financial Archives | Fort Collins Homes

Reverse Mortgages: Pros and Cons

A reverse mortgage allows homeowners age 62 and older to convert part of the equity in their home into cash without having to sell their home.

These loans aren’t a cure-all for retirement money problems, though. Consider these risks and benefits.

PRO: Supplemental retirement income
Some people are house-rich and cash-poor. Assuming borrowers can manage the expenses of owning a home, the reverse mortgage provides a way to liquefy a portion of the home equity to cover financial obligations. This could be helpful in the event of an unexpected job loss, health issues or limited savings. Reverse mortgages can also be a funding source to diversify investment portfolios, although loan fees add to the upfront costs.

PRO: Pay off an existing mortgage
With enough equity in the home, a reverse mortgage can be used to pay off the current mortgage, eliminating the monthly mortgage payment, and freeing up money for other
expenses.

PRO: Proceeds are tax-free
The IRS considers proceeds from a reverse mortgage to be a loan, not income, so you won’t pay taxes on it.

CON: Loan Costs
Obtaining a reverse mortgage includes loan fees, possibly mortgage insurance premiums, and interest charges, which are not tax-deductible.

CON: It’s not a good short-term option
Upfront costs for reverse mortgages are higher than other forms of borrowing, in part due to the federal mortgage insurance premiums. Alternative short-term financing options include credit cards, personal loans, and home equity loans.

CON: A default could result in losing the home
A default occurs when the borrower fails to meet the ongoing requirements of a loan, such as not paying property taxes or homeowners insurance, or failing to
certify that the home is their principal residence. This can lead to eviction and foreclosure, if unresolved.

CON: Heirs may not be able to keep the home
With a Home Equity Conversion Mortgage (HECM), which is insured by the US Federal Government, heirs have to pay either the full loan balance or 95% of the home’s appraised value, whichever is less. They can do this by paying cash, getting financing, selling the home or turning the home over to the lender to satisfy the debt.

Is a reverse mortgage worth it?
A reverse mortgage could be a good solution if:
• There is a long-term need for additional income, and benefits such as Medicare and Social Security have already been utilized.
• The need to use the equity in the home for income now outweighs the risk that family heirs may not be able to keep the home in the future.

Give one our agents a call to discuss other options such as moving to a less-expensive home, or to locate a reverse mortgage lender!

Source: NerdWallet

Millennials Underestimate Down Payment Needs

The pandemic is motivating more Millennials to feel like they’re finally ready to buy a home. But do they have the savings to do it?

Seventy-four percent of Millennials — ages 25 to 40 — recently surveyed say they are interested in purchasing a home in the next 12 months. However, 88% say they have significantly less savings than would be needed to buy a $300,000 home with a 20% down payment, or $60,000.

Fourteen percent of Millennials surveyed admit they have nothing saved for the purchase of a home.

Certainly, lower down payment programs exist. Whether these programs will be helpful for buyers whose savings are so limited is determined on a case by case basis. Down payments between 0% and 5% are possible with a home purchase, but these mortgage programs tend to cost more in the form of higher interest rates, and mortgage insurance premiums.

Forty percent of the Millennials surveyed say they set aside 10% or less of their income for a down payment. What’s more, 40% of respondents believe that $10,000 or less is enough to buy a home.

Seventy-six percent of Millennials in the study are looking for a detached home rather than a condo or townhome. Nineteen percent have their eye set on a home with more than 2,000 square feet, while 53% feel a home with 1001 – 2000 square feet will fit their needs.

If Millennial buyers are considering a down payment of 0%-5%, they may have a challenge finding homes for sale that are spacious enough to meet their demands with the amount of funds they have saved.

Those Millennials who hope to buy a home of their own may be able to save more as they move back in with their families. Young adults especially have moved in with family members as a result of the pandemic.

Call me for more information about opportunities to buy a home with a low down payment!

Source: Point2.com

Can You Get a Mortgage If You’re Self-Employed?

Whether you’ve owned your business for many years or started a new one, know that self-employed people can and do get mortgages.

Typically, lenders ask for documentation that includes a minimum of two years of personal and business tax returns, recent bank statements, year-to-date profit and
loss statements, and documentation of other assets which prove financial stability. Lenders also consider details about the length of time you have been self-employed
and how long you’ve done the type of work you are doing.

Lenders may review legal documents that established the business entity as an S-Corp, LLC, or Partnership. The financial strength of the business, demand for its
products and services, and future outlook will all be considered in the approval process.

Exceptions to the two year rule for self employment do exist.

There is a difference between a borrower who is self-employed for one year who has worked in the same field for many years, compared to the borrower who is self-employed for one year in a new line of work.

For example:
• If you were a W2 employee in the same field of work for five to seven years, earning $50,000, and opened your own business less than two years ago, you may not need a two year self-employment history because you’re in the same field and earning similar or more income.

• If you are a self-employed borrower in a new line of work, you may need to wait until you can provide two years of income stability even if you have the current income to qualify and are making more than you were prior to opening your new business. In this example, you may have adequate income but lack a long-term history in your new line of work.

Bottom Line: Work with an experienced loan officer who is skilled in helping self-employed borrowers. They can look at your overall situation, review mortgage options, and advise you regarding the timeframe needed to satisfy underwriting guidelines and obtain a loan approval.

Contact me for recommendations of lenders who are experienced working with self-employed borrowers!

Source: Mortgage Market Guide

Housing Forecast:
What’s Ahead in 2020?

2020 National Housing Market Overview
• Home price appreciation will flatten, with a forecasted increase of 0.8 percent
• Inventory will remain constrained, especially at entry-level prices
• Mortgage rates are likely to bump up to 3.88 percent by the end of the year
• Tight inventory and rising mortgage rates will lead to decreasing sales
• Buyers will continue to seek affordable housing

Supply and Demand
At the start of 2019, 2-out-of-3 national markets were seeing inventory growth. At year’s end, only 1-in-10 were seeing growth. In 2020, the market will continue to struggle with an inadequate supply of homes to meet buyer demand, and this inventory shortage has the potential to reach a historic low level. Nationally, the luxury market is cooling and builders are expected to shift to midlevel pricing. According to Matthew Gardner, economist, builders aren’t keeping up with demand for new housing stock because costs associated with land, labor, materials, and governmental regulation, are all increasing. “Twenty-five cents of every dollar spent on home construction is regulatory costs,” says Gardner. Overall buyer demand will remain very robust, particularly at the entry level. As a group, Millennials (born 1981-1997) will account for more than half of all mortgage originations in 2020.

Home Prices
At the national level, prices are estimated to tick up only 0.8 percent. In northern Colorado, analysts predict an annual average price growth close to the historic average of 5.5 percent due to continued in-migration and job growth exceeding many areas of the nation.

Housing Affordability
Over the past decade, demand for downtown living increased, driven by the
desire of Millennials for proximity and lifestyle amenities. As Millennials mature and start families, they are making a noticeable move toward affordable housing. The desire for affordability will continue in 2020, fueled also by Baby Boomers retiring and seeking sunnier weather, lower taxes and a lower cost of living.

Buyers
Compared to recent years, Buyers have less competition and more leverage. First-time buyers will continue to struggle with affordability, even with favorable mortgage rates, as entry-level inventory remains constrained.
Economist Matthew Gardner says 36.8 percent of homeowners in Larimer County and 29.5 percent of homeowners in Weld County have equity in excess of 50 percent of their home values. When these homeowners become move-up buyers, they acquire homes with more of the features they want without increasing their mortgage payment, and add inventory to the market with their home sale. First-time investors will use home equity or savings to buy rental
properties.

Sellers
Flattening price growth and slowing activity will require patience and thoughtful pricing on the part of sellers. Nationally, sellers of homes priced for entry-level buyers can expect the market to remain competitive and prices to stay firm. At the upper end of the price range, properties will take longer to sell, and incentives will become more common. Overall, homes that are prepared for the market and priced correctly will reap the benefits.
How can this year’s market opportunities support your real estate
goals? Give me a call and let’s discuss your options!

Source: Loveland Reporter Herald, REALTOR.com

How Big a Home Do You Truly Need? 5 Questions to Ask to Figure That Out

When it comes to homes, the popular credo is that bigger is better. More square feet = a larger slice of the American dream, right? Not necessarily. For one, bigger homes obviously cost more, and oversized McMansions can be harder to sell. As such, you’ll want a home that’s neither too big nor too small. But how do you strike that balance? Here are five questions to ask yourself that will help you determine how much space you really need.

1. Is this my ‘forever’ home, or is ‘right now’ good enough?

While you can’t predict the future (darn those unreliable crystal balls), it is possible to evaluate the likelihood you might be moving in coming years. If so, then maybe you don’t need to buy that perfect ‘forever home’ where you’ll grow old; maybe a ‘right now’ home is good enough.

“There’s a common perception that you should be searching for your ‘forever home,’ and that pressure to find a place that has all the space you might ever need often leads buyers to purchase a home that might be too big,” warns Jackie Hinton, a real estate agent with Center Coast Realty in Chicago. “It’s OK to know that you’ll only live in a home for the next five or six years, and to buy a home that will serve your needs during that period. You can always re-evaluate and upgrade to a bigger space later.”

2. What will my income look like later?

If you’re early in your career, odds are decent that your income will increase over the years. Or, if you’re reaching the end of your career, you may be looking at flattened or declining income. In either case, it’s never a good idea to get a mortgage at the max of what you can afford, it’s better to go small and have some wiggle room.

“Nothing causes more stress than financial strain,” says Bill Rice, president of MyPerfectMortgage.com. “A mortgage on a home that is a size too large is most likely to be your biggest burden, and a hard one to overcome. Happiness is often one size smaller than your dream home. That way, you can enjoy your home without dreading your monthly mortgage payment.”

Also, remember more space means more time and money spent on upkeep and maintenance, more rooms to fill with furniture, and higher utility bills to heat and cool the home.

“Any future improvement projects, like installing new floors or replacing windows, will cost more when the space is bigger,” says Hinton.

3. What are my priorities?

Another question to consider is what you’ll use all that space for-and be honest: While you might dream of hosting epic dinner parties in that big formal dining room, will you really? Can you say with honest certainty that your in-laws will descend on you during the holidays and need a guest bedroom to crash in, or might they be just as comfortable in a nearby Airbnb?

Aside from justifying what you’ll use each space for, ask yourself what you’re giving up. If you dream having a secret “travel fund” so you can see the world, that maybe be possible only with a smaller mortgage (and house). Or, perhaps you value things other than space, like school district or a walkable location. So make sure to factor those variables, too-and make sure you aren’t sacrificing them for space you don’t need.

This is why real estate investor Kathy Kettke decided to buy a smaller home so she could live in her “dream location” near the beach. “Being open to a smaller home allowed us to be in a higher-priced market we wouldn’t have been easily able to afford otherwise,” she says. And best of all, her home doesn’t feel cramped-particularly since she can pop out and stroll along the ocean anytime.

4. How much space do I want from my own family members?

If you absolutely must have privacy-to, say, get work done in a home office or chill out in your man cave-then that extra square footage may be well worth the money. But if you’re more the type who loves having their family members nearby, a large home gives people plenty of alone time…sometimes too much.

Fettke, for one, is glad her home is small because it keeps her in close contact with her kids. “I’ve found that my daughter’s friends who live in large homes rarely even run into their parents,” she says. But since her own home is smaller, her kids are constantly underfoot-just the way she likes it.

“Plus it seems that most of our daughter’s friends hang out at our place, even though it’s tiny,” she says. Sure, the beach nearby may be one draw, but so may be the cozy, close-knit family environment a smaller home forces you to have. “Maybe they like the homey environment and being able to smell the cookies being baked around the corner,” she says.

5. Does this home feel spacious even if it doesn’t have much space?

Keep in mind that even small homes can feel spacious purely based on an open floor plan and lots of light. Meanwhile, large homes can still feel cramped if they’re dark or poorly laid out. So, when shopping real estate listings, know that the little number next to square footage may not tell the whole story.

“The total square footage of a house can be deceiving,” says Patrick Ryan, senior vice president and managing broker of Chicago-based Related Realty. “Features like a long hallway may increase the total, but they are spaces you pass through, not a true destination within the home.”

So instead of homing in on total square footage, “buyers should focus on the size of individual rooms where they see themselves spending the majority of their time,” says Ryan. In other words: Who cares if your bedroom isn’t massive, since all you plan to do there is sleep?

Source: Julie Ryan Evans | www.realtor.com