Good Fences Make Good Neighbors – Part II

Last week, I shared some ideas about how to maintain good relations with your neighbors. Disputes with neighbors can be expensive and stress provoking. In a world that already has plenty of tension, here are some ways to keep everyone civil and neighborly.

When you live in close proximity with other people, you’re bound to bump into one another. If the first time you interact with your neighbor is over a problem, that’s a tough way to start a relationship. If you don’t know your neighbors, I recommend introducing yourself. It’s amazing what a handshake and a smile can do.

The name of the game with good relationships, with neighbors or others, is to try to see things from their perspective and to communicate openly. I once lived in a house with a road that went along the back edge of my property. We parked our pick up truck on that country road for days at a time. Little did I know that by parking there, the neighbor on the other side of the street couldn’t pull her horse trailer out of her driveway. If she had called and told me, I would have apologized and moved the truck within minutes. Unfortunately, two days later when our truck was still there, she was unable to make it to an event with her horses, and by then she was hopping mad. The whole thing was such a bummer. The bad blood was completely unnecessary and hot tempers took a long time to simmer down.

What we do with our property can affect what our neighbors can do with theirs—or what happens to theirs. As fire season approaches, one of the ways to be a good neighbor is to create a defensible fire space. While you’re at it, if you want to be a really good neighbor, pull the dead vegetation out and plant some drought-resistant landscaping. Property values are determined by a home’s amenities, as well as its location and the condition of homes around it. If your neighbors are shade tree mechanics who have three cars with the hoods up and engines pulled out, this probably won’t increase property values in the area.

What you do to keep up the appearance of your home matters, too. Paint color and condition are important. Some neighborhoods fall under the purview of strict local ordinances or CC&Rs that limit paint color and condition. Oddly enough, my understanding is that people who own properties in the township of Mendocino are not allowed to paint their properties because the town loves that worn, coastal look. Of course, this is crazy because people need to be able to take care of their investments, but hey, it’s not my call.

Another big issue that affects neighbors is the height of your property. When you renovate, if you build a second (or third) story, this can affect your neighbor’s view and access to sunshine. I’ll go out on a limb here and suggest that litigation over this very issue will increase in the years to come as easements for sunlight which is required for solar power become more prevalent.

As I’ve said, the bottom line basically comes down to the golden rule: do unto others as you would have them do unto you. Treat people like you want to be treated, and I’ll bet your neighbors will return the favor.

If you have questions about real estate or property management, please contact me at or visit If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at Dick Selzer is a real estate broker who has been in the business for more than 40 years.

Good Fences Make Good Neighbors


You may have heard the old adage, “Good fences make good neighbors.” Well, it’s true. Obvious boundaries can certainly reduce frustration and confusion. But good fences aren’t the only things that help maintain good relations. Trying to understand your neighbor’s point of view—and communicating your point of view clearly—can keep things neighborly and help avoid expensive and time-consuming battles.

When it comes to fences, it’s important to put them in the right spot and that’s not always easy to do. Some old, perhaps antiquated laws require property lines to be adjusted to coincide with existing fences, even if the fences were originally put in the wrong place. Property line adjustments have to do with whether the neighbors originally agreed upon erecting a fence somewhere other than the true boundary line or whether somebody made a mistake. So, make sure fences go up where you intend them to.

Figuring out the location is only the first step in putting up a good fence. Next, you must figure out what type of fence you (and your neighbor) need. Clearly, if you live next door to a cattle ranch, the fence you need is far different than if you live near someone in Ukiah’s Westside. If the fence separates two residential properties, it’s a good neighbor fence; in which case, it’s preferable to find fencing—wood or other material—that looks good on both sides. Typically things go best if both property owners sharing the fence agree on the material and split the cost of the fence. That way, everyone is invested in the success of the project. Unfortunately, agreement on what type of fence gets tricky when you want the same type of fence on all three property boundaries but your neighbors all have different types of fences. At this point, all I can say is: good luck! In the event that your fence needs repair, the law requires that both parties contribute to the cost. Of course, there will always be extenuating circumstances.

In choosing a fence, needs may differ. You have a Chihuahua and your neighbor has a Mastiff (a little bigger than a small pony), for example. You’re concerned about gaps between and under the boards, and your neighbor worries that eight feet may not be tall enough. The bottom line for fence building is the same as for almost all other matters concerning your neighbors: be considerate and talk to your neighbors and most problems can be solved without too much heartache. While you’re talking about your fence, you might also bring up the fact that their beloved Fido likes to bark at 3:00 a.m., and would he perhaps be happier spending nights in their garage rather than in the side yard adjacent to your master bedroom? It’s worth a try.

Once the fencing situation is resolved, and your neighbors’ dog is sleeping in their garage, it’s only fair that you remind your teenage son that his band, The Racket Makers, must call it quits at 10:00 p.m. on Friday and Saturday nights (earlier on weeknights). Any music your neighbors can hear from your garage while they are inside their house should end at a reasonable hour—unless you’re throwing a party and everyone on the block is invited.

I’ll share some more neighborly ideas next week.

If you have questions about real estate or property management, please contact me at or visit If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at Dick Selzer is a real estate broker who has been in the business for more than 40 years.

Keeping Your Home Safe and Healthy

Most of us vacuum our carpets and dust our shelves fairly regularly to make sure our home is a comfortable place to live. We also take care of obvious safety hazards like poorly functioning appliances or broken plumbing. But sometimes, dangers are invisible. They lurk in mattresses, walls or in the air. Here are some tips to bring those problems into the light, and what to do to take care of them.

Houses have always been built according to the standards of their time. As we learn new construction techniques or gain awareness of what’s safe and healthy, standards change. Many houses built before 1978, for example, were built using asbestos and lead paint. Both materials have since been outlawed, but those houses still stand and people still live in them.

If your house was built before 1978, chances are you are perfectly safe unless you decide to remodel. Asbestos is not a health threat unless it becomes airborne (friable), so although you may have asbestos floor tiles, roof shingles, pipe insulation or popcorn ceilings, as long as they are in good repair, the asbestos remains encapsulated (sealed and safe). If asbestos is friable, it can lead to mesothelioma, a kind of cancer people talk about in hushed tones because it is so deadly. The moral of the story is this: if your house was built prior to 1978, hire a professional contractor to remodel. This way, you’ll live long enough to enjoy your new features.

The other health threat still present in homes built before 1978 is lead paint. Once again, as long as it is encapsulated (painted over so none of it can turn to dust or be inhaled or touched), it is safe. While exposure to lead is dangerous for adults, it is catastrophic for children because it causes permanent brain damage. In older homes, the paint around windows can get worn and old layers can become exposed. Even if your home was built after 1978, if your kids spend significant time in an old school building or church or other facility built before 1978, please do a little research to make sure it is safe.

While newer homes and buildings constructed to meet higher safety standards shouldn’t have any asbestos or lead, they may have another health threat: mold. In the Ukiah Valley, we are lucky not to deal with humid weather, because humidity is mold’s best buddy. However, most of us create humid environments in our home every day (in the bathroom when we shower and in the kitchen when we boil water). Mold is particularly hard on those with asthma and other respiratory problems.

To combat mold, open bathroom and kitchen windows if you have them, and use the exhaust fans. Also, be sure to replace your heating and air conditioning filters every few months and have your ducting cleaned once in a while. Doing this will reduce dust and mold, and make your heating and air conditioning systems run more efficiently.

As you head outside, you can make your home safer by creating a fire perimeter (knock down vegetation and limb trees six feet off the ground. If you use pesticides, rat poison, paint, or any other hazardous materials, be sure to keep the materials in their original, well-labeled containers that seal properly and are out of reach of children (locked cabinets are best). Children are curious and capable. They did a study with M&Ms in “childproof” medicine bottles. Want to guess how quickly those kids were enjoying the candy?

These are just some of the ways you can keep your house safe and healthy. As I think of more tips, I’ll be sure to pass them on.

If you have questions about real estate or property management, please contact me at or visit If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at Dick Selzer is a real estate broker who has been in the business for more than 40 years.



How to Reduce Inheritance Tax


Last week, I mentioned a few tips about how to hold title (own real estate) in ways that help your heirs avoid the hassle and expense of probate after you pass away. In case you were not aware, without good planning, a significant portion of your estate can end up in state coffers instead of being handed to your surviving spouse and/or children.

Before I go on, in columns like these I always feel the need to remind folks to seek the advice of their legal and tax advisor when making estate-planning decisions. While I know something about real estate and investing, I know nothing about your financial and legal situations. My columns are intended to be food for thought, not a blueprint for what to go out and do.

Okay, that said, the only downside to estate planning is that you’ll have to spend time, effort, money and emotional expense to prepare for something you want to postpone and for which you will not be present to enjoy the benefits. It’s tough to spend money to save money you’ll be too dead to take advantage of. However, it is important and most of us want to see the fruits of our efforts go to people we love rather than the tax collector.

With that in mind, here are several actions to consider (in addition to holding title on your real estate in a way that automatically transfers ownership to your heirs).

  1. Create a detailed will that names your loved ones as the beneficiaries of your estate.
  2. Give your money away to loved ones before you die. Tax law allows you to give $14,000 per individual untaxed each year. So if you have two grown children and they are married and have two children each, here’s how you can pass on a significant sum without paying any inheritance tax. You can give $14,000 to each child and another $14,000 to each son- or daughter-in-law, and another $14,000 to each of their children. Your spouse can do the same. So, in a single year, you and your spouse can provide $112,000 to each family tax-free. Clearly, you should only give what you can afford, but as they say, “You can’t take it with you.”
  3. If you have no family to whom you care to pass on your wealth, you should still create a will. Simply choose your favorite charities and bequeath your estate to them. I guarantee they’ll appreciate it, and if you choose well, they can put that money to good use and provide you with a legacy long after you’re gone.
  4. You can also give assets other than money. For example, if you give stocks to your grandchildren to help them pay for college, they can sell the stocks (once they turn 24 years old) and pay capital gains tax at their tax rate instead of you selling the stock and paying capital gains tax at your higher tax rate. They could then use the proceeds to pay off their student loans. Or, if you own real estate free and clear, you could sell the property to your son or daughter for $200,000. Then you could forgive $14,000 of the note each year or more depending on how many people are involved in this transfer. This allows you to transfer the whole property without having to deal with the inheritance tax issue.

Basically, I recommend you do not ignore estate planning. Schedule an appointment today with your attorney or accountant and let them know you want to aggressively avoid unnecessary taxes. I’m confident you’ll be glad you did.

If you have questions about real estate or property management, please contact me at or visit If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at Dick Selzer is a real estate broker who has been in the business for more than 40 years.



How to Avoid Giving Your Estate to the State

For the vast majority of American homeowners, their home is the single largest asset they will ever own; and like the rest of their financial assets, upon their death, that asset will need to be dealt with. Most likely, if your spouse survives you, ownership of your property will be transferred to your spouse. Depending on how you hold title, this will either happen automatically or your poor spouse will have to deal with the hassle of probate (going through the court system to prove his or her right to your assets).

Before I go further, let me remind you that making decisions about how to hold title or make any decisions about estate planning should be done with the advice of your legal and tax advisor. While I have some experience in real estate, I know nothing about your financial or legal situation and that information is critical to making good decisions.

Now, if you and your spouse hold title as community property with the right of survivorship, then upon your death your spouse will automatically acquire your interest in the property. (If you do not have the right of survivorship clause, the transfer of ownership is not automatic.) If you hold title with anyone in a joint tenancy, then upon your death your interest in the property will be automatically vested with the surviving joint tenants without probate. A new form of ownership made possible by AB-139 is called a revocable transfer on death deed. It allows you to deed your single-family residence (with one to four units) to anyone and have that transfer take place the moment you die. It supersedes other legal documents including a will or trust, and while it shares some characteristics with joint tenancy and community property with right of survivorship, it is unique because the beneficiaries do not have any equity (ownership) in the property until the death of the grantor.

In today’s world, many homeowners have ex-spouses, children, stepchildren, and children who are half-siblings to one another. You need to give considerable thought to how you structure your estate when blended families are involved. For example, you may have significant assets and children, and then get remarried to someone with few assets and no children. Upon your death, do you want your surviving spouse thrown out on the street? Probably not. Generally, folks would like their spouses to be able to live out their days in the home they shared. The monkey wrench gets thrown in when your children resent the fact that your biggest asset does not benefit them until the spouse dies (especially if the spouse is significantly younger than you).

While I won’t recommend specific courses of action with regard to your estate planning, I will recommend that you don’t ignore the need to take care of it. It’s easy to postpone uncomfortable family discussions and spending significant sums on legal advice to make potentially difficult and unpopular decisions, but do you really want to leave such an important financial outcome affecting your entire family left unresolved? This can tear a family apart.

If you don’t have any children or relatives you care to bequeath your estate to, you can still name beneficiaries rather than allowing the state to end up with your hard-earned dollars. Choose your favorite charity, whether it’s a health care organization, the Humane Society, or an institution of higher learning, there’s no lack of options. Ukiah has many worthy causes to choose from. I just can’t see having the fruits of your labor go to the state coffers and that’s what can happen if you choose to skip the estate planning process.

Next week, I’ll share some information what to do before you die to avoid paying unnecessary inheritance tax.

If you have questions about real estate or property management, please contact me at or visit If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at Dick Selzer is a real estate broker who has been in the business for more than 40 years.



Making Sure You Record the Reconveyance

In California we have deeds of trust rather than mortgages, and when we get real estate loans, our lenders are typically the trustees who receive a deed of trust with the power of sale (since they put up the money to purchase the property). If all goes as it should, when you finish paying off the loan the trustee issues a reconveyance to remove their deed of trust. That reconveyance is then recorded at the county, and everyone lives happily ever after.

That is, unless something doesn’t go as planned.

If you default (stop paying) on your loan, or you don’t pay the required taxes and/or insurance, the trustee can exercise the “power of sale” and foreclose on your property. The trustee can also foreclose if you try to be sneaky and transfer the property to another owner without the lender’s consent (this is called “alienation” and it really makes lenders mad). Finally, if you create waste on the property, the trustee can foreclose. I’m not suggesting that if you throw a Popsicle wrapper on the lawn and forget to pick it up then you’ll lose your home. In this context, waste is more like a Superfund clean-up site. For example, if you dump 50 gallons of used motor oil or hit the house with a wrecking ball, then the trustee has a legal right to declare a default and start foreclosure.

Provided the proper procedures are followed, trustees can sell your property to the highest bidder at a foreclosure auction unless you fix whatever problem led to the foreclosure five days before the auction is scheduled to take place.

The deed of trust gives the trustee something called “bare legal title”—a purely legal, but not equitable, ownership interest in the property. If you pay off the loan early or refinance the property, the trustee still has bare legal title until a reconveyance is completed. To resolve this conflict, the original lender signs a full reconveyance that you must take to the county to record. This removes any interest or claim the original lender has on the property. Normally, this is something the escrow company handles for you if you’re refinancing.

Where this falls apart is with private party loans when the loans are paid off, not refinanced. If the reconveyance isn’t done right away, private lenders can be difficult to track down years (even decades) later. And if the original lender passes away and his or her estate is then divided among several heirs, things can get complicated in a hurry. Rather than dealing with John or Jane Doe, you’re dealing with John Doe Jr. and his 15 siblings, trying to get everyone to sign the reconveyance. If you didn’t keep good records, then John Doe Jr. and his siblings may not be convinced you paid off the loan. If things really go south, you may have to hire an attorney to go through something called “quiet title action.” This process determines who the rightful owner of a property is, as well as who may have claims on the property.

This is where I remind my readers to keep every scrap of paper pertaining to real estate payments and ownership. Another useful piece of advice is to follow up and make sure any reconveyance you’re entitled to is recorded at the county. Most escrow companies and lenders require final payment before issuing a reconveyance. Once they’ve received final payment, the motivation to do additional work (like head down to the county to formally record the reconveyance) can dwindle. Don’t let this one slip. Make sure if you pay off your real estate loan, that the deed of trust is removed.

If you have questions about real estate or property management, please contact me at or visit If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at Dick Selzer is a real estate broker who has been in the business for more than 40 years.



Ukiah’s Becoming More Business-Friendly

I don’t know if you’ve noticed, but the City of Ukiah and County of Mendocino have been actively promoting economic development lately. Whether these efforts are driven by the desire to make Ukiah a better place to live—with more jobs and more places to shop and dine—or simply a way to increase sales and property tax revenues, I’m thrilled with the noticeable shift in government attitudes toward encouraging business development.

Currently, several new businesses are either under construction or planning to set up shop here. A new Chipotle is being built at Orchard and Perkins, and rumor has it that In & Out Burger will be tearing down the old Fjords to build a new restaurant. I understand a high-end wool processing facility may open on Orchard Avenue, and a lumber mill in Oregon may lease some of the old Masonite property as a holding facility before they ship the lumber north. I’ve even heard Dunkin’ Donuts is coming to town, and it seems we will finally be getting the Costco we’ve heard so much about.

While it is wonderful to provide new shopping and dining opportunities, I am more focused on the new jobs these businesses will bring. When Ross Liberty purchased the 10-acre Masonite property three years ago, he dealt with political and administrative arms of county government, and he found them to be receptive and supportive of his business expansion. To be fair, his company—Factory Pipe—is a poster child for a business any community would welcome. He employs more than 50 people in an industrial capacity with wages commensurate with his industry and a generous benefits package. In addition, he took a prominent eyesore that community members and passers-by could see on Highway 101 and transformed it into an attractive, modern facility.

While it has been fantastic to see local government take strides to encourage economic development, our area still has some significant hurdles to jump, and it’s not going to be easy. We have utility hook-up rates that discourage development and we have infrastructure with significant deferred maintenance (if you don’t believe me, drive down Luce or Observatory—they’re almost down to the dirt in some places). With problems like these, I am puzzled by our city government’s decision to spend money on the walking trail along the railroad tracks. But I digress.

Another impediment to business development is the lack of housing. When business owners think about where to locate, they research a community’s housing situation to determine where they and their employees will live. A community cannot grow if people cannot find or afford a place to live. Right now in Ukiah, the median housing price is about $365,000. Without a down payment, a family would have to earn an annual combined income of about $85,000 to afford a house at that price. Even with a 20 percent down payment, the family would have to earn about $70,000 (that equates to $17.50 per hour for a dual-income household or one person making $35 per hour).

So how do we get more houses here? The cost of new construction is so high that developers tend to avoid Ukiah and Mendocino County. The reason, in a nutshell, is that new building codes requiring expensive additions like sprinkler systems dampen the enthusiasm of those who would create new subdivisions. And when the City of Ukiah built a new sewer plant, they required cutting-edge rather than conventional technology, significantly increasing the price tag. There are only two ways to recoup that money: increase rates and/or increase hook-up fees. Finally, the cost of labor for construction has to compete with the going rate in our underground economy.

These are tough problems, but I encourage local government to keep working on them.

If you have questions about real estate or property management, please contact me at or visit If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at Dick Selzer is a real estate broker who has been in the business for more than 40 years.

Ain’t Technology Grand?

While I am NOT a technology wizard, I do appreciate the convenience of having helpful information at my fingertips. It seems everyone has a cell phone these days, so it makes sense that companies have poured huge resources into creating mobile applications (apps). In the real estate business, we now have apps that allow you to find properties for sale near you (or near a specific location of your choosing). In addition, you can use quick response (QR) codes on “For Sale” signs to download an electronic flyer about the property you’re parked in front of.

To download the app so you can search for properties on the market from all the real estate companies in a given area, text the word “Selzer” to 87778 from your cell phone and a link will be texted to you. Follow the instructions and you’ll have a snazzy new app in about a minute. You can narrow your property search by the features that matter most to you: price, location, square footage, number of bedrooms and/or bathrooms, and other features. And if you find something you really like, it’s easy to share the information with friends and family via text.

If you’re not the type to download an app, but still want to know what properties are for sale in your price range, ask your Realtor to put you on an automatic e-mail notification list. As soon as a property that meets your criteria is listed on the Multiple Listing Service (MLS), you will receive an e-mail about it. Many of us are so used to e-mail, we don’t think of it as technology, but trust me, the speed with which we can communicate via email makes the 1970s and ‘80s seem like centuries ago. In fact, the MLS has changed dramatically, too. When I was first in real estate, the MLS consisted of a loose-leaf binder of mimeographed listing-information sheets restricted to the basic data about a property with one black and white photograph. Now, the computerized MLS allows vast amounts of information about each property along with dozens of color photos and sometimes even video footage!

Once information is entered into the MLS, the technology of the Internet allows us to broadcast that information to literally millions of people with the click of a few buttons. Virtually every day, I receive information about new investment properties all over California. I get far more information than anyone could possibly squeeze into a $1500 ad in the Wall Street Journal, and the cost to the listing agent borders on zero. Locally, any given listing in my office ends up published on more than 700 websites that prospective buyers can see when browsing around online.

For all the hype and hoopla over Internet marketing, the truth is, real estate has always been and continues to be a relationship-driven business. Marketing is important and technology is great, but choosing a good Realtor is still the most important step in buying or selling a property. As I’ve said before, the most convincing argument that hiring a Realtor is a worthwhile expense is that people in the industry hire them when they’re ready to buy or sell property. These industry experts (lenders, title officers, etc.) are the people who see the value of a good Realtor—the way Realtors can avoid lengthy delays and save money by getting the right inspections at the right time, the way they negotiate on your behalf and let you know which upgrades will pay for themselves and which ones won’t, the way they make sure the contract says everything it should and nothing it shouldn’t. I know I’m biased, but I’m also well informed.

If you have questions about real estate or property management, please contact me at or visit If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at Dick Selzer is a real estate broker who has been in the business for more than 40 years.

Ten Ways to Come Up With a Down Payment

Many people make enough money to afford monthly mortgage payments and household upkeep, but having enough cash for a down payment can be difficult. Here are some common ideas on where that money might be found.

  1. Sale of your current primary residence. Assuming you bought your house some time ago, the combination of its increase in market value and the decrease in the principal on your home loan should leave you with some cash to reinvest.
  2. Other real estate. If you own a rental or a 40-acre recreational property that no longer pays to grow local crops on, you can liquidate your holdings to generate cash for your down payment. If you don’t want to sell, you could consider borrowing against your property. Be careful, however, while capital gains exemptions are in effect when selling a primary residence, this is not the case for investment properties. If you sell something other than your primary residence, you’re likely facing capital gains taxes, which will have to be deducted from the proceeds before calculating the net cash. If you’re really clever, you could exchange the rental property into a house that could eventually become your primary residence (see my column on 1031 Exchanges). DON’T try this without talking to your accountant or tax advisor.
  3. Liquidate other assets. Investments of any variety can be liquidated. However, like real estate investments, the sale of other investments is likely to have capital gains consequences. Keep in mind that liquidating assets is good for raising cash, but to do so you must sacrifice investment income, which may impact the overall loan you can afford.
  4. If you’ve been really diligent and put away 10 percent or more of your annual earnings, you’ll have a sizable nest egg to pull from for your down payment. When I’m talking about savings, I’m not referring to your retirement (e.g., IRA, 401K). Some first-time homebuyer programs may allow a tax-free/penalty-free withdrawal from your retirement, but retirement cash is expensive. My CPA let me know you can typically withdraw $5000 without penalty for a down payment.
  5. If you’ve chosen your family correctly, you may have funds from Great Aunt Mathilda. While you’ll miss her, her legacy will live on in your new home.
  6. Family Gift. Your family doesn’t have to die to help you with a down payment. A gift from the Bank of Mom & Dad is a realistic and viable way to generate cash in today’s world.
  7. Executive-level employees can sometimes expect a company loan or gift, especially when relocating for the company. If a real estate loan or gift isn’t called by that name, you may see an increase in salary, part of which is considered a housing allowance.
  8. Lawsuit Settlement. While this is not my preferred way of gathering cash for a down payment, it can be effective. Serious injury cases sometimes have insurance settlements large enough for a down payment.
  9. No Need for a Down Payment. Some loans do not require a down payment, especially first-time homebuyer loans from the United States Department of Agriculture (USDA) or the Federal Housing Administration (FHA). While the monthly payment will reflect mortgage insurance payments, and the interest rate will be a bit higher, these loans have made it possible for many people to buy houses without out-of-pocket cash. You will need a verifiable source of income and good credit to qualify.
  10. Grant Program. From time to time state and federal programs to help first time homebuyers will include grants for down payments.

If you have questions about real estate or property management, please contact me at or visit If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at Dick Selzer is a real estate broker who has been in the business for more than 40 years.

Where do Lenders Get The Money to Make Loans?

In the days before giant federal lenders, local savings and loans (S&Ls) used money from depositors to make loans. S&Ls charged interest on the principal (i.e., original loan amount) and fees to cover the expenses of managing the loans, activities like collecting payments and keeping detailed records. They paid their depositors a little interest, and the money left over was profit. S&Ls were in the loan business and often didn’t mind making long-term loans, unlike most banks. It was the S&Ls who provided the loans that facilitated home ownership until Government-Sponsored Entities (GSEs) came onto the scene in the early 1970s.

GSEs are institutions that buy loans from loan originators on the secondary market with the goal of providing lower housing costs and better access to financing. The big players are referred to as Fannie Mae, Freddie Mac and Ginnie Mae. They are actually the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Association (FHLMA), and the Government National Mortgage Association (GNMA)—which is part of the US Department of Housing and Urban Development.

Until GSEs came into existence, the person determining whether to lend you money represented the S&L; he sat across a desk from you and looked you in the eye to see if you were a worthy risk. In 1973, I had a summer job and I wanted to use my earnings to buy a house. I needed an 80-percent loan: I could come up with 10 percent for a down payment and the seller agreed to carry a 10-percent second loan. The house cost $18,000 and rent covered the mortgage payment on the first and second loans, plus the expenses of upkeep and ownership with a little cash left over. The lender at the S&L sized me up and pegged me for a guy who could and would pay his debts. Those were the days.

The world has changed since then. Most lenders do not keep home loans in their portfolios. The vast majority are sold to GSEs or to private groups such as pension funds or insurance companies.

Before the housing market correction in 2008, these private groups would often buy a block of mortgages and then borrow against them. This is called mortgage securitization (when investors pool large numbers of loans with an interest rate of, say, 6 percent and then go to the publicly traded bond market and borrow money at 4½ percent). Risk-averse lenders did not show much interest in mortgage-backed securities until AIG agreed to guarantee the loans (for a fee). To prove the investments were safe, bond rating companies like Moody’s or Standard & Poor’s would rate the mortgages (for a fee).

As the housing bubble grew and mortgages became easier and easier to secure, mortgage-backed securities became riskier and riskier. AIG and the bond rating companies continued to offer their services, and no one questioned whether AIG could afford to guarantee these enormous loans or whether the bond rating companies would go out of business if they did not supply the desired ratings.

Today, many more safeguards are in place to assure that lenders do not loan to people who cannot afford to pay, so mortgage-backed securities are much safer. They got a bad reputation when irresponsible lending practices allowed inappropriate loans to be made, driving housing prices much higher than they should have been. This is no longer the case.

These days, while I regret the loss of the personal relationship with the S&L lender, I appreciate the fact that the GSEs have made loans for single-family homes more affordable and available to the general public, putting the American dream within reach of a tremendous number of people who would never have qualified otherwise.

If you have questions about real estate or property management, please contact me at or visit If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at Dick Selzer is a real estate broker who has been in the business for more than 40 years.