A Denver Home for Tomorrow

Most folks I talk to here in Denver seem to be afraid of a bubble bursting as it did in 2008. Statistically, that started in 2006, and some of us started to notice that early. I am asked about when prices will start to fall… that answer is when we see over 180 days on the market average for 2 straight months. Right now the average is 32 days on market while the median is only 6 days on market. So it does not look like things will change anytime soon. What is the difference between average and median? The average sale price in Denver in April was $484,795 while the median was $451,311.

Prices continue to move up at a quick pace indicating that if there is a move planned in the next 2-3 years, you should do it now to take advantage of the prices on the new place. It will not be cheaper in 2 years. Statistics and history show a traditional appreciation rate in Denver of 3 to 6%. At that rate a $400,000 home will be over $475,000 in 3 years in the 7 counties that make up metro Denver.

Now lets talk about retirement housing. For those who do not know I am a Senior Real Estate Specialist (SRES) and can help most folks with the issues they are facing. But read on….

As people near or enter retirement, one of the decisions that typically comes up is whether to sell their “big” home and buy a smaller one. If you know anyone who has been faced with that situation, selling one home and buying a smaller one may not save enough money to make it worthwhile.79996505-250.jpg

There are sales expenses on the property being sold and acquisition costs on the replacement home. Generally speaking, homeowners may not mind a home with less square footage, but they usually don’t want to give up amenities or locations that they’ve become accustomed.

After a little number crunching, the move may not make enough difference in savings and they end up staying in their current home even if it doesn’t fit their needs anymore.

What if while this couple were still in their peak earning years, they acquired a home in an area where they would consider retiring and rent it during the interim. They could put it on a 15-year mortgage and possibly, even accelerate the principal payments to have it paid off by their anticipated move.

In the meantime, they could continue living in the “big” home until it is time to make the transition. Sell the “big” home that may be paid for by then and avoid up to $500,000 of capital gain. Take part of the proceeds and remodel the rental/transitional home and invest the proceeds for retirement income.

Ideally, the former rental would be mortgage free by this point, so the retirees would not have a house payment. Even if at this point, they changed their mind about retiring to this particular home, they still have a property that acted as a hedge against rising prices and have sufficient equity to purchase something else without using the proceeds from the “big” home.

It is difficult to know what the situation will be years from now when a person retires. It is clearly advantageous to have a plan that allows for options and choices. To find out more about purchasing your retirement home today, give me a call at (303) 880-5585. Or reach out and contact me via e-mail.

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Assumptions May be an Alternative

Loan Assumptions Are Hard to Find, especially in Highlands Ranch …

Hard to believe but there are still good assumable mortgages out there in Denver, if you have the cash to make up the difference, or know a good loan officer. I actually know of one coming up in Highlands Ranch, and it will require about $100k to assume. You have to qualify with credit income and cause the liability to be released, but it is a nice interest rate. But read on…

For the last 25 years, most buyers have gotten a new mortgage or paid cash when purchasing a home. For a practical reason, owner-occupant buyers have another alternative: assuming a lower interest rate existing FHA or VA mortgage.29377293-250.jpg

In the late 80’s, both FHA and VA began requiring buyers to qualify to assume their mortgages. Prior to that, good credit or even a job wasn’t required. The real reason there haven’t been significant numbers of assumptions in the past 25 years is that interest rates have been steadily going down. If a person had to qualify, they might as well do it on a new loan and get a lower interest rate.

Even though mortgage money is currently attractive and available, it is at a four-year high. When interest rates on new mortgages are higher than the rates of assumable FHA and VA mortgages originated in the recent past, it may be more advantageous to assume the existing mortgages. Conventional loans have due on sale clauses that prevent them from being assumed at the existing rate.

FHA loans that originated with lower than current interest rates have great advantages for buyers and sellers.

  1. Interest rate won’t change for qualified buyer
  2. Lower interest rate means lower payments
  3. Lower closing costs than originating a new mortgage
  4. Easier to qualify for an assumption than a new loan
  5. Lower interest rate loans amortize faster than higher ones
  6. Equity grows faster because loan is further along the amortization schedule
  7. Assumable mortgage could make the home more marketable

This financing alternative can save money for the buyer in closing costs and monthly payments. While the equity may be more than the down payment on a new mortgage, second mortgages are available to make up the difference. Call us at (303) 880-5585 to find out if this may be an option for you.

And of course you can contact me here for more information about the Highlands Ranch real estate market.

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Overlooked Recordkeeping

What a great opportunity for Denver Home owners! Especially with the appreciation we have experienced over the last 5 years. When the tax laws changed last year I know I was excited that this part of the law did not change and that means we can keep our equity, tax free. Then you must ask, what is the cost of waiting? So as we have had close to 8% per year appreciation in Denver for 3 years that means a $300,000  3 years ago would be worth about $378,000 today. And all of that is tax free for a principle residence ( it also equals about $65 per day in waiting cost). But read on about the tax law…

Homeowners are familiar that they can deduct the interest and property taxes from their income tax returns. They also understand that there is a substantial capital gains exclusion for qualified sales of up to $250,000 if single and $500,000 for married filing jointly. However, ongoing recordkeeping tends to be overlooked. 38285944-250.jpg

New homeowners should get in the habit of keeping all receipts and paperwork for any improvements or repairs to the home. Existing homeowners need to be reminded as well, in case they have become lax in doing so.

These expenditures won’t necessarily benefit in the annual tax filing but may become valuable when it is time to sell the home because it raises the basis or cost of the home.

For instance, let’s say a single person buys a $350,000 home that appreciates at 6% a year. Twelve years from now, the home will be worth $700,000. $250,000 of the gain will be exempt with no taxes due but the other $100,000 will be taxed at long-term capital gains rate. At 15%, that would be $15,000 in taxes due.

Assume during the time the home was owned that a variety of improvements totaling $100,000 had been made. The adjusted basis in the home would be $450,000 and the gain would only be $250,000. No capital gains tax would be due.

Some repairs may not qualify as improvements but if the homeowner has receipts for all the money spent on the home, the tax preparer can decide at the time of sale. Small dollar items can really add up to substantial amounts over many years of homeownership.

You can download a Homeowner’s Tax Worksheet that can help you with this recordkeeping. The important thing is to establish a habit of putting receipts for home expenditures in an envelope, so you’ll have it when you are ready to sell.

And of course contact me when you are ready to sell that Denver home and need some ideas about other “Silver Collar Cities”.

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Costs More – Takes Longer – Denver Real Estate

Certainly one of the tougher functions in a Denver Real Estate transaction is negotiating the inspection items. To some it seems as though the seller should do everything and yet in a highly focused seller’s market that is not likely. The replacement of a roof covering can often become a real issue especially when using the contractor that just knocked on your door. Why? Their workmen may or may not show up and the roof may not get installed on time! When you hire an experienced Realtor those items should be non issues….but it does happen to all of us. And the contractors I work with know that and are willing to get the job done on time, often waiting for their payment until closing. Now a remodeling project…read on…

The one experience that homeowners can agree upon after completing a remodeling project is that it costs more and takes longer than expected. It doesn’t really matter that you researched, planned, and received multiple bids, it will, invariably, cost more and take longer than you originally anticipated.Denver real estate

Replacing floorcovering or painting is a project that a homeowner can easily get bids and contract with the workmen directly. A new level of complexity occurs when the project involves more specialized contractors, like plumbers, electricians, carpenters, counters, and others.

Now, a homeowner is faced with dealing with one general contractor who will run roughshod over the sub-contractors or make the decision to do it themselves. Typically, you’ll pay more for a general contractor, but the trade-off is that they have the contacts and experience to make things go smoothly.

Subs are notorious for wanting to finish their “part” of the project and move onto to the next job. Sometimes, they’re not interested in the “big picture” enough to consider doing things in a way that are best for the overall outcome.

When you start tearing out some things, you find out that there may be unexpected expenses involved. Another common occurrence is that during the project, you get a new thought about changing something else “since it is already torn up anyway.” This will add time and money to the job.

There can be the situation that the homeowner doesn’t even know the right questions to ask or what to consider when trying to coordinate the different workers. The most detailed timetable can be thrown off track if one set of workers don’t show up or finish on time. At best, it delays the project for a few days. At worst, it can delay it for a few weeks because the individual workers may have committed to other jobs that don’t allow them to reschedule.

Once the work is done in a professional manner, you’re probably going to live with it for years. If it is something you’ve wanted to do and it will allow you to enjoy your home more, it is worth doing. Just be patient and enter this adventure with the understanding that it will cost more and take longer than you expect.

When you have a re-model project here in Denver you are anticipating, or you are just putting in new carpet, make sure to contact me for reliable (not always perfect) contractors for the job. Your Denver Real Estate broker, with any length of experience, should have good contractors that will respond to him and his clients in a timely and professional manner.

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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 www.IRS.gov 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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