Introduction to Concepts and Responsibilities of Home Ownership

What is a Loan Origination Fee?

Loan origination fees are charges from a lender upon entering a loan agreement that cover the cost of processing the loan (administrative needs, setting up the loan file, creating the mortgage itself, preparing documents, lender paperwork, underwriting the loan, general service charge). Generally, this is a flat fee that is payable at the time of the loan closing, and ranges from 0.5-1% of the loan amount for FHA and VA loans and up to 2% for other types of loans.

What is a C.L.U.E. Report?

A C.L.U.E. report is the Comprehensive Loss Underwriting Exchange which is a claims-information report generated by Lexis-Nexis® , which provides a consumer reporting service. This report contains up to seven years (usually five) of a property's claims history, and is a basis for underwriting for homeowners' insurance. The report shows the dates of any claims, the loss types, and the amounts paid for losses. The report will also tell if a claim was denied by the carrier. According to Lexis-Nexis® , the benefit for homeowners and real estate agents in ordering a C.L.U.E. report on the property they are selling/listing is that most buyers are demanding to see claims histories and loss histories on the properties in which they are interested, and if a seller has this ready to provide to potential buyers, they are that much farther ahead and "ready for the first potential buyer to walk in the door." What can C.L.U.E. advise potential buyers on? Some of the possible claims could be weather-related losses (trees on roofs in windstorms), theft or vandalism, fires, and flood or other water damage (e.g., broken water pipes). Homeowners are advised to first make an inquiry with their homeowners coverage as to how a particular claim will affect their C.L.U.E. report, especially if they plan to sell the property anytime soon. Inquiries by themselves do not affect the report, only actual claims. It may be advisable for a homeowner to cover the costs of repairs instead of making the claim, if the costs of the repairs is close to the homeowner's deductible since that will keep the claim off of the C.L.U.E. report.

What are Capital Gains?

A capital gain is the increase in the value of a capital asset, such as real estate (or stocks, fine art, luxury vehicles), at the time of sale. The capital gains are the profit. A capital gain is only realized at the time of sale even if the investment rises in value during the time of ownership. Capital gains are reported on the income tax portion of a tax return. Short-term capital gains are defined by the IRS as assets sold within a year of purchase and long-term capital gains are those held over a year from the time of purchase to sale. Short-term capital gains are taxed similarly to income, while long-term capital gains are generally taxed at a lower rate

What is Capital Loss?

A capital loss is the difference between a higher purchase price and a lower selling price. Basically the owner/seller takes a loss on the asset, for our purposes, the real estate. Per the IRS, if a taxpayer's capital losses exceed his or her capital gains, the difference can be deducted on the taxpayer's tax return

What is a Co-op

A co-operative (or cooperative) is an organization that is owned by its members and operated for their benefit. Any profit that is produced is distributed among the members of the cooperative. These kinds of organizations are commonly run by an elected board of directors, and the members normally have voting power over the organization's policies and direction. Normally, people become members of a cooperative by purchasing shares (the amount of shares a member holds does not (usually) affect the value of their individual vote). Cooperatives are formed in a different way than other business organizations. The group of people who intend to form the cooperative must agree that they have a common goal. The group will settle on a strategy for achieving their goal. From there, the group should form an organizing committee which will conduct exploratory meetings, surveys, and cost analyses. The last step involves all the members agreeing to adopt a business plan for the cooperative.

What is a Housing Cooperative?

A housing cooperative is a type of cooperative (often an incorporated entity) that owns real property, usually residential buildings. Members, by virtue of owning shares in the cooperative, are granted the right to occupy one of the units in the building. Since the resources of each member are pooled, the buying power of the organization is leveraged, which lowers the cost to members for services and products associated with home ownership. Members also can control who can occupy units in a cooperative-owned building.

What is a Rowhouse

A rowhouse is like a townhouse except that the houses are not physically connected. They are independent structures that simply have no space between them. Technically, they are detached. A building with multiple residential units may simply be owned in common by multiple people, with each having specific rights to a particular unit and undivided interest in the rest. This is like a condominium, but there is no HOA with legal powers. It is much harder to govern, as the individual unit owners often have to agree unanimously or court intervention is required.

What is Tax Credit?

A tax credit is a direct reduction in the amount of taxes that a taxpayer must pay.

What is tax deduction?

A tax deduction lowers a taxpayer's taxable income

What is Estate Tax Exemption?

An estate tax exemption is the amount an individual can leave to their heirs without having to pay tax. The American Taxpayer Relief Act of 2012 permanently extended a $5 million per person estate tax exemption to taxpayers (that number is indexed to inflation and appropriate to 2013; for 2015, it has risen to $5.43 million) . As of the 2017 tax cuts, the amount more than doubled to $11.18 million. The American Taxpayer Relief Act of 2012 also extended the deductibility of mortgage insurance premiums through the 2013 tax year (a homeowner should check for specific limitations on this). If the estate exceeds the exempted amount, those assets will be taxed at the 40% rate.

What is the Taxpayer Relief Act of 1997?

As it relates to real estate, the Taxpayer Relief Act of 1997 introduced the regulation that taxpayers are eligible to certain amounts in capital gains on their principal residence upon its sale or exchange.

What are the five elements of location?

Employment Opportunities Cultural Opportunities Governmental Structure Social Services Transportation

What is the First Time Homebuyer Tax Benefit?

First time home buyers may withdraw up to $10,000 from an IRA without penalty to help with the purchase of a home, and others (relatives, friends) may contribute up to another $10,000, without penalty, for up to $20,000 total.

What are Points?

In a real estate mortgage, points are fees charged by the lender to "buy down" the interest on a loan, with each 'point' generally equal to one eighth or one quarter (depends on the lender) of 1% of the loan amount.

What is a Town House?

In a townhouse complex, multiple physical houses are combined into a single architectural building. Each unit owner owns an identified plot of land and the building affixed to it, but that building is physically part of a larger building that spans lots. There is a continuous roof and foundation and a single wall divides adjacent townhouses. If there is an apartment below not owned by the townhouse owner, it is not a townhouse—just a bi-level apartment condominium. Legally, this is very similar to detached houses, but because of the intertwining of interests in the single architectural building, a homeowner's association is required. It would be impractical, for example, to replace the roof of just one townhouse. But unlike the condominium, the townhouse complex's HOA owns none of the building or the land under it. It is essentially under contract to the townhouse owners to maintain the parts of the building that are hard to divide. Even the walls between townhouses are usually outside the purview of the HOA, being jointly owned and maintained by the owners of the townhouses on either side. Like the condominium, the townhouse complex often has common areas for roads, parking, clubhouses, and such.

What is an Estate Tax?

In the words of the Internal Revenue Service, "The Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death (Refer to Form 706 (PDF)). The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your "Gross Estate." The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets. Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your "Taxable Estate." These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify."

What is Income Tax?

Income tax is a governmental tax levied at a wage earner's total personal income

What is Mortgage Interest?

Mortgage interest is the percentage charged on a mortgage that must be paid above the principal amount. It is essentially the 'cost' of the borrowed money for the loan.

What is Fair Market Value?

Per the IRS, "The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell,and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent's gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate." (Regulation §20.2031-1.)

What are Property Taxes?

Property taxes are levies on real estate that the owner is required to pay to the governing jurisdiction where the property is located. Generally, the tax is based on the value of the property and land

What is the NFIP?

The National Flood Insurance Program 1968 The NFIP has 4 components: Risk identification/assessment: Mapping of flood prone areas. Risk mitigation: Regulations that communities must adopt and enforce before high-risk areas can participate in the NFIP. Insurance: Federally-supported flood insurance in communities that have joined the program. Subsidization (and attrition): New properties would be insured at actuarial levels; existing properties (at the time a map of the area is adopted) would be subsidized until such time as the structure sustained more than 50% damage by flooding; then it must be relocated or reconstructed in compliance with current regulations. It was the combination of risk identification, risk mitigation, and attrition - along with restrictions on the scope of insured losses covered by the flood insurance program - that was anticipated to provide this new government insurance program, in contrast to past private flood insurance offerings, with a chance to succeed.

What is the Uniform Condominium Act?

The UCA, like all uniform laws proposed by the ULC, is, in fact, neither an "act" nor a "law." The ULC is not a legislative body. Rather, the UCA drafts uniform legislative templates from which individual states may draw inspiration or even directly copy and adopt the text and language used. Because the ULC is formed from legislators from all 50 states, many courts will look to these proposed standards for guidance, even where those ULC standards have not yet been adopted by a state, if a state's own laws are ambiguous on an issue. As a case in point, only 13 states have adopted the Uniform Condominium Act into local legislation. Regardless, in cases where state law is ambiguous, the courts may nonetheless look to the UCA for guidance in reaching a decision. It is for this reason that all practicing real estate professionals should familiarize themselves with at least the major points of the UCA, even when it has not been adopted by the state in which they are operating. A summary of the Uniform Condominium Act can be found at the Uniform Law Commission's website.

What is a Condominium?

The difference between a condominium and an apartment complex is purely legal: there is no way to know a condominium from an apartment simply by looking at the building. What defines a condominium is the form of ownership. The same building developed as a condominium (and sold in individual units to different owners) could actually be built someplace else as an apartment building (the developers would retain ownership and rent individual units to different tenants). Ownership of the space (i.e., airspace) contained within a condominium is assigned to an individual. But common areas like hallways, heating and air conditioning systems, elevators, and exterior areas are controlled by the homeowners association. Fees are charged to the condo owners for maintenance of the common areas. A condominium is a form of property ownership with more than a casual relationship to the other condo owners. It's a form of housing tenure where a specified section of a larger piece of real estate (usually an apartment building) is individually owned, while use of, and access to, common facilities in the larger piece—such as hallways, heating systems, elevators, and exterior areas—are controlled by the association of owners that jointly represent ownership of the whole piece. It is also possible for a condominium to consist of single-family dwellings: so-called "detached condominiums" where homeowners do not maintain the exteriors of the dwellings, yards, etc. or "site condominiums" where the owner has more control and possible ownership (as in a "whole lot" or "lot line" condominium) over the exterior appearance. These types of legal structures are preferred by some planned neighborhoods and gated communities.

What is the HFIAA?

This law repeals some provisions of the Biggert-Waters Flood Insurance Reform Act (BW-12) and modifies others. The seven areas that comprise the overall legislation are: Recalculation of premiums for subsidized policies; Refunds for many who recently paid increased rates; A surcharge on all NFIP policies; Liberalized grandfathering provisions; A new protocol for creation of Flood Insurance Rate Maps; Creation of a flood insurance advocate program; and Affordability measures. The new law lowers the recent rate increases on some policies, prevents some future rate increases, and implements a surcharge on all policyholders. The Act also repeals certain rate increases that had already gone into effect and provides for refunds to those policyholders. Finally, the Act authorizes additional resources for the National Academy of Sciences to complete an affordability study. Each of the provisions of HFIAA will be covered in more detail, as follows:

What is the Napoleonic code of 1804

This statute allowed individual ownership of individual floors within a building, and imposed joint responsibility for maintenance and repair of common parts of the building (exterior walls, gardens, etc.) on all individual owners collectively. As an odd side-note, this particular law did not consider stairways to be part of the "common area," but rather as appurtenances to the floor to which they give access, i.e., even though it would occupy space on the first floor, the stairway leading from the first to the second floor would actually be owned by, and be the responsibility of, the owner of the second floor. In contrast, until the destruction of large amounts of the available housing during World War II, many other European countries had specific laws prohibiting the division of a building for purposes of sale. In essence, these laws required transfer of property, not the space bounded within the property. However, the severe housing shortage after World War II necessitated a return to and modification of these laws.

What is Planned Unit Development?

planned unit development (PUD) is a type of building development and also a regulatory process. As a building development, it is a designed grouping of both varied and compatible land uses, such as housing, recreation, commercial centers, and industrial parks, all confined within a particular development or subdivision. One characteristic of these developments is the choice of varied housing options, anything from apartments to single family homes to townhouses and condos.