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Purchasing a Condo? Make Financing Easier!

Purchasing a Condo

In the process of choosing a home, you may consider buying a condo. There are a number of things to be aware of regarding your mortgage when purchasing, and this short article will help give you the background and the tools necessary in order to purchase your new condo with the lease amount of stress! We will start with some big picture items, and finish with a little more detail for each loan product.

“Is the condo warrantable?”

The term thrown around the most when someone is considering a unit is “warrantable,” as in “is the condo warrantable?” Warrantability is about whether the proposed mortgage on the property can be sold to Fannie Mae, Freddie Mac or another entity. Fannie Mae and Freddie Mac purchase many conventional loans, but they do not purchase government loans like FHA. Each loan type (conventional, FHA, etc.) has its own guidelines for condos. One may not be “warrantable” or salable with FHA, but warrantable with Fannie Mae.

There are more rules surrounding condos due to the potential risks to the lender. They have characteristics that are historically risky. In order to explain without diving too much into the weeds, lenders want to be sure that the property they are financing on will keep its value, not be involved in litigation, etc. This is the reason for more stringent rules when acquiring a loan secured by a condo.

Do not let the extra rules scare you though! A knowledgeable lender will guide you regarding the details of your loan and the property’s parameters. However, there are certain things you can be aware of ahead of time on your hunt for your condo. These things are highlighted below.

“Purchasing or Renting?”

With a conventional loan, your lender will review the property’s insurance, the HOA’s budget, etc. Many buyers can get caught up on how many of the units are rentals and how many are occupied by the owner. If you are purchasing a home in which to live, this question doesn’t matter. If you are purchasing a rental, then it matters. Additionally, if you are willing and/or able to invest a 10% down payment, the rules get much easier!

Approval by the FHA

With an FHA loan , the only thing to be aware of is whether or not the condo project is approved by FHA. IF the approval has expired, then the condo is not eligible for FHA financing. A VA loan works the same way with its own approved list of condo projects.

When determining the type of loan to use when purchasing a unit, your options may be limited. For instance, if you can only qualify for an FHA loan, but you want to purchase a condo, you will only be able to buy a condo that is approved by FHA. Again, a good loan officer will guide you through all of the rules to help you get the best loan for your new condo!

Source: Dexter Finley

Want more information?

New Rules For Warrantable & Non-Warrantable Condo Mortgage Loans | themortgagereports.com

Condo-Buying Walkthrough: Obtaining a Mortgage For Your Condo | investopedia.com

Posted in: Buyers, News and Announcements, RE/MAX Advanced Tagged: Buyers, Condo, Condo Buying, FHA, Finance, Fort Collins, northern colorado, RE/MAX, RE/MAX Advanced, Renting, Warrantable

Key Coverage Areas For Your Investment Properties

Not all insuraKey Coverage Areasnce policies are created equal. Let’s discuss the key coverage areas for your investment property.

Standard property insurance policies assume that the homeowner lives in the property. Landlords, on the other hand, rarely ever live in their rentals and
therefore need a different type of policy — a Landlord Insurance Policy.

Whether or not the rental property is owned by an entity or individual, here are key points that rental property owners need to understand.


Replacement Cost:

Many insurance companies use a depreciation model as the basis of replacement cost for older homes. However, depreciation models do not provide 100% replacement cost. Ask if your policy provides for 100% replacement cost.

Lose of Use:
When a landlord is faced with a catastrophic claim, Loss of Use provides coverage for loss of income that may occur.

Liability Coverage:
For minimum premium cost and greater peace of mind, Liability Coverage should not be less than $1 million.

Percentage Deductibles:
Due to the many hail storms that have brought damage to Colorado within the last 5 years, insurance companies are re-adjusting their coverage, exclusions and deductibles. Many insurers are applying a 1% deductible from the dwelling. Watch for deductible amounts that will continue to adjust each year as the reconstruction inflation increases.

Additional Insureds:
If the dwelling is owned by more than one person or by an entity, the name of any additional insureds should be listed on the policy to avoid future problems.

Flood:
Flood damage is not covered under the landlord insurance policy. Flood insurance needs to be covered under a different policy.

Building Ordinance:
Standard commercial insurance policies may not cover the loss or demolition of an undamaged portion of a building or the increased cost of rebuilding the entire structure in accordance with current building codes. Coverage for these loss exposures are widely available with endorsements.

Sewer and Drain:
For a property with a basement, sewer and drain coverage in the event of a sewer pipe break which can damage the dwelling and personal property.

Renters Policy:
Although there is no federal or state law requiring tenants to have renters insurance, a landlord can stipulate in the rental agreement that renters coverage is required. This insurance provides coverage for the tenants’ belongings and liability within a rental property.

Whether you are a first time investor or the owner of multiple properties, review your investment property policies for adequate protection in these keys areas.

Source: Evelyn Hoelzel, Farmers Insurance (2016)

Interested or looking for rentals? Check out our website here or contact RE/MAX Advanced, Inc at 970.221.5995!

Posted in: Buyers, News and Announcements, RE/MAX Advanced Tagged: Finance, financial, Fort Collins, Insurance Policies, Investment Property Policies, Key Coverage Areas, Landlord Home Insurance Policy, northern colorado, RE/MAX, RE/MAX Advanced, Rental Property, Renters

Juggling a Sale and a Purchase

Juggling a Sale and a Purchase

Selling one home and buying another at the same time requires solid financing, careful planning, flexibility, risk tolerance, and creative transaction management. If possible, sell before you buy. You probably started looking online at homes for sale before you explored what it would take to sell your current home. While it’s good to know about housing inventory for sale, the first step is to sell your current home.

How can you manage two transactions?

Whether you sell first or buy first, these steps provide critical information. Talk with your real estate agent about the current housing market, and determine a market value for your home. Your agent will also provide an estimated amount of cash you can expect from a sale. Next, unless you can pay cash, talk to your mortgage lender about financing your new home.

  • Can you qualify for your next home without selling your current home?
  • Can you obtain a bridge loan secured by equity in your present home to fund a down payment so you can buy first, then sell?

Once you have gathered this information, you are well prepared to shop for your next home.

SELL First then BUY

Consult with your real estate agent about how to prepare your home for sale, which may include a home inspection, making necessary repairs and cosmetic changes. Discuss the best time of year to sell your home. Spring and fall are busy buying seasons, but other seasons may have less sales competition. In our busy Northern Colorado market you usually can sell your home in any season!

Once you list your home for sale, you may begin the search for your next home. However, in a seller’s market, you can be a more competitive buyer if your current home has sold.

When an offer is submitted, evaluate options for a longer escrow period, or a leaseback, to allow time to find your next home. To be flexible with closing and possession dates for your sale and purchase, consider temporary housing options. Once you accept an offer and are ready to look for a new home, wait to submit an offer until you resolve most of your buyer’s contract contingencies.

BUY First then SELL

You found a home to buy and completed the research, but your present home is not listed for sale. In a buyer’s market, you may find a seller who willing to accept a contingency for the sale of your current home. In our Northern Colorado seller’s market, contingent offers are less desirable than those with no sale contingency. Builders may accept a contingent offer due to the necessary time frame for home building.

If your offer to purchase is accepted, it’s important to quickly prepare and list your home for sale. Consider pricing that will result in a contract quickly. This may not be the time to “try” an above market price with the intention of reducing the price later. Focus on selling your house with flexible showing times and maintaining your home’s appearance.

When you get an offer, you will likely be considering contingencies and deadlines that impact your purchase transaction.

When you’re selling your present home and buying your replacement home, understanding the process and your options ahead of time will better prepare you for challenges.

Contact an agent to discuss your next move!

 

Posted in: Buyers, RE/MAX Advanced, Sellers Tagged: Buying, Finance, financial, Home Buying, Managing Transactions, RE/MAX, RE/MAX Advanced, Selling, Selling and Buying

How to Use a Home Equity Line of Credit (HELOC) Wisely

Home Equity Loan

Learn how to get the cash you need while keeping your home and finances safe and sound.

What is a HELOC?

A Home Equity Line of Credit, or HELOC (pronounced hee-lock) as it is called in the industry, has become as common as SUVs and Starbucks. If you don’t have one, I bet you know someone who does. People use HELOCs as an easy way to get lots of cash. A HELOC, technically, is an Open Ended Deed of Trust, which is a credit line secured against real property, typically a home. HELOCs have a credit limit based on the value of the property used as collateral. Like other credit lines, a HELOC allows borrowing money up to a pre-set limit. The borrower is billed for the amount borrowed, and can pay back or draw out more at any time. Think of it as a credit card secured by the property. Once you have the line of credit, the money is easy to get. HELOC lenders usually issue checkbooks, ATM cards and credit cards to pull out funds. If you have a $100,000 HELOC with a zero balance, you could write yourself a check for $100,000, go the bank and cash it, walk around all day with $100,000 in a suitcase (consider handcuffing it to your wrist), then deposit it back in the bank the next day and pay down the HELOC balance to zero. When you get your statement at the end of the month, it would show you used $100,000 for one day and you would owe one day’s interest for the privilege of using that money. You can see a HELOC is a flexible tool and can be helpful if used properly. In comparison, a traditional second trust deed, or “closed end loan” behaves just like your first trust deed — the lender hands you the money at the beginning of the loan and you pay it back at a specified rate over time. You can’t draw out the money once you’ve paid it back. Traditional second trust deeds have advantages over HELOCs in some circumstances, but they are completely different tools for different situations. Just about every financial institution offers Home Equity Lines of Credit. They all work about the same, but a few are better. Banks vary the terms of HELOCs to attract customers. The variables to compare are the application costs, overall interest rate, annual fee, terms of repayment, early closure fee, and options to lock in the rate later. To be more attractive, a bank might offer a teaser rate, or no costs or fees. It’s important to look at everything before signing up. For example, I had a HELOC on my house through a major national bank, and they called and said if I raised my limit, I’d get Prime Rate minus 1 percent for the life of the loan. Well, that’s a pretty good interest rate — in fact, I’ve never seen anything better, so I took the bait and signed the documents. The annual fee is $90 per year, which, I now realize, is about $50 higher than I could have gotten at another bank and $90 higher than the annual fee at some credit unions. I keep a zero balance on my HELOC most of the time, so I am not realizing the benefit of the lower interest rate. Every year, I pay the $90 fee for the right to spend $200,000 at the blink of an eye. Of course, if I do run up a balance, I’ll benefit from the lower interest, so the $90 fee will make more sense.

Check your rates

Almost all HELOCS are adjustable-rate loans, adjusting the interest rate whenever their underlying index moves. Most HELOCS are based on Prime Rate as published in the Wall Street Journal. The rate is calculated by adding Prime plus or minus a “margin” that determines the actual rate you are charged. There are other indexes, and occasionally someone offers a fixed rate HELOC, but they are too rare to discuss here. In most circumstances, the interest paid on a HELOC is tax deductible. The most important part of a HELOC is the margin. Try to get the lowest possible margin the bank offers. The margin, which controls your interest rate, is based on a combination of the loan-to-value (the total debt on the house compared to the value of the house), the loan balance, your credit score, and your debt to income ratio or income documentation requirements. Margins can go as high as 4.75 percent for high loan-to-value loans, low credit scores, or rental property. Doing the math, if Prime Rate is 8.25 percent (in 2007, not the same now but the concepts still apply), and you found a HELOC at Prime minus 1 percent margin, your rate would be 7.25 percent, as long as Prime is at 8.25 percent. Since the balance borrowed and interest rate can change daily, the interest amount you owe is also calculated daily. Multiply the balance by the rate and divide by 12 for a monthly payment or by 360 for a daily charge. Using my loan as an example, to carry $100,000 around in my briefcase all day would cost me $20.14. Cheap thrills! (100000 x .0725 / 360 = 20.14) If I keep the money for a month it will cost me $604.17. Honey, have you seen my briefcase? All HELOCs require you to pay the interest that’s due on the loan each month. On small balances, some require a minimum payment higher than the interest due — the extra is applied to pay down the borrowed amount. For instance, if I go out and buy a $8,000 Jacuzzi system, the interest due will be $48.33 per month. However, my HELOC specifies that the minimum payment on any balance is at least $100. That’s a very common feature and I don’t mind paying the balance down. That’s what I should be doing anyway. However, there are some HELOCs that demand a payment of 1 percent of the loan balance every month. If I run up a balance of $100,000, my payment will be $1,000.00 per month. That payment includes $400 principle, but it makes for a steeper payment than interest only. Most HELOCs allow you to access the balance and draw out money for about 10 years, then the line freezes and you have 20 years to pay back the balance. Some loans allow you to lock in a certain portion of the balance after you have drawn it out so the rates won’t go up. This is a relatively new feature, and it’s very cool.

HELOC in the real world

Whenever anyone asks why I have a HELOC, I tell this story. I have a client who lived next to a widow. When she died, her daughter moved in and began dealing drugs from the house. Conditions went from bad to worse. My client was at his wit’s end when the daughter knocked on his door late one night. She was in a hurry to leave, and wanted to know if he would buy the house. How much, he asked? She said it was worth much more, but she felt bad about everything, and if he could give her $100,000 tomorrow and the keys to his truck he could have the house. My client, an attorney, weighed his options and wrote the check. He told me the house was in such poor condition that rats had pulled silverware off the counters and into the walls, where they were shorting out the electricity. But, using his HELOC, he was able to remodel the house and sell it for a tidy profit. The house is now the pride of its new owner. Jumping on an immediate smart opportunity is the bright side, an example of the proper use of the loan. HELOCs are cheap to obtain, and can be very useful for emergency expenses or anything that requires quick cash. A HELOC is a good idea for remodeling your house, because you can draw out the amount you need as you go, and only pay interest on that amount. A HELOC can be a swing loan between buying and selling property. Over the last three years, the number of borrowers seeking a Home Equity Line of Credit has risen ten-fold. The Prime Rate was low, credit standards were lax, and banks were literally giving away credit lines. HELOCS were being used to finance cars, vacation homes, remodels, and to consolidate consumer debt. HELOCs have even used to buy homes. Buyers could finance the home 80 percent with a traditional first trust deed, and then another 10, 15, or even 20 percent with a HELOC. This extends credit beyond the common 80 percent loan-to-value. But there is a dark side too. HELOCs are not good long term loans. Prime rate can be volatile, which is scary in a rising interest rate market. Borrowers who took out HELOCs a few years ago when Prime was at 4.25 percent watched in horror as it climbed to 8.25 percent by 2007. Someone who borrowed $100,000 watched their interest payment go from $437 a month to $770 a month. Ouch! And the easy money can be a dangerous temptation for people with poor financial discipline. Some borrowers just took the cash and spent it. But if you cannot pay the loan back, the lender can foreclose on your home.

80/20 financing

I’ve been in the business long enough to remember when Prime Rate was at 18 percent. Therefore, I strongly advise my clients to use a HELOC for short term financing only. Use it, but pay it off — just like smart use of a credit card. I also recommend against borrowing more than 25 to 30 percent of the amount already borrowed on your first trust deed. For example, if you owe $400,000 on your first loan, don’t borrow more than $100,000 to 120,000 on a HELOC. If you need more than that, long term, stable financing is a better option. If you use your HELOC to pay off high interest rate credit cards, that’s a good idea — once. Then hide the credit cards and don’t run up the balances again. Create a payment plan to pay off the HELOC. If you buy a car with your HELOC and only pay the interest due, you will still owe the entire price of the car 10 years from now — not a sound plan! Too many borrowers use HELOC money to subsidize their lifestyle. Take a hard look at your budget and make sure you are paying off your HELOC balance as fast as possible. If you got a HELOC a few years ago and are now feeling the pinch of higher interest, call your lender and ask if they will convert all or part of the balance to a lower fixed rate, or if they will lower your margin. Some will do it over the phone to keep from losing your business. If your current HELOC lender won’t improve your terms, call your loan officer or banker and see if refinancing the HELOC is a good idea. This is usually inexpensive to do and might save you a few bucks overall. Or, it might make sense to refinance your home’s first trust deed to payback a high-rate HELOC. Any qualified loan officer can help you decide. And, be sure to use your own cash effectively. Don’t let money sit in the bank where it’s earning 1 percent or 2 percent while you are paying much higher on your HELOC. Remember, if you need the money, you can always draw it back out of the HELOC.

If you need a HELOC

Keep your eyes open for good deals on HELOCs — it’s a competitive field. Lenders are constantly refining the terms of their HELOCs to attract new customers, and smart new options are coming out all the time. Some HELOC loans are now hybrids, allowing a portion of the line to be fixed and a portion to remain open and available for draw. Just be sure to read the fine print, ask a lot of questions, and work with a company you trust. If you do your homework and make the right choices up front, you’ll be happy with your HELOC for many years.

By Tim Reid, http://realestate.advisor.com

Want more information?

ABCs of HELOC: Pros and Cons of Home Equity Lines of Credit | nerdwallet.com

HELOC – Complete Guide to Home Equity Line of Credit | www.bankrate.com

 

Posted in: Buyers, News and Announcements, RE/MAX Advanced Tagged: Buying, Buying a Home, Deed of Trust, Finance, financial, Fort Collins, HELOC, Home Buying, Home Equity Line of Credit, Lenders, Loans, northern colorado, RE/MAX, RE/MAX Advanced

A College Grad’s Guide to Home Buying

The College Graduate's
Many millennials are open to moving back to their parents’ houses after college. But for some, moving home may not be a viable option. This is leading recent college grads to a fork in the road: should I rent or should I buy? With renting costs continuing to rise, many recent graduates are deciding on the latter. Here is your unofficial guide to home buying!

What does the future hold?

It can be very daunting to map out the next 10 years of your life just as your tassel has been moved to the left. Impulsive decisions should be left in the dorm room and recent grads need to plan where and what they will be doing before considering buying property. Thinking like a real estate investor rather than making emotional or rash decisions can help guide the thought process.

Before college grads think about buying a home, they should have both a stable job and firm plans to live in the neighborhood for at least the next five years. If a recent grad is cemented and secure in their current location then they should talk to several mortgage lenders (starting with their bank) about their loan qualifications.

Buying your first home is a huge decision, so all the factors together can become overwhelming. However, if you are mentally prepared to take the journey then you need to be certain that your wallet can handle the weight as well.

Plan, Plan, Plan

Before you even think of picking up a pen and inking a deal for a mortgage, it’s important to be aware of your financial standing. With technology, budgeting has never been easier. There are a slew of apps for smart phones that are tailor-made for budgeting and planning your finances.

In addition to knowing the precise state of your finances, it is important to know your credit score — visit AnnualCreditReport.com. This is the only site that’s federally mandated and an authorized source for a free credit report.

Once you know your score you can decide what next steps. If it’s too low to even apply for a home loan (anything below 580), it’s time to get your credit in order. You should open up a credit card and pay it on time and stay on top of your student loans. Your mortgage lender can also help determine a course of action.

Many new buyers also don’t factor in the hidden costs of buying their first home. As well as the down payment on the property, there are also appraisal charges, closing costs, taxes, insurance and property inspection fees.

Much like school itself, the best thing a recent college graduate can do is their homework. As long as you think with a clear head and have a healthy financial standing, you could soon be hanging that fancy diploma in your very own home.

Give one of our agents a call if you or someone you know is contemplating their first home purchase!

Courtesy of RISMedia 2016

 

Posted in: Buyers, News and Announcements, RE/MAX Advanced Tagged: Buying, Buying a Home, College, College Graduate, Finance, financial, Fort Collins, Graduation, Home Buying, Millennials, Moving, northern colorado, RE/MAX, RE/MAX Advanced

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© 2023 · Ft Collins Homes | RE/MAX Advanced, Inc. · Information deemed reliable but not guaranteed. All Rights Reserved.

Accessibility: RE/MAX Advanced is conducting periodic site audits in order to identify potential accessibility issues and is implementing changes to improve accessibility. For more information, contact RE/MAX Advanced.