Buying a Home Archives - Fort Collins Homes

FHA Borrowers Will Pay Reduced Mortgage Insurance Premiums

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On February 22, 2023, the Department of Housing and Urban Development released details of a long-anticipated plan to reduce the annual MIP (mortgage insurance premiums) that are currently charged to FHA borrowers by 30 Basis Points (0.3% of the loan balance).

The FHA mortgage insurance premium is the monthly fee homeowners pay to insure their mortgages. The fee is calculated as a percentage of the loan amount and paid in addition to the monthly principal and interest payments.

The annual FHA mortgage insurance premium will reduce from 0.85% to 0.55% for most new borrowers.

The National Association of REALTORS® applauded HUDs move to reduce the MIP for Federal Housing Administration loans, saying the financial relief will help more homeowners and buyers weather affordability challenges, and potentially save borrowers with FHA-backed mortgages hundreds of dollars a year.

FHA loans offer down payment options as low as 3.5% to first-time and low- to moderate-income home buyers. Eighty percent of FHA borrowers are first-timers, and more than 25% are minorities.

Homeownership is currently the principal source of wealth creation for most American households, but due to a nationwide shortfall in the supply of affordable homes, first-time homebuyers have struggled in recent years to achieve homeownership.

FHA loans offer a small down payment and more flexible underwriting, enabling credit worthy borrowers to begin building wealth through homeownership earlier than they might otherwise.

National Association of REALTORS President Kenny Parcell said in a statement: “Mortgage rates have doubled over the past year, and home prices have increased more than 30% in some counties. In this competitive market, new and low- to moderate-income buyers are often left behind.”

With a $400,000 FHA-insured mortgage, the MIP reduction could save a borrower approximately $1200 in the first year of homeownership.

The MIP reduction is the result of several factors: an improvement in the credit quality of borrowers in the FHA mortgage portfolio, home price appreciation, and significant refinance volume. As a result, the FHA’s mortgage insurance fund has seen gains in its capital reserves.

The FHA mortgage insurance premium reduction became effective in March, 2023.

Find more details about the FHA MIP reduction and savings on page 2 this month’s newsletter!

Contact me about specific loan programs for first time homebuyers available to you or someone you know!

Source: nar.realtor/magazine, nationalmortgageprofessional.com, https://www.mortgagenewsdaily.com/news/02222023-fha-mortgage-insurance

Delivering Water To Northeastern Colorado

Delivering Water To Northeastern Colorado.

During the 1930s, Colorado suffered through the Great Depression and a devastating drought. Entire fields of topsoil were blowing away and one-third of the farms in Larimer County were put up for sale.

In the summer of 1933, the Greeley Chamber of Commerce organized the Grand Lake Committee to pursue a water diversion project. The committee preceded a group
formed in 1935 to propose the Colorado-Big Thompson Project as a supplemental water source to Northeastern Colorado farmers.

In May 1937, the Colorado Legislature passed the Water Conservancy Act, laying the groundwork to create the Northern Colorado Water Conservancy District the same year.

The Northern Colorado Water Conservancy District, or Northern Water, was created to jointly operate and maintain the federally-owned Colorado-Big Thompson Project. In
1937, the main purpose of the C-BT Project was to provide supplemental irrigation water to farmers in Northeastern Colorado.

Today, the C-BT Project collects supplemental water west of the Continental Divide for delivery to approximately 1 million people and 615,000 irrigated acres in Northeastern
Colorado for agricultural, municipal, domestic and industrial purposes.

The C-BT Project began its first year of water deliveries to the full district in 1957 and since then has collected and delivered more than 200,000 acre-feet of supplemental water each year on average. The project is designed to collect and store water from the melting snowpack near the headwaters of the Colorado River and bring it underneath
the Continental Divide to Northeastern Colorado.

In addition to the original C-BT infrastructure, Northern Water has worked cooperatively to create enterprises to finance and build additional water infrastructure,
including the Northern Integrated Supply Project.

In 1970, Northern Water’s Municipal Subdistrict, a separate and independent conservancy district, was created by six Front Range municipalities: Boulder, Estes Park,
Fort Collins, Greeley, Longmont and Loveland.

The Municipal Subdistrict began formal efforts to develop and construct the Windy Gap Project in the summer of 1967. Currently the Subdistrict is constructing Chimney Hollow Reservoir near Loveland, the main component of the Windy Gap Firming Project.

The Windy Gap Project consists of a diversion dam on the Colorado River that creates a 445-acre-foot Windy Gap Reservoir, a pump plant and a six-mile pipeline to Lake Granby. Currently, Windy Gap water is pumped and stored in Lake Granby for delivery to water users via the C-BT Project. Windy Gap Project water utilizes both West Slope
Collection and East Slope Distribution infrastructure to reach Windy Gap participants.

Northern Water provides cities, towns, rural-domestic water districts and industries with year-round water deliveries. During the primary growing season between April
and October, water is also delivered to more than 120 ditch, reservoir and irrigation companies serving thousands of farms and more than 500,000 acres.

With growth continuing in Northeastern Colorado, more than 1 million residents are now served by Northern Water. This area encompasses portions of eight counties:
Boulder, Broomfield, Larimer, Logan, Morgan, Sedgwick, Washington and Weld.

Source:www.northernwater.org

Leverage Investment Property With A 1031 Exchange

When you sell an existing investment property, you’ll pay capital gains on any appreciation, as well as the depreciation recapture.

In 1031 exchanges, one income property is swapped for another and the gain transfers from the former property to the newer property, allowing your investment to grow tax
deferred.

As an investment property owner, you can exchange for a vacation or future retirement home.

Requirements of a 1031 exchange
Here are seven primary 1031 exchange rules to keep in mind:

1. The investment property being sold and the property being acquired must be similar, or like-kind.
2. 1031 exchanges only apply to business or investment properties, not personal property.
3. The replacement property must be of equal or greater value.
4. For a tax-free exchange, you can’t receive “boot” which is cash or other property added to an exchange to make the value of traded goods equal. While partial exchanges of a newer, but lesser value property, are allowed, you will pay capital gains tax on the difference or “boot”.
5. The titleholders of both properties in the exchange must be identical.
6. After selling the property currently owned, you have 45 days to identify up to three potential like-kind replacement properties.
7. The replacement property must be received and exchanged within 180 days after your original property is sold.

There are currently no limits to how many times you can conduct a 1031 exchange. Even if subsequent swaps produce a profit, you can defer paying taxes until you sell for cash.

Only business or investment properties are eligible for a 1031 exchange, including vacant lots, apartment buildings, commercial properties, and even single-family residences you rent out to tenants.

A property you use solely for personal use, such as your primary residence, does not qualify.

Buying a vacation home with a 1031 exchange
You can invest the proceeds of a likekind exchange into a vacation rental home by meeting these requirements:

During the first two 12-month periods after the exchange:
• You must rent the property for 14 days or more per year.
• You must limit personal use to not more than 14 days per year and no more than 10% of the days rented.

Rental rates must be at fair market value. Renting it to a family member for $1 per night would count as personal use.

You can also sell your current vacation home through a 1031 exchange as long as the rent and occupancy requirements for the two years preceding the sale are
met.

After meeting the requirements of the first two years of ownership, then you are free to stay as often as you’d like without further requirements.

Buying a retirement home with a 1031 exchange
The rules during the first two years of acquiring your future retirement home require that your personal usage not exceed 14 days, and the property is rented
for 10 times the number of personal use nights: at least 14 days per year.

Additional rules apply to converting a rental property acquired in a 1031 exchange to a primary residence.

Be sure to consult your attorney and tax advisor to determine if a 1031 is right for you.

Contact me to discuss a vacation or future retirement home investment with or without a 1031 exchange!

I’ll help you find an out of area REALTOR® as well!

Source: https://www.vacasa.com/buy-vacationhome/1031-exchange

Understanding The Federal Reserve Rate Hikes

The Federal Reserve raised the federal funds rate by 0.75 percentage point for the fourth time in early November, marking an unprecedented pace of rate hikes.

The benchmark short-term borrowing rate has been raised six times this year in an effort to cool down inflation, which is still near 40-year highs and causing most consumers to feel increasingly cash strapped.

The Fed noted in a policy statement that the “cumulative” impact of its hikes are being considered relative to determining future rate increases. Economists are hoping this
signals plans to “step-down” the pace of increases going forward, which could mean a half point hike at the December 13-14 meeting and then a few smaller increases in 2023.

What The Federal Funds Rate Means To You
The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers
pay, the Fed’s decisions affect the borrowing and saving rates they see every day.

By raising rates, the Fed makes it more costly to use financing, causing people to borrow and spend less, effectively pumping the brakes on the economy and slowing down the pace of price increases.

“Unfortunately, the economy will slow much faster than inflation, so we’ll feel the pain well before we see any gain,” said Greg McBride, Bankrate.com’s chief financial analyst.

Already, “mortgage rates have rocketed to 16-year highs, home equity lines of credit are the highest in 14 years, and car loan rates are at 11-year highs,” said McBride.

How Higher Rates Affect Borrowers
Even though 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, anyone shopping for a home has lost considerable purchasing power in part because of inflation and the Fed’s rate hikes.

30 Year Fixed Rate Mortgage Comparison For A $300,000 Loan
Dec 2021 Nov 2022
Rate / Payment Rate / Payment
3.11% / $1,283 7.08% / $2,012
That’s an extra $729 a month, an increase of $8,748 per year, and $262,440 more over the lifetime of the loan, according to LendingTree.

The increase in mortgage rates since the start of 2022 has the same impact on affordability as a 35% increase in home prices, according to McBride’s analysis.
“If you had been approved for a $300,000 mortgage in the beginning of the year, that’s the equivalent of less than $200,000 today.”

Interest rates for adjustable rate mortgages and home equity lines of credit are pegged to the prime rate, and will also eventually increase. Most ARMs adjust once a year, but a HELOC adjusts right away.

Meanwhile, consider boosting your emergency savings since savings rates have also increased. Sleep better at night knowing you have some money tucked away just in case.

Call me to discuss your options for a refinance or financing your next home!
Source: www.cnbc.com

Understanding Inflation and Mortgage Rates

This year, inflation reached a high not seen in forty years. The average consumer felt
the pinch at the gas pump and in the grocery store. It has also impacted the ability
of some buyers to save money to buy a home.

When the inflation rate was higher than expected in late summer, concerns about
recession were fueled, prompting the Federal Reserve’s decision to raise the Federal
Funds Rate in late September.

Fortune magazine explains:
“As the Federal Reserve moved into inflation-fighting mode, financial markets quickly put
upward pressure on mortgage rates. Those elevated mortgage rates … coupled with skyhigh home prices, threw cold water onto the housing boom.”

The Rise of Mortgage Rates
In light of growing economic pressures, the average 30-year fixed rate mortgage
recently surpassed 6% for the first time in well over a decade.

The mortgage rate increases this year are the big reason buyer demand has pulled
back in recent months. As rates rose, so did the cost of buying a home and some
buyers were priced out of the market.

Looking Ahead
The relationship between inflation and mortgage rates is simple.

When inflation is low, mortgage rates tend to be lower. When inflation is high, rates
tend to be higher.

Sam Khater, Chief Economist at Freddie Mac, commented:

“Mortgage rates remained volatile due to the tug of war between inflationary pressures and
a clear slowdown in economic growth. The high uncertainty surrounding inflation and
other factors will likely cause rates to remain variable…”

Bottom Line
Rising inflation and higher mortgage rates have had a clear impact on housing.
Contact me for insights on the latest trends in the housing market and what they
mean for you.

www.keepingcurrentmatters.com