Pikes Peak Homes and Land
Chris J Clark, REALTOR®
Broker/Owner
Phone (719) 464-5839
Chris@PPHAL.com

Blog

It’s Not Just the Tax Benefits

When the standard deduction for married couples filing jointly was increased from $12,700 to $24,000 for 2018, there was some speculation that the bloom was off the rose of homeownership.  The thought was that if the tax benefits from being able to deduct the property taxes and interest was less than the standard deduction, that maybe, the buyer would be better off continuing to rent.

With mortgage rates as low as they have been for the past eight years, payments have been lower and so has the amount interest that was paid.  This and the fact that sales and local taxes, which include property taxes, are limited to $10,000 a year on the Itemized Deduction form have made it harder to reach the increased standard deduction.

The reality of the situation is tax benefits are only one of the components that make a home an excellent investment and it probably contributes the least of the top three benefits.  Principal reduction and appreciation build an owner’s equity in an automatic way that is like a forced savings account.

In today’s market, it is common for the total house payment to be lower than the rent a first-time home buyer is currently paying.  As a homeowner, the buyer would have additional expenses like maintenance and possibly, a HOA.

To illustrate the net effect, let’s look at a purchase price of $275,000 with 3.5% down payment on a 4.75% 30-year FHA loan.  We’ll assume the home appreciates at 3% annually and the buyer is currently paying $2,000 a month rent.

The total payment is $2,115 including principal, interest, property taxes, property and mortgage insurance. However, when you consider the monthly principal reduction, appreciation, maintenance and HOA, the net cost of housing is $1,181. It costs $819 more a month to rent than to own. In a year’s time, it would cost $9,831 more to rent than to own which is more than the down payment required to buy the home.

In seven-years, the $9,625 down payment would grow to over $58,000 in equity.  The equity build-up far exceeds the tax benefits which some people would have as an additional incentive.  Use this Rent vs. Own to see what the net cost of housing would be using a home in your price range or call me at (719) 464-5839 and I’ll do it for you.

HELOCs Becoming More Expensive

In September, the Federal Reserve raised interest rates for the third time in 2018 and they’re expected to go up one more time this year and three times next year.  If you have a Home Equity Line of Credit, HELOC, you’re paying more to use that money and it is going to become more expensive.

It may make sense to refinance your home and consolidate the balance of your HELOC to lock in a lower mortgage rate.  Most lenders require that the combination of these loans should not exceed 80% of the home’s fair market value and that you have good credit and adequate income to support the payment.

A HELOC is a first or second mortgage that allows the borrower to withdraw money as needed, up to the line of credit provided by the lender.  A draw period is established where the borrower is only required to pay interest.

Since all HELOC loans are variable rate mortgages, during periods of rising rates, the cost of the funds increase.  However, unlike adjustable rate mortgages that have specified adjustment periods and caps, a HELOC adjusts when the prime interest changes.

The formula for determining available funds on a refinance are to take 80% of the fair market value, which will probably have to be verified by appraisal, less the existing first mortgage and the costs to refinance.  The balance would need to cover the cost of replacing the HELOC.  Any remaining balance may be available for cash to be taken out.

Now is a great time for a mortgage review. In many cases, the equity you have in your home may allow you to eliminate mortgage insurance and substantially lower your monthly payment. As with all tax matters, always consult with a tax professional before making any decisions.  Call us at (719) 464-5839 for a recommendation of a trusted mortgage professional.

 

In September, the Federal Reserve raised interest rates for the third time in 2018 and they’re expected to go up one more time this year and three times next year.  If you have a Home Equity Line of Credit, HELOC, you’re paying more to use that money and it is going to become more expensive.

It may make sense to refinance your home and consolidate the balance of your HELOC to lock in a lower mortgage rate.  Most lenders require that the combination of these loans should not exceed 80% of the home’s fair market value and that you have good credit and adequate income to support the payment.

A HELOC is a first or second mortgage that allows the borrower to withdraw money as needed, up to the line of credit provided by the lender.  A draw period is established where the borrower is only required to pay interest.

Since all HELOC loans are variable rate mortgages, during periods of rising rates, the cost of the funds increase.  However, unlike adjustable rate mortgages that have specified adjustment periods and caps, a HELOC adjusts when the prime interest changes.

The formula for determining available funds on a refinance are to take 80% of the fair market value, which will probably have to be verified by appraisal, less the existing first mortgage and the costs to refinance.  The balance would need to cover the cost of replacing the HELOC.  Any remaining balance may be available for cash to be taken out.

Now is a great time for a mortgage review. In many cases, the equity you have in your home may allow you to eliminate mortgage insurance and substantially lower your monthly payment. As with all tax matters, always consult with a tax professional before making any decisions.  Call us at (719) 464-5839 for a recommendation of a trusted mortgage professional.

Fast Track Rental Property

FHA allows owner-occupants to purchase up to a four-unit property with a minimum 3.5% down payment.  The rent collected on three units could be used to make the payment and the owners’ pro-rata share would be less than ¼ of the payment itself.

The owner-occupied unit would be considered their principal residence.  The other three units are treated as rental property and eligible for cost recovery, a non-cash deduction plus all the normal business expenses.  The rental income of the three remaining units is calculated as income and assists the buyer in qualifying.

A homeowner could buy a four-unit, live in one for two years, buy another four-unit with a minimum down payment, move into one unit, rent the other three as well as the previous unit in the first property.  Then, after another two years, repeat the same process over again.

The fifth year, the homeowner/investor would have a total of 11 rental units plus the one that they are occupying.  An acquisition strategy like this might be difficult for a family with children and a single person or couple might find it easier to move more frequently.

As the equity increases in these properties, due to appreciation and amortization, the money could be pulled out through refinancing to purchase additional income properties.  Another objective might be to pay the mortgage off as soon as possible and any cash flow after tax could be applied directly to the principal.

FHA has a nationwide mortgage limit for a four-unit of $521,250 but some high-cost areas have been designated with increased limits.  There are also loan programs for two and three-unit properties with limits of $347,000 and $419,425 with similar exceptions for high-cost areas.

The low mortgage rate and minimal down payments for owner-occupied FHA mortgages makes this strategy attractive because it gives investors an opportunity to highly leverage their investment.  Most non-owner-occupied (investor) mortgages would require 20-25% down payment and have a slightly higher interest rate than for an owner-occupant.

To learn more about this opportunity, call (719) 464-5839 and we can give you information on specifics in a variety of areas.

Mortgage Free

It may be an all too common belief that a person will have a house payment and a car payment for the rest of their lives.  However, with a plan and some determination, you can be mortgage free.

Planning for retirement is obviously important and many times, an activity plagued by procrastination.  Some homeowners’ goal is to have their home paid for by retirement, so they won’t have payments.  It makes sense to eliminate a sizable recurring expense before they quit working.

By making regular principal contributions in addition to the payments, the debt can be eliminated by the target retirement date.

Assume a homeowner refinanced their $300,000 mortgage at 4% last year for 30 years with the first payment due on May 1, 2017.  With normal amortization, the home will be paid for at the end of the term.

Additional principal contributions with each payment will save interest, build equity and of course, accelerate the payoff on the home.  An extra $250.00 a month would pay off the mortgage 7.5 years sooner.  $786.81 extra with each payment would pay off the loan in 15 years.

Having a home paid for at retirement has the apparent benefit of no house payment.  A debt-free home is also a substantial asset that could be borrowed against or sold if unanticipated events should occur.

To make some projections to pay off your own mortgage, use this use the Equity Accelerator calculator.

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Hankins Pass from Twin Eagles

Wednesday, Sep 26, 2018, 8:00 AM

Dirt lot between Venture Foods and Lagree Liquor, Divide, CO
11115 US 24 Divide, CO

16 Outdoor Lovers Attending

We’ll have another opportunity for fall colors through the aspen groves along the Hankins Pass trail from Twin Eagles. Expect 8 mi +/- with 1800 vft +/- of climb. (I’m taking these stats from a hike that Leona posted. I see elsewhere that this hike could be 6.5 miles one way) The primary goal of this hike is the Aspen groves along the lower section…

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How to Clean Gutters

Workman Clearing Autumn Leaves from Gutter

The gutters and downspouts on your home are intended to channel rainwater away from your home and its foundation.  When they’re blocked and not functioning properly they can lead to the gutters coming loose, wood rot and mildew, staining of painted surfaces, and even worse, foundation issues or water penetration into the interior of the home.

Most experts recommend cleaning the gutters at least once a year.  More often might be necessary depending on the proximity of leaves and other debris that could collect.

If this is a task that you feel comfortable about tackling yourself, there are few things to consider.  If the debris is dry, it will be easier to clean the gutters.  Safety is important, and precautions should be taken such as using a sturdy ladder and possibly, having someone hold it while you’re on the ladder.

Other useful tools will be a five-gallon plastic bucket to hook on the ladder to hold the debris; work gloves to protect your hands from sharp edges of the gutters; a trowel or scoop and a garden hose with a nozzle.

?         Start by placing the ladder near a downspout for the section of gutter to be cleaned.

?         Remove large debris and put it into the empty bucket. Work away from the downspout toward the other end.

?         When you’re at the end of the gutter, using the water hose and nozzle, spray out the gutter so it will drain to the downspout.

?         If the water doesn’t drain easily, the downspout could be blocked.  Accessing the spout from the bottom with either the hose with nozzle or a plumber’s snake, try to dislodge the blockage.

?         Reattach or tighten any pieces that were removed or loosened while working on the downspout.

?         Flush the gutters a final time, working from the opposite end, as before, toward the downspout.

There are specialized tools at the home improvement stores like Lowes and Home Depot that can make this job easier.  Check out their websites and search for “gutter cleaning”.

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Blue Aspen Hike in Dome Rock SWA

Wednesday, Sep 19, 2018, 8:00 AM

Dirt lot between Venture Foods and LaGree Liquor
11147 US 24 Divide, CO

27 Outdoor Lovers Attending

On this hike we’ll try to recreate a once in a lifetime experience on the Willow Creek Trail when the lighting and foliage are perfect to create the “Blue Aspen” effect you see in the photo. We’ll hike Willow Creek, Sand Creek & Four Mile Creek Trails. Expect 6.25 miles with 1200 vft of climb and 1 water crossing. Prepare accordingly. Meet in Divid…

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Consumer Protection from Irresponsible Mortgage Practices

Congress enacted the Dodd-Frank Act in 2010 in response to the mortgage crisis that led to America’s Great Recession.  The two parts that apply closely to homebuyers are the Ability-to-Repay (ATR) and Qualified Mortgages (QM).

A Qualified Mortgage is a category of loans that have certain, more stable features that help make it more likely that borrowers will be able to afford their loan.  These loans do not allow certain risky features like an interest-only period when no money is applied to reduce the principal; negative amortization that would allow the mortgage balance to increase; and, “balloon payments” at the end of the loan that are larger than the normal periodic payments.

A debt-to-income ratio of less than or equal to 43% has been established to provide a limit on how much of a borrower’s income can go toward total debt including the mortgage and all other monthly debt payments.  However, the Consumer Finance Protection Bureau believes these loans should be evaluated on a case-by-case basis and in some cases, can exceed 43%.

There is a limit for up-front points and fees the lender can charge.

By showing that the lender made an effort to be certain that the borrower has the ability to repay the loan, the lender in turn, receives certain legal protections.  Underwriting factors considered by the lender include:

  1. current or reasonably expected income or assets
  2. current employment status
  3. the monthly payment on the covered transaction
  4. the monthly payment on any simultaneous loan
  5. the monthly payment for mortgage-related obligations
  6. current debt obligations, alimony, and child support
  7. the monthly debt-to-income ratio or residual income
  8. credit history

For more information, see the Consumer Financial Protection Bureau fact sheet … protecting consumers from irresponsible mortgage lending.

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Hike Mueller & Dome Rock Short Loop

Wednesday, Sep 12, 2018, 8:00 AM

Dirt lot between Venture Foods and LaGree Liquor
11147 US 24 Divide, CO

17 Outdoor Lovers Attending

We’ll hike from the Black Bear TH out T13 into Dome Rock on Werley Ranch, Crazy Woman and North Hay Creek trails back into Mueller on T14 & T13 to the TH. Expect 7 miles with 1300 vft of climb. Meet in Divide @ 8 am or the TH @ 8:20 GPS:[masked] [masked]

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No one wants to waste water or money.  For that reason, take a few minutes every other month to do the following inspections:

  1. Check to see if cutoff valves on sinks and toilets are working properly.

    Many times, builders will put individual cutoffs on supply lines to sinks and toilets.  It is reasonable to expect them to work but after some time, they can corrode which prevents opening and closing.  It is a good idea to test them occasionally before you need them in an emergency.

  2.  Fill each sink with a few inches of water to see if they drain in what you feel is a normal time.

    A slow-draining sink can be an indication of a clog that builds up around the insides of the pipe.  Common causes are food, grease, hair and soap scum.  Plunging can take care of some slow-running sinks.  After partially filling the sink with water, seal the plunger over the drain and pump it up and down a few times.

  3.   Inspect each toilet to see if they are leaking water from the tank into the bowl.

    Toilets that continue to run after being flushed can use a large amount of water in a month’s time.  Generally, the problem comes from a flapper that doesn’t seat properly.  Sometimes, the chain is keeping it from closing properly or the flapper itself may need to be replaced.

    Another issue could be that the flush valve needs to be replaced.  These can be purchased at Lowe’s or Home Depot for about $20.00 and are relatively easy to change out.  There are lots of instructional videos on the internet and it can save money if you give it a try.

If you need a recommendation for a good plumber to take care of something you discover, please feel free to call me at : 719-464-5839.