say the remaining balance on your current mortgage is $100,000 and your home is currently worth $300,000. In this case, you have $200,000 in home equity. Let’s assume that refinancing your current mortgage means you can get a lower interest rate, and you’ll use the cash to renovate your kitchen and bathrooms.

Since lenders generally require you to maintain at least 20 percent equity in your home (though there are exceptions) after a cash-out refinance, you’ll need to have at least $60,000 in home equity, or be able to borrow up to $140,000 in cash. You’ll also need to pay for closing costs like the appraisal fee, so the final amount could be less.

You tend to pay more in interest after completing a cash-out refinance because you’re increasing the loan amount, and like other loans, you’ll have to pay for closing costs. Otherwise, the steps to do this kind of refinance should be similar to when you first got your mortgage: Submit an application after selecting a lender, provide necessary documentation and wait for an approval, then wait out the closing.

How to prepare for a cash-out refinance

Here’s how you might prepare for a cash-out refinance:

1. Determine the lender’s minimum requirements

Mortgage lenders have different qualifying requirements for cash-out refinancing, and most have a minimum credit score — the higher, the better. The other typical requirements include a debt-to-income ratio below a certain percentage and at least 20 percent equity in your home. As you explore your options, take note of the requirements.

Image from Pexels

2. Calculate the exact amount you need

If you’re considering a cash-out refinance, you’re likely in need of funds for a specific purpose. If you aren’t sure what that is, it can be helpful to nail that down so you borrow only as much as you need. For instance, if you plan to use the cash to consolidate debt, then gather your personal loan and credit card statements or information about other debt obligations, and add up what you owe. If the cash is to be used for renovations, consult with a few contractors to get estimates for both labor and materials ahead of time.

3. Have your information ready when you apply

Once you’ve shopped around for a few lenders to ensure you get the best rate and terms, prepare all of your financial information related to your income, assets and debt for the application. Keep in mind you might need to submit additional documentation as the lender evaluates your application.

What’s the point of a cash-out refinance?

Considerations before cash-out refinancing

  • You can’t tap 100 percent of your equity: Most lenders require you to maintain at least 20 percent equity in your home in a cash-out refinance. One exception is a VA cash-out refinance, which allows you to withdraw all of your equity.
  • You could end up with a very different loan: Since you’re replacing your existing mortgage with a new loan, the terms of the loan could change. For instance, you might have a higher or lower interest rate (and monthly payments), or a longer or shorter loan term.
  • You’ll need to have your home appraised: Lenders typically require an appraisal for conventional cash-out refinances, since the amount you can borrow depends on how much equity you have.
  • You’ll pay closing costs: Like with your first mortgage, cash-out refinances come with closing costs, which cover lender fees, the appraisal and other expenses. It’s important to consider what a cash-out refinance could cost you because the fees might not be worth it, especially if you’re not borrowing a large amount.
  • The cash won’t land in your bank account right away: Lenders are required to give you three days after closing to back out of the refinance if you want to. For this reason, you’ll need to wait a few days before you receive the funds.

How much money can I get from a cash-out refinance?

Image from Pexels

While lenders typically allow homeowners to borrow up to 80 percent of the home’s value, the threshold can vary depending on your credit score and type of mortgage, as well as the type of property attached to the loan (for example, a single-family, duplex or three- or four-unit property). Lenders who offer loans insured by the Federal Housing Administration, or FHA, sometimes offer an FHA cash-out refinance that allows you to borrow as much as 85 percent of the value of your home. As noted, cash-out refinance loans guaranteed by the U.S. Department of Veterans Affairs (VA) are available for up to 100 percent of the home’s value.

What are the fees for a cash-out refinance?

Expect to pay about 3 to 5 percent of the new loan amount for closing costs to do a cash-out refinance. These closing costs can include lender origination fees and an appraisal fee to assess the home’s current value. Shop around with multiple lenders to ensure you’re getting the most competitive rates and terms.

You might be able to roll the loan costs into your new mortgage to avoid upfront closing costs, but you’ll likely pay a higher interest rate. Plus, taking out another 30-year loan or refinancing at a higher interest rate might mean you pay more in total interest. Crunch the numbers with Bankrate’s refinance calculator to gauge whether the math works in your favor.

Pros and cons of cash-out refinance

Before you decide to go through with a cash out refinance, it’s important to consider the pros and cons of cash out refinancing.

Image from Pixabay

Some of the advantages include:

  • You can lower your rate: This is the most common reason most borrowers refinance, and it makes sense for cash-out refinancing as well because you want to pay as little interest as possible when taking on a larger loan.
  • Your cost to borrow could be lower: Cash-out refinancing is often a less expensive form of financing because mortgage refinance rates are typically lower than rates on personal loans (like a home improvement loan) or credit cards. Even with closing costs, this can be especially advantageous when you need a significant amount of money.
  • You can improve your credit: If you do a cash-out refinance and use the funds to pay off debt, you could see a boost to your credit score if your credit utilization ratio drops. Credit utilization, or how much you’re borrowing compared to what’s available to you, is a critical factor in your score.
  • You can take advantage of tax deductions: If you plan to use the funds for home improvements and the project meets IRS eligibility requirements, you could take advantage of the interest deduction at tax time.

Some of the drawbacks of cash out refinances are

  • Your rate might go up: A general rule of thumb is to refinance to improve your financial situation and get a lower rate. If cash-out refinancing increases your rate, it’s probably not a smart move.
  • You might need to pay PMI: Some lenders let you withdraw up to 90 percent of your home’s equity, but doing so might mean paying for private mortgage insurance, or PMI, until you’re back below the 80 percent equity threshold. That can add to your overall borrowing costs.
  • You could be making payments for decades: If you’re using a cash-out refinance to consolidate debt, make sure you’re not prolonging debt repayment over decades when you could have paid it off much sooner and at a lower total cost otherwise. “Keep in mind that the repayment on whatever cash you take out is being spread over 30 years, so paying off higher-cost credit card debt with a cash-out refinance may not yield the savings you’re thinking,” McBride says. “Using the cash out for home improvements is a more prudent use.”
  • You have a greater risk of losing your home: No matter how you use a cash-out refinance, failing to repay the loan means you could wind up losing it to foreclosure. Don’t take out more cash than you absolutely need, and ensure you’re using it for a purpose that will ultimately improve your finances instead of worsening your situation.
  • You might be tempted to use your home as a piggy bank: Tapping your home’s equity to pay for things like vacations indicates a lack of discipline with your spending. If you’re struggling with getting your debt or spending habits under control, consider seeking help through a nonprofit credit counseling agency.

Cash-out refinancing and your taxes

Image from Pexels

A cash-out refinance might be eligible for mortgage interest tax deductions so long as you’re using the money to improve your property. Some acceptable home improvement projects might include:

  • Adding a swimming pool or hot tub to your backyard
  • Constructing a new bedroom or bathroom
  • Erecting a fence around your home
  • Enhancing your roof to make it more effective against the elements
  • Replacing windows with storm windows
  • Setting up a central air conditioning or heating system
  • Installing a home security system

In general, the improvements should add value to your home or make it more accessible. Check with a tax professional to see whether your project is eligible.

Is a cash-out refinance right for you?

Cash-out refinancing can be a good idea for many people.

Mortgages currently have among the lowest interest rates of any type of loan. The collateral involved — your home — means that lenders take on relatively little risk and can afford to keep interest rates low. This is especially true in today’s low-rate environment.

Image from Pixabay

That means that cash out refinancing is one of the cheapest ways to pay for large expenses. Most homeowners use the proceeds for the following reasons:

  • Home improvement projects: Homeowners who use the funds from a cash-out refinance for home improvements can deduct the mortgage interest from their taxes if these projects substantially increase the home’s value.
  • Investment purposes: Cash-out refinances offer homeowners access to capital to help build their retirement savings or purchase an investment property.
  • High-interest debt consolidation: Refinance rates tend to be lower compared to other forms of debt like credit cards. The proceeds from a cash-out refinance allow you to pay these debts off and pay the loan back with one, lower-cost monthly payment instead.
  • Child’s college education: Education is expensive, so tapping into home equity to pay for college can make sense if the refinance rate is much lower than the rate for a student loan.

Cash-out refinancing vs. home equity loan

Image from Pixabay

Both a cash-out refinance and a home equity loan allow borrowers to tap their home’s equity, but there are some major differences. As noted, cash-out refinancing involves taking out a new loan for a higher amount, paying off the existing one and obtaining the difference in cash. A home equity loan, in contrast, is a second mortgage — it doesn’t replace your first mortgage — and can sometimes have a higher interest rate compared to a cash-out refinance.

Alternatives to cash-out refinancing

In addition to a home equity loan, consider these other options:

HELOC

A home equity line of credit, or HELOC, allows you to borrow money when you need to with a revolving line of credit, similar to a credit card. This can be useful if you need the money over a few years for a renovation project spread out over time. HELOC interest rates are variable and change with the prime rate.

Personal loan

A personal loan is a shorter-term loan that provides funds for virtually any purpose. Personal loan interest rates vary widely and can depend on your credit, but the money borrowed is typically repaid with a monthly payment, like a mortgage.

Reverse mortgage

A reverse mortgage allows homeowners aged 62 and up to withdraw cash from their homes, and the balance does not have to be repaid as long as the borrower lives in and maintains the home and pays their property taxes and homeowners insurance.

Learn more:

ZACH WICHTER
Mortgage reporter

Zach Wichter is a mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy.

Young California Homebuyers Are the 3rd Most Likely to Need a Co-signer

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Image from Pixabay

By Lauren Thomas

After two years of high competition and fast-rising prices in residential real estate, the market is at last seeing signs of cooling off. Amid higher prices and recent interest rate hikes, demand is leveling out. Pending home sales have begun to decline, online searches, showings, and mortgage applications are down, and many experts anticipate a rebalancing in the market over the next year.

While many buyers may be starting to feel relief, younger buyers have had an especially difficult time in this market and may continue to struggle. The Millennial generation—Americans aged 26 to 41—are currently in their peak homebuying years, representing 43% of buyers according to recent data from the National Association of Realtors. Because they are earlier in their working lives, young shoppers may have less saved up to put toward a home, and they also tend to be first-time buyers, which means they do not have existing home equity available to help finance a purchase. While the market was at peak competitiveness, this made it harder to outbid buyers who had more resources at their disposal. Now, with home prices at historic highs and interest rates increasing, many young buyers are being priced out of the market altogether.

To overcome these challenges, some young buyers have relied on older friends and family members with more financial resources to support a home purchase. This can happen informally, like with gifts to put toward a down payment or closing costs, but support can also come in the form of a co-signer on a mortgage loan. Co-signers are people who agree to be responsible for loan payments if the primary signer defaults. Because co-signers’ financial resources and credit history are also evaluated as part of a loan application, this helps buyers with low incomes, more debt, or a patchy employment history increase their likelihood of qualifying for a loan and receiving lower interest rates or higher approval amounts.

Young buyers appear to be relying on older co-signers simply to enter the housing market, rather than using co-signers’ financial assistance to purchase more expensive homes. This is evidenced by similar property values and down payment amounts across young buyers with and without older co-signers, according to data from the Home Mortgage Disclosure Act. The median property value and down payment for young buyers with an older co-signer is $295,000 and $40,000, respectively, compared to $285,000 and $30,000 for all young buyers. But both groups of buyers lag behind typical figures overall: for all buyers, the median property value is $325,000, and the median down payment is $50,000.

Co-signers are especially helpful to young buyers in markets that tend to be more expensive for housing. There is a positive correlation between median home price in a state and the percentage of young buyers with an older co-signer. The three states with the highest percentage of young buyers who have a co-signer—Hawaii, Colorado, and California—respectively rank first, fifth, and second in the U.S. for overall home prices.

Due to the relationship between home prices and the presence of a co-signer, states in the West and Northeast that tend to be more expensive also tend to have younger buyers relying on co-signers more often. In contrast, more affordable states in the Southeast and Central U.S. have fewer young homebuyers with a co-signer.

To determine the states with the highest percentage of young homebuyers with an older co-signer, researchers at Porch analyzed the latest data from the Federal Financial Institutions Examination Council’s Home Mortgage Disclosure Act. The researchers ranked states by the percentage of young homebuyers (34 years old or younger) with an older co-signer (55 years old or older). In the event of a tie, the state with the higher median property value for young homebuyers with an older co-signer was ranked higher.

The analysis found that in California, 1.358% of young homebuyers have an older co-signer on their mortgage loan, compared to 0.915% at the national level. Out of all states, California has the 3rd most young buyers utilizing an older co-signer. Here is a summary of the data for California:

  • Percentage of young buyers w/ an older co-signer: 1.358%
  • Median property value for young buyers w/ an older co-signer: $535,000
  • Median property value across all young buyers: $545,000
  • Median down payment for young buyers w/ an older co-signer: $100,000
  • Median down payment across all young buyers: $100,000

For reference, here are the statistics for the entire United States:

  • Percentage of young buyers w/ an older co-signer: 0.915%
  • Median property value for young buyers w/ an older co-signer: $295,000
  • Median property value across all young buyers: $285,000
  • Median down payment for young buyers w/ an older co-signer: $40,000
  • Median down payment across all young buyers: $30,000

For more information, a detailed methodology, and complete results, you can find the original report on Porch’s website: https://porch.com/advice/young-buyers-relying-older-co-signers-buy-homes

https://porch.com/advice/young-buyers-relying-older-co-signers-buy-homes

Join Us for a LIVE & INTERACTIVE Virtual Investing Summit on Saturday, May 21st

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Dear Savvy Investor;

Did you register for Realty411’s complimentary investing summit this Saturday? This is the place to be to learn from TOP experts sharing important insight to help readers grow their investment portfolios.

Our NEW VIRTUAL Investing Summit on MAY 21st, begins at 9 AM PT. Event guests can engage with all of our speakers and ask questions in real time. You simply can’t afford to miss this online event.

Our mission is to educate and empower individuals to invest in real estate. Our virtual events have united thousands of both new and sophisticated investors from 47 states so far — in total representing 375 cities across the United States.

Join us for an amazing day of real estate education. Every online event we produce is unique; video replays may not be made available later. So be sure to reserve this day for REI learning at its best.

WHAT CAN YOU EXPECT?

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Be sure to register now for our NEW VIRTUAL Investor Summit on Saturday, May 21st, 2022 – 9 AM to 4 PM PT.

Invest ONE DAY to learn online with top experts who are ready to share their insight and success tips. This event is Live and Interactive.

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Focus and You Will Succeed

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Image from Pixabay

By Tamera Aragon

“Success is a tireless expenditure of narrowly focused energy”
– Author Unknown

The definition of Focus: A condition in which something can be clearly apprehended or perceived.

Do you agree that it can be very difficult to get focused on what it is you would like to accomplish in this life? Do you get pulled this way and that depending on which way the wind is blowing that day? This may be because you are not “narrowly focused”.

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In working with so many students for real estate training and coaching, I have found the lack of ability to focus and stay on task to be the number 1 reason for not just failure, but also for some not even getting to the point of doing the real estate investing business. They don’t even get to the point of trying to invest in real estate because they stop. People often lose focus.

For example, a student, (lets call him Johnny), commits to coaching with complete confidence. His personal goal is to make $10K in the next 60 days in real estate investing. Johnny starts listening to the trainings and going through the motions, focusing on his goal for maybe a week or 2. Then Johnny hears about a great training on how to buy Silver for cheap (or some other investing strategy that is also good). So Johnny buys that training and starts listening to that training too. Buying that training has now taken the focus of the real estate training, committing him to failure in both goals!

Image from Pixabay

Focus is crucial to success.

“Always remember, your focus determines your reality.”
Qui-Gon to Anakin, Star Wars Episode I

It’s so easy to blame external circumstances for failure, when in reality the reason for our failure is this missing link; Narrowly focus energy on a single goal. People get too spread out trying to accomplish too much for too many. The only blame for lack of success is that someone went on to something else by their own choosing and decision. Focus is a choice.

Not only is focus important, but focusing on only one goal at a time key to your success. Trying to accomplish multiple goals spreads out your focus, and makes it less likely that you’ll complete any of them.

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How To Stay Focused

Even with only one goal, maintaining focus can be difficult. Therefore, you need to find ways to keep your focus on that goal.

Some good examples that work for me:

1. Read about your goal as much as possible, on websites and blogs and in books and magazines.
2. Post up picture of what you want on your wall, refrigerator, and computer desktop.
3. Send yourself messages using an online calendar or reminder service.
4. Tell as many people as possible about your goal and post your progress on your blog.
5. Have a time each day to work on a single goal, with a reminder in your schedule each day to do only that for a period of time, no exceptions.

Maintain your focus on your goal, and you’ve won half the battle in achieving it.

TAMERA ARAGON

Tamera Aragon is a professional online entrepreneur and has bought and sold over 300 properties, establishing her as an expert in the real estate investing field. Since 2003, she has purchased over 10 million dollars in real estate and currently holds properties all over the world. Tamera’s focus is on the booming Foreclosure market, buying Pre-foreclosures, REOs and Short Sales. Tamera who is a noted Author, Success Trainer, Speaker & Coach, shows her passion for helping others with the 17 websites she has created and several specialized products to support fellow investors throughout the world. When Tamara is not busy running her website, she is very involved with her Fiji joint ventures and investments. Tamera Aragon is one of the few trainers and coaches who is really “doing it” successfully in today’s market. Tamera’s experience has earned her a solid reputation in the industry as well as the respect and friendship of many of the top national real estate investment and internet marketing experts. Tamera Aragon believes her success has garnered her the financial freedom to fully enjoy her marriage and spend quality time with her children.

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.

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