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Have You Backed Up Your Home?

Personal computers have been around long enough that everyone has experienced or knows someone who has lost their data due to a hard drive crash, accident or burglary. If they had a backup, the loss was inconvenient but not critical.

Do you have a backup for your personal belongings? Not that you need duplicates of all the items but do you have a journal listing of all the items with a description and their approximate values? That record becomes the backup that supports the claim for your insurance.

If a building sustains a total loss, the insurance company will usually pay the face amount of the policy. When it comes to personal property which might be 40% to 50% of the insured value of the dwelling, the insurance company is going to expect an accounting with receipts or at least, a relatively recent inventory.

The better your inventory, the less likely you’ll have difficulty with the claim. Almost everyone has a digital camera that can take stills and probably even videos. The combination of the images as well as a written description will help you replace the belongings and serve as proof to the insurance company.

Once you’ve made the inventory, store it off site for safe keeping. Online storage in the “cloud” might be the best place to insure you’ll always know where it is. Contact me for a free Home Inventory form; it’s my way of helping you be a better homeowner.

15 Year vs. 30 Year Mortgage

Whether you’re refinancing your current home or buying a new one, something worth considering is a 15 year loan rather than a 30 year term. The payments will be a little higher but you’ll get a lower interest rate and you’ll build equity much faster.

Let’s look at an example of a $200,000 mortgage with the choice of a 30 year term with a 3.75% rate compared to a 15 year term with a 2.875% rate. The payments would be $442.94 higher on the shorter term but the equity would be considerably higher even after you adjust for the higher payments.

Another benefit is that the shorter term loan creates a forced savings situation where the savings on a longer term loan might end up being spent rather than being saved and invested. Contact me if you’d like a recommendation of a trusted lender.

Buyers Must Act Fast to Get Their Dream Home

Denver Housing Market Second in Nation for Quick Sales

By Steve Raabe The Denver Post The Denver Post

Posted: Denver Post.com

April 19, 2012

New advice from the trenches on buying a home: Look early. Think fast. Hone your quick-draw skills with the checkbook.

Metro Denver’s real estate market, not long ago a buyer’s domain, suddenly has shifted to a seller’s paradise, at least in some neighborhoods and price ranges.

Realtors’ offices are rife with fresh anecdotes of sellers happily cherry-picking from multiple offers — some of them above the asking price.

How fast is the market moving? A new report shows that Denver is No. 2 in the nation for the shortest length of time that a home is listed before being sold — 33 days — far below the national median of 89 days.

Until recently, prospective buyer Patty Kupfer had viewed shopping for a home as a weekend diversion. You know, tell your broker that you’re available, say, from 2 to 4 p.m. on Saturday.

Hah.

“There’s no such thing anymore as a weekend home tour,” Kupfer said this week. “Because if you wait till the weekend, nothing’s going to be there. If you’re just looking casually, you’re not really in the market.”

Kupfer, managing director of a non-profit immigration-reform organization, said she has adjusted her approach in the face of vigorous competition from other buyers. “Every house I’ve looked at has gone under contract within 48 hours,” she said. “This has forced me to be more serious about it. The very next house that seems like a good fit, we’re going to visit it that very day (it’s first listed).”

In recent months, buyer demand has surged and the number of homes for sale in metro Denver has dropped sharply.  Unsold homes on the market totaled 10,325 at the end of March, a 42 percent drop from March 2011.  The result is that for some neighborhoods and some price ranges, homes are in short supply and selling fast. In particularly high demand are homes priced from $250,000 to $400,000 and in central Denver neighborhoods such as Park Hill, Congress Park, Curtis Park, Mayfair and the Highlands, said Michelle Ackerman, Denver-area manager and broker for Redfin.

Even though metro Denver homes have shown only marginal price appreciation so far this year, realty analysts say strong demand and multiple offers could soon push values higher in lower to moderate price ranges.

One factor that makes price predictions difficult is foreclosures. Lenders hold an estimated 1,650 foreclosed properties in metro Denver that haven’t been put on the market, according to data compiled by Redfin.  As the market strengthens, more foreclosures will be listed for sale, which in turn could slow down price appreciation.

Sellers of homes listed for more than $500,000 generally aren’t enjoying the market heat.  “Once you move above $500K, inventory widens dramatically and prices are still down, and arguably falling,” Ackerman said.  Elsewhere, inventories are low and urgency among buyers is high.

Joshua Kurdys and Ileana Sadin, recent arrivals to Denver from State College, Pa., found the Denver market to be an exercise in frustration.  “You’d go out and see five or 10 houses, and the one house that was decent would be snatched up immediately” by other buyers, Kurdys said.  After several failed offers in central Denver neighborhoods, the couple decided to expand their geographic parameters, accelerate their pace and be willing to bid higher.  “It was very apparent that if we didn’t make an offer at very close to asking price, we weren’t going to get it,” Kurdys said.  The strategy worked. They recently targeted a newly listed home in Curtis Park, made a 9 a.m. appointment to see it and submitted an almost full-price offer the same day. They now have it under contract.

What can be a frustrating endeavor for buyers is a pleasant relief for sellers. Connie Ulrich was anticipating the worst in attempting to sell her three-bedroom home in the Northbrook subdivision of Thornton.  But within a month of listing the home, she’d had 34 showings. “We had so many showings, it was just insane,” she said. “I never expected it to be so busy.” Listed at $254,000, the home now is under contract for $256,000.

“There is a shortage of good product,” said broker Rhonda Knop of Distinctive Properties. “If it’s priced right and shows well, it is selling.”

Steve Raabe: 303-954-1948 or sraabe@denverpost.com

Mortgage Interest Deduction

A recent U.S. Tax Court ruling clarified the IRS position that the $1.1 million limit for mortgage interest deduction applies per residence and not per taxpayer as some high-priced homeowners were hoping.

A married homeowner filing jointly can have fullly deductible interest on a mortgage of up to $1,000,000 of acquisition debt and up to an additional $100,000 of home equity debt. If the married couple files separately, each party is limited to deducting the interest on half of those maximum amounts.

The court case came about when two unmarried individuals who owned a home together as joint tenants felt that they were entitled to deduct the interest on $1.1 million of debt each. IRS did not agree with their understanding and neither did the Tax Court. The Court ruled that the limits apply per residence, not per taxpayer even if a home is co-owned by unmarried taxpayers.

The result for the taxpayers in this case was that their deduction was cut in half resulting in much more income tax due. While this situation only affects a few taxpayers, homeowners in this position should have a discussion with their tax professional.

Risk Determines Rate

Regardless of what a lender quotes on mortgage rates, the actual rate paid by a borrower is based on a number of variables. Lenders determine whether to loan money and at what rate based on the risk involved with the transaction.

Factors that increase the risk that the loan will be repaid will proportionately increase the interest rate charged to the borrower. If the risk becomes too high, the loan will not be approved.

  • Loan amounts – conventional loans for more than the conforming limits set by Fannie Mae are considered jumbo loans and generally have a higher interest rate.
  • FICO score – the lowest interest rate is reserved for the highest credit scores; the lower the score, the higher the rate borrower will pay.
  • Occupancy – borrowers occupying a home as their principal residence are considered a better loan risk than second homes and investment properties.
  • Loan purpose – purchase transactions generally have the lowest interest rate while refinancing a home is generally higher.
  • Debt-to-Income ratio – a borrower’s monthly liabilities divided by their gross monthly income develops a ratio that helps lenders to assess the borrower’s ability to repay the mortgage.
  • Loan-to-Value ratio – the lower the percentage of the loan to the appraised value of the property will generally lower the interest rate.
Any combination of these factors could limit a borrower’s ability to secure a mortgage at the rate initially quoted. Being pre-approved by a trusted mortgage professional is the best way to know what rate you can expect to pay. Please call for a recommendation.

Another Indication – Good Time to Buy

The Housing Affordability Index was developed over thirty years ago to help consumers determine when it is a good time to buy a home. It’s considered advantageous to the buyer when the index is over 100 because a median income family can qualify for a median price home.

Recent figures released by the National Association of REALTORS’ economic department show that the 2011 index of 184.5 is the highest annual average since it has been calculated. The most recent month released, December 2011, was 194.9. The index is also broken down into four regions of the country.

The two major components that contribute to the index are home prices and mortgage interest rates which are lower than they’ve been in the last five years which account for the dramatic rise in the index since 2006.

The Housing Affordability Index is another indication that this is a good time to buy a home for people who have good credit, a down payment and want a home. It may be the best time we’ll see in our lifetimes.

If it Isn’t Broke, Don’t Fix It!

“If it isn’t broke, don’t fix it” is certainly popular advice, but if you’ve ever had a serious plumbing leak, you certainly wished you had taken care of the problem earlier.

Washing machines, like all appliances, are supposed to work and when they don’t, it’s time to have them fixed or replaced. However, there is a critical connection from your water supply that may even be older than your washing machine itself.

Ask someone whose hose broke while they were asleep or out of town and you’ll hear stories of how quickly the water can damage walls, flooring and furniture. Almost anyone can replace the hoses with a pair of pliers for under $30.00 to avoid this potential catastrophe.

As you’re shopping for the replacement hoses, consider the braided stainless steel connectors. The advantage is that the stainless steel offers additional protection should a soft spot develop in the hose beneath. They’ll cost a little more but offer considerably more protection for a nominal price.

Aside

FHA has raised …

FHA has raised the annual Mortgage Insurance Premium to 1.25% beginning April 1st.  MIP is required on all FHA loans and used to fund losses by lenders for borrowers who default on their mortgages.  As of June 1st, FHA loans in excess of the standard maximum of $625,500, in high-cost areas, will have a premium of 1.5% of the loan amount.

In addition to the increase in the annual MIP, FHA also announced it plans to raise the fee on the up-front MIP from 1.00% to 1.75%.  No date was reported for its implementation.

The bottom line will result in a borrower’s payments going up.  However, it might not be restricted to the MIP.  Freddie Mac’sPrimary Mortgage Market Survey showed that both 30 year and 15 year mortgages have gone up too.

One way to avoid the increase is to have a completed sales contract and have your lender order the FHA commitment prior to April 1, 2012.  If you plan on buying a home this spring, there is a reason to do it earlier rather than later.

Rental Homes – IDEAL Investment

Rental homes can be the IDEAL investment in today’s market because they offer a much higher rate of return than alternatives without the volatility of ups and downs in the stock market.

IDEAL serves as an acronym to identify the advantages of rental properties:

  • Income from the monthly rent contributes to paying the expenses and a return on the investment
  • Depreciation is a non-cash deduction that contributes a tax shelter
  • Equity grows monthly as the mortgage amortizes due to some of each payment being applied to the principal
  • Appreciation is achieved as the value of the property goes up
  • Leverage can increase the return on investment by using borrowed funds to control a larger asset
The combination of these characteristics working together makes rental real estate a very good investment for today’s economy and years to come. Increased rents, high rental demand, good values and low non-owner-occupied mortgage rates contribute to positive cash flows and very favorable rates of return.
Contact me for more information about actual opportunities in our local market.

Great Investment

If you invest in a savings account, you’ll make less than 1% and will have to pay income tax on the earnings. On the other hand, contribute something extra to your house payment on a regular basis and you’ll essentially, earn at the mortgage interest rate which is certain to be more than you’re earning in the bank.

Making additional principal contributions on your mortgage will save interest, retire debt and build equity. An extra $100 a month in the example shown will save thousands in interest and short the term of the mortgage as well.

Reducing your cost of housing is another way to improve the investment in your home. Becoming debt-free is a worthy goal that is achieved with discipline and good decisions. Suggestions like this are part of my commitment to help people be better homeowners when they buy, sell and all the years in between.

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