Cook’s Corner: Cosigners, Adding Onto Your Home, And Price Reduction
Welcome to Cook’s Corner, a monthly real estate Q+A round up, where Steve Cook will answer all of your pressing questions about the world of real estate! Have a burning question for next time? Feel free to pop it in the comments or tweet it @HomesDotCom!
Who can cosign my mortgage? Does it have to be immediate family?
If you lack a stable income, an adequate credit history, or enough monthly income to satisfy your lender that you can meet your monthly mortgage payments, then you may need to have someone who is in better financial shape cosign your mortgage with you.
Cosigning a mortgage is a serious commitment. Should the borrower default on the loan, the person cosigning the loan can become responsible for paying off the balance of the debt, plus fees and collection costs. If that should happen, co-signers will not get title to the property because they have no ownership rights. Plus, cosigners may find it more difficult to qualify for a loan themselves because the mortgage they cosigned will show up as an outstanding debt on their credit report. Legally, cosigners differ from co-borrowers, who share title to the property, cosign the loan and usually live in the mortgaged house. Therefore, cosigners are usually parents or other close relatives. However, anyone who is willing to accept the responsibility can cosign someone else’s mortgage. Sometimes, a party involved in a relationship will co-sign their significant other’s loan as a way to show their love and commitment.
How do I know if it’s beneficial to add onto my home?
When making a decision about a major home improvement project such as adding new space, it’s important that you ask yourself the following three questions:
Will the addition improve my family’s quality of life?
First and foremost, make sure that your investment will pay off in terms of your quality of like for the remaining years that you will live in your house.
Will the improvement make it significantly easier to sell the house?
Some improvements may not recoup every dollar they cost. However, when the time comes to sell your house, you may find that certain improvements increase demand for your house. For example, today’s buyers may shy away from smaller, old-fashioned kitchens and bathroom. Though remodeling these rooms in can be expensive and you probably will not recoup their costs dollar for dollar, updated kitchens and bathrooms will probably reduce the time it takes to sell your house and make it easier for you to get the price you want.
Will the improvement recoup the money it will cost?
In fact, very few improvements return dollar for dollar regarding increasing the value of your house. For years, Remodeling magazine has conducted an annual survey of large and small home improvements that includes a survey of real estate agents to determine how each improvement affects the sale price. In the 2016 survey, only one of the 27 improvements they reviewed—adding fiberglass attic insulation—would recoup its cost. Additions — whether bathrooms, family rooms, master suites, decks or even a second story — were among the improvements that are least likely to pay for themselves. In fact, all additions except adding a deck or a family room would return less than 60% of their cost when the house is sold. Decks recouped either 75% for a wood deck or 67.5% for a deck made of a composite material. Family rooms recouped 67.9% of their cost. For more information, read more about Remodeling magazine’s cost vs. value study.
Despite the results of the study, homes are more than investments. You should always consider the lifestyle benefits for your family over the time you plan to live in your home. Spread the cost of the addition over the years you will spend in the home – will the addition improve your family’s lifestyle over a sufficient period to make it worthwhile? Talk to a real estate agent or an appraiser about whether the addition you are considering will make it easier to sell your home in your market. Weigh all three factors — family lifestyle, saleability, and cost vs. value — before making your decision.
What is the average percentage that a seller reduces their price? Are there certain typical increments?
As the home buying season gets underway this year homes have been selling faster. Properties typically stayed on the market for 47 days in March, a decrease from 59 days in February and below the 52 days in March 2015. Prices have also been increasing briskly. The median price of existing single-family homes rose 87% in 154 of 178 major metro areas across the U.S. in the first quarter, according to the latest quarterly report by the National Association of REALTORS®. Of those, 28 metro areas, or 16%, saw double-digit increases from a year ago.
Despite the strong sellers’ market in most metros, some houses are not selling well. One reason is that sellers usually list their homes at prices higher than their fair market value. If a house is priced too high for the market, it may linger. Usually after a period of 90 days, sellers and their agents will assess where they stand and consider a price reduction. Their initial price strategy may not be working, or local market conditions may have changed, but either way a price reduction may be in order. Every house will sell at a certain price, but sellers typically speed up the process by making a price reduction of 10% or more, although even a reduction as low as 5% can kindle interest. When a price is reduced, agent and websites will contact buyers who have expressed interest in the property.
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