Case Study – Housing Decision During Retirement

Recently I took a 2 day certification class for the designation of Senior Real Estate Specialist here in Denver. I found there was much I had already learned in 32 plus years but there was a lot that I did not know. Certainly the below is a unique view of how some folks approach retirement. Denver is wonderful city to retire in, because it is a Silver Collar city and has a pretty good climate. Many folks like warmer climes, so read on for more enlightening information…

A couple is planning to tour the United States in a travel trailer during their first few years of retirement. They are going to sell their current home now and purchase another home when they finish their travels. Denver senior real estate specialist

An interesting exercise is to determine the optimum time of selling the home: now or when they’re ready to buy their replacement home.

If they intend on traveling for more than three years, then, it may be a good decision to sell prior to the sojourn to avoid paying taxes on the gain in their home. IRS allows for a temporary rental of a principal residence while still keeping the $250,000/$500,000 capital gains exclusion intact. A homeowner must own and use a home for three out of the previous five years which means that it could be rented for up to three years, but it would need to be sold and closed before that three-year window expires.

If the travel will be less than three years, there is an option of selling now or later. Using the example below, the homeowner sold the home, paid their expenses and invested the proceeds in a three-year certificate of deposit until the replacement home was purchased.

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As an alternative, if the homeowner rented the home, not only would they have income, the home would continue to appreciate and the unpaid balance would go down resulting in larger net proceeds. Based on a 5% appreciation and continued amortization of the mortgage, the net proceeds could easily be $40,000 more.

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Obviously, there are a lot of considerations that affect the decision to sell now or later but in an appreciating real estate environment, being without a home for several years could affect the financial position of the owner in the replacement property. It is certainly reasonable to look at various alternatives before making a decision. Call me at (303) 880-5585 to help you look at the different possibilities and talk to your tax professional.

And you can contact me for any real estate need here in Denver or across the US.

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Waiting Period After Distressed Sale

During the real estate bust Denver certainly had a huge amount of foreclosures and distressed properties in the the 2008-2009 era (yeah I was in Denver and real estate during the 85-91 era too). The owners of those properties had dings on their credit because of the late payments and the actions that were taken involved in the foreclosure. So as you read below it should give you hope…

“How long do we have to wait to qualify for another mortgage” is the question concerning people who’ve had a foreclosure, short sale or bankruptcy. The loan types for the new loan will differ in amounts of time to heal credit scores based on the event.denver

The following chart is meant to be a general guide for how long a person might have to wait. During this waiting period, it’s important that the person be current on all payments and maintains a history of good credit.

A recommended lender can give you specific information regarding your individual situation and can make suggestions that will improve your ability to qualify for a mortgage. This process should be started before looking at homes because of the time constraints listed here can vary based on current requirements and possible extenuating circumstances of your case.

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We want to be your personal source of real estate information and we’re committed to helping from purchase to sale and all the years in between. Call us at (303) 880-5585 for lender recommendations.

If you would like to talk, drop me a line or contact me to find your next home in Denver.

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Waiting in Denver Will Cost More

The article below talks about interest rates but a larger cost has been demonstrated over the last three years…appreciation. Denver has averaged about 10% appreciation in each of the last 3 years meaning that a$300,000 house in 2014 would be worth about $330,000 in 2015, $363,000 in 2016 and $399,300 at the end of 2017. And most folks cannot make that up in down payment so the extra loan would probably be about $80,000 and with the projected 5% interest rate the cost of waiting 3 years is about $333 per month. The key is when will this appreciation stop and that is a matter of supply and demand. Demand is still high in Denver and supply is still low,,,but read on…

With the first quarter of 2018 in the books, the 30-year fixed rate mortgage is nearing what Freddie Mac predicted it would be in the second quarter. If this pace continues, rates will exceed the five percent mark expected by the end of the year.Denver

The Fed has had its first of an expected three raises for this year and two more are expected in 2019. While these rates are not directly related to mortgages, they certainly have an effect.

Delaying the decision to purchase or refinance could be an expensive missed opportunity. A $270,000 mortgage at 4.44% has a principal and interest payment of $1,358.44 per month. If the rate were to rise one-percent in the next twelve months, the payment would be $1,522.88.

The $164.44 increase would cost a homeowner an additional $13,812.97 in seven years and close to $60,000 over the full term of the loan.

The question facing people is “what would you spend $164.44 each month if you had acted sooner to get the lower rate?”

If you’re curious to know what your “missed opportunity” could be costing you, try this Cost of Waiting to Buy calculator . Use 0% increase on price change if you are refinancing a home you already own.

So you can be the best informed consumer, it would be wise to review the statistics to see where the inventory of homes has gone and where prices have been in Denver. I carry those figures and charts with me so I can show you what the trend lines are, where if at all there are timing breaks to take advantage of, and why I believe that even though prices will continue that buying now is still a sound investment. So please contact me to set up a time to visit. Waiting is only costing you.

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Denver – FHA Advantages

Contrary to popular belief the FHA loan program is not just for first time buyers here in Denver. There are loan programs available that FHA has approved that help those Denver first time buyers get a loan with less than 3.5% down. To find out more make sure to contact me or a good lender in Denver.

The Federal Housing Authority, operating under HUD, offers affordable mortgages for tens of thousands of buyers who may not qualify for other types of programs. They are popular with both first-time and repeat buyers.

The 3.5% down payment is an attractive feature but there are other advantages:Denver

  • More tolerant for credit challenges than conventional mortgages.
  • Lower down payments than most conventional loans.
  • Broader qualifying ratios – total house payment with MIP can be up to 31% of borrower’s monthly gross income and total house payment with all recurring debt can be up to 43%. There is a stretch provision taking it to 33/45 for qualifying energy efficient homes.
  • Seller can contribute up to 6% of purchase price; this money must be specified in the contract and can be used to pay all or part of the buyer’s closing costs, pre-paid items and/or buy down of the interest rate.
  • Self-employed may qualify with adequate documentation – two year’s tax returns and a current profit and loss statement would be required in addition to the normal qualifying and underwriting requirements.
  • Liberal use of gift monies – borrowers can receive a gift from family members, buyer’s employer, close friend, labor union or charity. A gift letter will be required specifying that the gift does not have to be repaid.
  • Special 203(k) program for buying a home that needs capital improvements – requires a firm contractor’s bid attached to the contract calling for the work to be done. The home is appraised subject to the work being done. If approved, the home can close, the money for the improvements escrowed and paid when completed.
  • Loans are assumable at the existing interest rate with buyer qualification. Assumptions are easier than qualifying for a new mortgage and closing costs are lower.
  • An assumable mortgage with a lower than current rates for new mortgages could add value to the property.

Finding the best mortgage for an individual is not always an easy process. Buyers need good information from trusted professionals. Call (303) 880-5585 for a recommendation of a trusted lender who can help you.

And lets not forget that using and FHA loan to re-finance a current mortgage will allow you to take a lot of your equity out, so it might be a good alternative. And while this post is about normal FHA loans, you can also use it to refinance your Denver home with a reverse mortgage. Again contact me or a good lender in Denver.

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Denver has Marshmallows on our trees!

About 6 inches of heavy wet spring snow created all these marshmallows that will fall on our heads around Denver today.  Watch out! This picture was taken in Highlands Ranch…the south end of Denver y’all!Denver

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Standard or Itemized in Highlands Ranch

In Highlands Ranch I know I am concerned about the income tax structure for next year and how it will affect/effect my with holding and FICA. And I am sure the folks in Denver and our suburbs have the same concern. Here is a short synopsis that may help you understand how it might affect you…

Taxpayers can decide each year whether to take the standard deduction or their itemized deductions when filing their personal income tax returns. Roughly, 75% of households with more than $75,000 income and most homeowners itemize their deductions.Highlands Ranch,Denver

Beginning in 2018, the standard deduction, available to all taxpayers, regardless of whether they own a home, is $24,000 for married filing jointly and $12,000 for single taxpayers.

Let’s look at an example of a couple purchasing a $300,000 home with 3.5% down at 5% interest. The first year’s interest would be $14,630 and property taxes are estimated at 1.5% of sales price would be $4,500.

The interest and property taxes would provide a combined total of $19,130 which is less than the $24,000 standard deduction. Unless this hypothetical couple has other itemized deductions like charitable contributions that would make the total exceed $24,000, they would benefit more from taking the standard deduction.

If the mortgage rate were at 8%, the combined total of taxes and interest would be almost $28,000 which would make itemizing the deductions more beneficial.

Tax professionals will compare available alternatives to find the one that will benefit the taxpayer most. For more information, see and consult a tax advisor.

Having lived in Highlands Ranch since 1989 does not make me a tax expert…but Contact me with more questions.  

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Finding Denver Homes Continues to be a Challenge

Denver’s supply of homes for sale in the metro area continues to be an issue with just 337 more listed for sale in the first 2 months of 2018 versus 2017 (8288 v 7951). The days on the market continues to hover in the 6 day range while the median prices is up $40,000 from $350,000 to $390,000 for January & February. The heart-breaker for Buyers is that on March 5th there were only 3,908 “active” listings available for purchase. The overall indication is that in the 7 county metro Denver area we will continue to see that kind of appreciation as well as a very strong “Sellers” market for the foreseeable future. For a bit of the “national perspective” read on…

In any given market, inventories fluctuate based on supply and demand considering area and price range. The National Association of REALTORS considers a balanced market to be a six-month supply of homes.47945268-250.jpg

If it takes longer than six months to sell, it is thought to be a buyer’s market and less than six months, a seller’s market. Most buyers and sellers probably feel a balanced inventory is more like three months’ supply of homes.

The inventory of existing homes has been reduced to approximately 1.5 million houses which is 10.3% lower than a year ago. According to the Federal Reserve Bank of St. Louis there are 5.7 months’ supply of new homes currently on the market in the U.S.

Inventory has a direct impact on price. When demand is constant, but inventory is reduced, price tends to increase because the same number of people are trying to buy a smaller than normal number of homes.

As easy as it is to recognize the signs of spring, one should be able to spot the direction prices will be moving. When prices and mortgage rates are increasing, buyers are affected by not being able to afford the same price or size of homes.

While the Denver area has fewer homes for sale (this has been caused by the builders cutting back drastically in the 2008 era and we are now short of single family homes by between 50,000 and 80,000) there are other parts of the country that offer a: great life styles and b: more economic housing choices that support both full time & silver collar work forces. As a Certified Residential Specialist and a Senior Real Estate Specialist I can help you identifying those opportunities. So contact Pete, an SRES for a consultation.

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Your Refund Could be the Difference

As we make relations with lenders, and expand those we have had over the years in Denver, we find that there are new and innovative loan programs available for buyers of all types. Some are obvious like the VA zero down. Others you have to hunt for like a 1% down conventional product. And they go up from there. Yet all the new ones might be helped by a good income tax refund…maybe, after you read this we should talk.

One of the silver linings to filing your income tax return is finding out that you are going to receive a refund. If you happen to be one of these fortunate taxpayers, your next decision is what to do with it. With the average tax refund around $3,000, it could be the difference that makes a home a reality sooner rather than later.Denver

Many would-be buyers think it takes 10% or more down payment to purchase a home, but actually, it can be much less. There are VA and USDA mortgages that have no down payment for qualified buyers. FHA has a 3.5% down payment program and FNMA has 3% down payment mortgages for qualified creditors.

Closing costs for originating new mortgages can easily range from two to three percent of the purchase price but most lenders will allow the seller to pay part or all of them based on the agreement in the sales contract.

While the average tax refund might not cover the down payment on the median price home, it certainly helps. Your refund could make it as simple as 1-2-3 to get into a home.

  1. Get the hard, cold facts for the homes and mortgages in your area and price range.
  2. Get pre-approved with a trusted mortgage professional.
  3. Start looking at homes.

Call me at (303) 880-5585 or Pete of Contact Me to get started.

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Denver Has Fair Skies on Horizon

The new tax is certainly something all of us in Denver are concerned about…How does it effect me? I am not a tax consultant but there is a summary here and a link to more information from the National Association of Realtors. If you need a good tax CPA here in Denver, use the contact link at the bottom and I will connect you.

Buyers who have been concerned about what might happen to the tax laws affecting home ownership should feel more comfortable about moving forward with their decision to purchase. The 2017 Tax Cut and Jobs Act passed by Congress and signed by the President continues to treat real estate as a favored investment.Denver

Whether it is for a home to live in as your principal residence or to use as rental property, the tax laws are in place but other dynamics to be concerned with are not; mortgage rates are expected to rise as well as prices.

Reasons to buy now:

  1. The mortgage interest deduction is intact for most taxpayers.
  2. The capital gain exclusion for principal residences up to $500,000 remains in place.
  3. Taxpayers can elect annually to take newly increased standard deduction or itemize deductions whichever will benefit them the most.
  4. The house payment with taxes and insurance is most likely cheaper than the rent.
  5. Rents will continue to rise making the difference even greater in the future.
  6. Lock-in the principal & interest payment with a fixed-rate mortgage.
  7. 30-year mortgage terms are available to most borrowers.
  8. Prices will likely increase due to lower inventories and several years of low housing starts.
  9. Section 1031 exchanges, capital gains and depreciation remain the same for rental properties.

For a summary of specific real estate provisions in the 2017 Tax Cut and Jobs Act, click here.

Contact Pete

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Historical Perspective

We bought our 2nd home in Denver (actually unincorporated Arapahoe County known as Englewood) in 1981 and we were so excited to have a 12% first loan and a 13% 2nd…life was good. Not as good as my first house in Montana at 5.75% in 1972. As one contemplates the interest rates and their history a half point shift may seem huge today; rates have been so stable for a number of years but others probably have a different perspective. So read on…

In 1968, mortgage rates were 8.5%. The next year, rates went down to 7%. Homeowners could buy a 15-20% larger home for the same payments if they could find someone to assume their mortgage.Denver rate history2a.png

FHA and VA mortgages were very popular in certain price ranges and they allowed anyone to assume the mortgage regardless of the credit. If you could find a person to take over your note, you were free to qualify for another mortgage.

In October 1981, mortgage rates reached 18.63%. A $250,000 mortgage had a monthly principal and interest payment of $3,896.46. As astronomical as that rate sounds, people were still buying homes and were good investments.

Four years later, they were still over 12%. The monthly payment was $2,571.53. Believe it or not, people were excited to be paying only 2/3 what they had to pay a few years earlier.

Fast forward to late 1991 when the rates went below 9% and that same payment was to $2,015.16. At the turn of the 21st century, rates were 8.15% and that made the payment $1,860.62. Not much change in rates during that decade.

If we look around the housing bubble, late 2008, the rates were 6.04% and the payment was $1,505.31. By 2009, mortgage rates had fallen below 5%. The lowest mortgage rate was 3.31% on November 2012 with a payment of $1,096.27.

Rates fluctuated for the next few years until now, and most of the experts are expecting them to be above 5% by the end of 2018. Rates have increased each week for the last six weeks to 4.38% with payments of $1,240.12.

The average mortgage rate for the past 47 years is a little over 8%. The real estate and mortgage markets are cyclical. Rates have been historically low for a long period but will probably continue to rise. Most buyers don’t pay cash and mortgages enable them to purchase now. Based on history, even 8% would be an excellent rate. Until it reaches that point again, everything lower is a bargain.

Contact me if you want to talk more.

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