Have You Ever Considered Buying a Home Soon? Learn How California’s Frequent Fires May Influence Your Decision-Making Process

It turns out that some people who lived in the town of Paradise, CA were aware that fires could burn large parts of their community and moved out before the Camp Fire destroyed almost every home in the community in 2018. The Camp Fire ended up as one of the deadliest fires in U.S. history.

Recent fires throughout California have caused a lot of disruption in the home insurance industry. Thousands of homeowners have had their policies canceled due to fire risk, especially in Northern California. California has an insurer “of last resort,” the California FAIR Plan. This type of insurance has been available since the 1960s when the state previously experienced a lot of destructive fires. However, the basic CFP policy covers only a fraction of the things that other commercial homeowners’ insurance policies coverage.

What is the point of knowing this? You should be aware of concerns about fire insurance while looking for a home to buy in California. You may find that a home and neighborhood that you love is among the ones that insurance companies are reluctant or unwilling to cover due to fire risk. 

According to Jeffrey Michael, a housing policy expert from the University of the Pacific, homeowners’ policies are increasing from $2,000 to $6,000 or $8,000 a year in some areas. Michael also said that fire danger is making some homes harder to sell. In some northern California communities, the housing market is slowing due to fire risk.

Wherever you choose to buy a home, work with your real estate professional to locate a home in a neighborhood with a lower risk of fire, and check out your homeowners’ insurance policy options before you make an offer to buy.

Sources

https://www.cfpnet.com/

https://www.latimes.com/business/story/2019-08-28/hiltzik-california-fire-insurance-crisis

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Ever Wondered If Your Old Debts Will Remain On Your Credit Forever To Wreck Your Home Buying Plans In The Future?

Is buying a home on your “to do” list for this year? Or, have you been postponing your home buying plans because you’re worried you may have old debts hanging around on your credit report. And what about your current debts? How much can you owe and still qualify for the 30-year fixed rate or 15-year fixed rate mortgage you want?

First, here’s what you need to know about how long old debts can stay on your credit report.

In general, an old, unpaid debt will stay on your credit report for seven years from the date it was reported delinquent. In addition to making sure your credit report is accurate and you’ve addressed any potential unpaid debt records that aren’t yours, you also need to make sure your debt-to-income ratio is as good as possible.

What is my debt-to-income ratio, and how is it calculated?

Lenders calculate two debt-to-income ratios when determining how much you can borrow for a home loan. The first type of debt-to-income ratio or DTI adds your mortgage payment, homeowners’ association fees, and mortgage insurance together, then divides them by your monthly income. 

For example, if your house payment was $1,000 a month and you paid $200 a month in mortgage insurance, and your monthly gross income was $4,400 a month, your front-end DTI would be 27%.

The second type of DTI is the “back-end” DTI. This ratio adds your housing costs to your monthly revolving debt payments, which can include car loans, student loans, credit card payments, and alimony or child support. So, for example, if you had the above $1,200 housing costs, plus an additional $800 in debt payments between your car and student loans, your “back-end” DTI would be $2,000 divided by your income of $4,400 or 45%.

What are "ideal" and maximum DTIs to be approved for a loan?

Have you heard of the “28/36” rule? Ideally, your front-end DTI for housing costs shouldn’t be more than 28%. Your back-end DTI shouldn’t exceed 36%. While there are some exceptions, the second DTI example we provided of 45% is higher than the maximum DTI for the majority of lenders, although you may be able to find some specialized lenders up to 50% DTI.

In general, the lower your DTI ratios for both front-end and back-end, the better your opportunities will be for a home mortgage. And, you can get on top of your credit and ensure you have no old derogatory reports that could be holding you back.

Sources

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Learn How This COVID-19 Pandemic Will Affect Your Monthly Revenue With Your Income Property And How To Cushion The Blow

As of March 25, 2020, unemployment claims grew to over 3.3 million, a record high. As states shut down non-essential activities, many businesses have been hit hard, particularly in the restaurant, retail, and entertainment industries. While the government is discussing relief proposals for individuals and businesses, rent is due across the country on April 1.

Some landlords have already gotten negative publicity for sending warning letters to tenants that no matter what type of layoff they’ve suffered due to COVID-19, they must pay their rent on time and in full. Text messages between tenant and landlord have been posted on the internet showing a range of responses, from concern and cooperation to cold-hearted “pay now or we will evict you.”

If you own property in the city of Los Angeles, Mayor Garcetti issued an eviction moratorium on March 15, 2020, due to the coronavirus pandemic. If your tenants have lost all or part of their income because they were laid off or the business where they worked has closed, they may not be evicted until the order is lifted. Similarly, they may not be evicted due to healthcare costs that they had to spend during the epidemic, or child care costs because schools have been closed.

If you own income property, what should your response be to tenants’ ability to pay rent in the face of sudden, unprecedented layoffs?

The Los Angeles city moratorium on evictions doesn’t say that tenants don’t have to pay rent. It gives them up to six months to catch on back rent they couldn’t pay during the coronavirus crisis. Most other cities that have issued similar orders also say that tenants have a specified amount of time to catch up on back rent.

Looking at some of the harsh letters that have been publicized via social media, we advise that your best approach is to be courteous in your communications with tenants and to be flexible. The crisis may grow worse before it gets better, and aid from the government could be delayed for weeks. Work with your tenants to catch up on back rent as they get back to work. 

Sources

https://www.npr.org/2020/03/26/821580191/unemployment-claims-expected-to-shatter-records

https://housing.lacity.org/

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