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Divorces are anything but simple, and complicating the process are decisions about what to do with the marital home and its existing mortgage.

It’s important to remember that divorce isn’t a release from debt. Just because you are no longer married to someone, doesn’t absolve you from your mutual debts. Preparing for divorce financially, especially if you have assets, typically requires an accounting of assets and debts, a decision on how to split them equitably and an execution of legal documents to divide financial and real estate assets.

Your commitment to marriage may have ended, but your commitment to your mortgage has not. So BEFORE you make decisions about your home or mortgage during a divorce, make sure you have the right people around you, including a good divorce attorney, a financial planner and a mortgage broker.

Divorce Mortgage Guidance – What is it and Who needs it?

Divorce Mortgage Guidance is a free service provided by Spectra Mortgage that helps divorcing homeowners make informed decisions about secured house debt and resolve real estate gaps in their divorce case and marital balance sheet.  As a trained and designated RCS-D (Real Estate Collaboration Specialist-Divorce) specialist, we work with family lawyers, mediators, financial professionals, and divorcing homeowners to help preserve home ownership eligibility and help protects credit scores for each divorcing spouse.

Divorce has been known to damage credit scores and we want to protect you from that. Even if you don’t have a marital home with your spouse now, Divorce Mortgage Guidance is still important to you, as above all, saving your credit score before, during, and after the divorce is critical to ensure you can move forward with obtaining new credit and insurance once the dust has settled.

Divorce Mortgage Guidance really takes a consumer protection approach and is most valuable during the discovery phase, which is before mediation and the collaborative practice phases enter the picture. Our goal is to help you structure the property settlement agreement to make an informed decision and secure future financing success.  We assist you with being a document wrangler and review mortgage underwriting and guidelines to help avoid any mistakes on the property settlement agreement that would preclude you from getting funding for a new loan.

Divorce may feel like the end of the world, but there is life and financial peace after the storm passes.  Let Spectra Mortgage help you navigate thru the eye of the storm and help keep your financial standing strong.

Divorce Can Be Messy – Make Sure Your Financial Standing Isn’t.

 

While everyone looks forward to searching for their dream home there are several steps that need to be completed in a somewhat sequential order to make the process efficient and as easy as possible.  Following the steps below will help avoid problems and delays.

CHECK CREDIT

A good credit score is essential to buying a home, as it proves you have a good track record of paying off past debts (such as credit card bills and loans). The higher your credit score, the lower the interest rate you will receive. Usually, a credit score of 720 or higher will get you the lowest interest rate on a conventional mortgage and a score above 760 will obtain the lowest interest rate on a jumbo mortgage. The minimum credit score for an FHA mortgage is 600.

You can request a free copy from all three credit reporting bureaus: TransUnion, Equifax, and Experian. Alternatively, you can complete a mortgage application and have your credit run as part of that process.

GET A DOWN PAYMENT

The very first step for every home buyer should be to figure out their finances.  Unless paying cash, buyers will need to get a mortgage.  There are various types of mortgages (a discussion which is beyond the scope of this article) and each has different down payment requirements that range from zero down payment for a VA loan, up to 20% down for a jumbo mortgage.  Conventional and FHA mortgages allow for down payments as low as 3%.

The source of the down payment can be bank accounts, investment accounts, retirement accounts, the sale of assets and gifts from relatives.  Two sources of funds that cannot be used for the down payment are cash and crypto currency.

MORTGAGE PRE-QUALIFICATION

Before you head out looking at homes to buy, getting pre-qualified is a critical first step.  Contact a qualified loan officer who is knowledgeable and who can help you through the process.  Asking friends and family for a referral is better than cold calling a company.  The pre-qualification process should guide you in determining how much you qualify for and what your budget is from the purchase price standpoint and monthly payment.  You should have most of your questions answered during this process.

Credit, employment history and assets will also be evaluated.  Typically, you will not be able to start looking at house until you know you are pre-qualified.

ATTEND A SEMINAR OR TAKE CLASSES ON BUYING A HOME

While potentially beneficial for anyone, a first-time homebuyer may benefit from taking a home buying class that also talks about budgeting and overall costs of home ownership.  Community organizations and many local government and nonprofit agencies also offer classes that can help you prepare for the financial responsibility of owning a home.

ASSESS NEEDS

Once you have a budget in mind, make a list of your must-have home features. Your price point will likely dictate the size, location, and amenities of your future home.  Among the factors to consider are:

HIRE A REAL ESTATE AGENT

Most buyers find it helpful to have a real estate agent on their side to guide them through the process. It is a good idea to interview real estate agents to find one you can trust to have your best interests in mind. Again, asking friends and family for referrals is often the best way to find a realtor. Typically, sellers fund the buyer’s agent commission, which makes using an agent a cost-effective option for buyers.  Here are some areas where a buyer’s agent can help:

By following these steps, you have a much better chance to make the home buying process efficient, enjoyable, and successful.

 

If you’ve ever wondered about the benefits of owning a home, you’re not the only one. Home buyers in Colorado are experiencing the benefits of home ownership firsthand by buying new places, driving median home prices to record highs in August. According to the Colorado Association of Realtors, single-family home sales in Colorado set new records, rising 15% from June and 21% from July 2019. And statewide, the median home price jumped 4.5% in one month, to $443,925.

In addition, home buyers are looking for ways to finance their new homes. Metro Denver experienced the highest level of mortgage originations since the fall of 2005, according to ATTOM Data Solutions. With historically low interest rates even during a pandemic, mortgage originations were up 40.3% from Q1 and 65% from Q2 of 2019.

So why are so many Coloradans choosing to buy homes? From financial gains to greater privacy, there are a number of benefits that make home ownership more appealing than renting. Check out the seven benefits below. 

  1. A good long-term investment: In most cases, when you buy a home, the asset you’re purchasing will appreciate in value over time. This can be a smart way to create a solid financial foundation and position the cash you’ve invested to grow.
  2. Tax benefits: With home ownership, you get favorable tax treatment in the shape of deductions. In most cases, you can deduct your home mortgage interest, as well as the money you pay in property taxes each year, and some closing costs when buying a home.
  3. Building equity: The equity in your home is the difference between what you sell it for and what you owe. The equity grows as you pay down the mortgage. When there is significant equity in your home, that equity can act as a financial cushion against unexpected events. If you face a financial challenge, you may be able to access your home’s equity with a home equity loan or line of credit.
  4. Consistent monthly payments: A home’s mortgage payment is the fixed cost of the principal and interest until the loan is paid off. A homeowner can plan a monthly budget around this payment and doesn’t have to worry about the payment increasing, which is a more common concern for renters.
  5. Stability: Owning a home often creates a sense of permanence for homeowners. If you buy a home and have a family, a home can serve as a stable haven for both children and adults. And being a homeowner in a neighborhood often leads to new friendships and a sense of community.
  6. The perfect retreat: When you want to get away from the world, a home is the ideal place to lie low. While your house is a good place to social distance, you can also make being home bound more interesting. If you feel a new fire pit would be the perfect addition to the patio, you can add it because every inch of the house, yard, garage and patio are yours!
  7. Convenient, remote home office: While many companies expect their employees to return to offices when the pandemic has passed, a growing number of technology companies are planning for “work from home” to be the new normal. According to Adam Ozimek, chief economist of Upwork, as much as a fifth of the workforce may continue to work remotely after the crisis. As CEOs recognize the financial benefit of a smaller corporate footprint, WFH employees will place greater value on their homes as the location of their home workplace.

In today’s world, the stability and financial benefits of home ownership shouldn’t be overlooked. To learn more about how you can get started purchasing a home, contact the Spectra Mortgage team through social media, email or phone at 303-468-1985.

In these uncertain times, it is unlikely that most of us will not be affected in some way whether it be by the pandemic itself or the potential financial crisis that follows.

Freddie Mac and Fannie Mae are offering a package of relief options for borrowers having trouble making their mortgage payments because of the financial disruptions caused by the COVID-19 virus. Some of the provisions include:

These measures are effective immediately and apply to borrowers who are unable to make their mortgage payments due to a decline in income resulting from the impact of COVID-19, regardless of whether they have contracted the virus. Borrowers are eligible for forbearance regardless of whether the property is owner-occupied, a second home, or an investment property.

Freddie Mac and Fannie Mae are also looking to expanding relief available through well-known forbearance programs, allowing most affected borrowers to get assistance as expeditiously as possible. Borrowers who may be experiencing financial challenges due to COVID-19 are strongly encouraged to contact their mortgage servicer (the company where they send their monthly mortgage payments) as this is the best resource available. Another excellent resource is for borrowers through Fannie Mae is https://www.knowyouroptions.com/relief.

Since the financial and real estate crisis of 2007-2009, the data shows that fewer people own houses than before, often by choice, and that people are buying their first house at an older age again often by choice.

There are many reasons for this, but one factor that is written about and discussed from time to time is the premise that renting is cheaper than owning a house. While this can be true in the short term for certain markets such as Denver, CO., the data is indisputable that people who own homes are wealthier than renters.

The Numbers Are Eye-Opening

According to the most recent Survey of Consumer Finance which was completed in 2016 by the Federal Reserve Board (the report is completed every three years) here are the findings on wealth:

  1. In 2016, the median net worth of homeowners in the U.S. was $231,400 (a 15% increase from the last survey in 2013).
  2. The median net worth of renters in the U.S. was $5,200 (a 5% decrease from the last survey in 2013).
  3. The median net worth of a homeowner in the U.S. is 45 times greater than the median net worth of a renter in the U.S.

While there may not be a direct cause and effect relationship that entirely explains the disparity (there are undoubtedly other factors), the Survey of Consumer Finance makes clear that there is without a doubt a strong correlation between home ownership and wealth.

It is estimated by the U.S. Census Bureau that that there were approximately 118.3 million households in 2016. This data also showed that 63.4% of the households owned their home and 36.6% rented. (Source: Pew Research analysis of Census Bureau Housing Data, report published July 19, 2017 based on 2016 data).

  1. While approximately 65% of the households headed by someone under 35 rented; Almost 35% owned;
  2. More telling is the fact that 41% of the households headed by someone between the ages of 35 to 44 rented; and
  3. Approximately 20% of the households headed by someone between 45 and 60 rented.Often people try to explain the disparity in net worth between renters and homeowners by stating that only young people rent and older people own homes. Again, while a factor, this reason does not account for the large disparity in net worth given the high numbers of renters across all age groups and the relatively strong homeownership number for those under 35.  

What Accounts for the Disparity?

  1. Simply put, homeownership is a form of ‘forced savings’. Every time you pay your mortgage you are contributing to your net worth. Every time you pay your rent, you are contributing to your landlord’s net worth.
  2. Homeowners are the beneficiaries of 100% of their home’s appreciation. In Colorado, homes have appreciated 366% since 1991, which is the second highest number for any state in country during that period. Renters experience no appreciation.
  3. The monthly cost of having a mortgage is fixed (i.e. it does not rise), which supports financial stability. A renter is subject to annual rent increases that have averaged between 5% to 10% in the Metro Denver area over the last 10 years. From 2010 through 2017, rents have increased 48% in the Metro Denver area. With wages rising at a much slower pace, renters lose purchasing power every year and are in a worse financial position every year.
  4. To the extent that rent payments may be less than a mortgage payment in the early years, most renters do not invest the difference and they spend it on other items, so the opportunity for investment returns on any savings is lost.
  5. Homeowners receive preferential tax treatment under the Internal Revenue Code with many of the costs of homeownership being deductible. None of the costs of renting are deductible.
  6. The ability to convert equity into cash in order to meet other financial objectives. No such option exists for renters.

Conclusion

We often hear people wonder out loud if “now is a good time to buy” or “if there is a real estate bubble that is ready to pop.” The simple reality is that over time home values have appreciated substantially, especially in Colorado. This is anticipated to continue with Colorado’s population projected to continue to increase due to the strong economy and a desirable lifestyle for many. Given the lack of building and the desire of most people to live close to centers of employment, prices will continue to go up simply due to supply and demand.

Until there is a recession or economic slowdown that impacts the local economy in a meaningful way, Colorado will not experience a decline in prices and will likely continue to experience appreciation although not likely at the levels seen since 1991. But who would have thought my first house that was purchased in 1992 for $88,000 would today be worth between $400,000 and $425,000?

Nationwide, the housing prices have increase 161% since 1991. In Colorado housing prices have increased 366%, which is second only in the country to District of Columbia. (Source: Federal Housing Finance Agency (FHFA), House Price Index, November 27, 2018). Since the recession of 2008 and 2009, the net worth of homeowners has continued to increase, while the net worth of renters has declined during the same time period.While it is clear not everyone can or should buy a home and there are situations where it does make financial sense to rent for some, period. However, for those whose financial situation and current goals support taking on the financial obligation of homeownership, it is well worth it.

As 2019 begins, before long people will begin working on their 2018 income tax returns. This will be the first year that many of the provisions of the 2017 Tax Reform bill will be effective. There were substantial changes to many the provisions that impact home ownership.  Following is a summary of eight changes to be aware of as the 2018 tax filing season is here.

1. Interest on Your Mortgage

There were changes to the interest deduction which are confusing.

The brief summary is that if you bought your home before December 15th, 2017, you’re entitled to deduct interest payments on up to $1 million in loans that you used for buying a home, building a home, home improvement, or purchasing a second home.  However, if you made the purchase after this date the amount of interest payments are limited to loan amounts less than  $750,000. This law runs until 2025, when the $1 million limit will return.

There are no differences between filing separately or jointly. However, married couples filing separately will see the overall amount cut in half.

2. Private Mortgage Insurance Deduction

Private Mortgage Insurance (PMI) premiums that were taken out after 2006 have been deductible for homeowners who have itemized deductions. This deduction expired in 2016 and was extended to 2017. After 2018, PMI premiums aren’t tax deductible any longer unless Congress allows an additional extension at the last minute.

3. The Points Deduction

Points refer the fees charged by mortgage lenders in order to get a lower interest rate. One-point equals 1% of the loan amount. Most home loans have between zero and two points. If you purchased a new home and paid points you can fully deduct this expenditure on your tax return.

If you refinanced a mortgage you can also deduct the points. However, the deduction is spread over the term of the loan rather than all in the first year.

4. Interest on Home Equity Loans

Prior to 2018, interest could be deducted on home equity loans up to a $100,000. The money could be used for anything you wanted, and you’d still get to take advantage of the deduction. For example, a homeowner could deduct interest from a home equity loan and then use it to pay for a college education or to pay down credit card debt.

That deduction has been removed from 2018 up to 2025 with one exception. Interest on a home equity loan is still available if the proceeds are used to buy, build, or improve a home/second home and the loan must also be secured by your primary or secondary home.

5. Property Tax Deduction

One of the most significant law changes is the $10,000 annual cap on how much you can deduct for state, and local taxes, which includes property taxes. Previously, there was never any cap. The cap will be in place from 2018 to 2025.

Now you can only deduct up to $10,000 from property tax, state income tax, and state/local sales taxes. There’s no index for inflation and both single and married taxpayers have the same limit.

If you have an escrow or impound account, you can’t deduct the money held for property taxes until the money is disbursed to pay the property taxes.

6. Deductions for Home Offices

If you are using part of your home for running a business on an exclusive basis then you may be able to deduct a portion of the costs, such as part of your insurance, any repair costs, and general depreciation. This can be a complex subject, so make sure you speak to a tax advisor about this.

7. Selling Costs

When you decide to sell your home, you have to consider whether there are any taxable capital gains. (There are exclusions, so you may not have to worry about this at all if the amount is low enough to fall within that zone. See item 8)

There are a variety of selling costs involved when it comes to selling your home, such as inspection fees, title insurance, real estate commissions, legal fees, and more. Every selling cost can be deducted from your total gain. The gain is the selling price minus closing costs, selling costs, and what’s known as your tax basis.  Your tax basis is calculated by taking the original purchase price and adding on the cost of capital improvements minus depreciation (if any)

8. Capital Gains Exclusion?

As mentioned before, the capital gains exclusion could reduce the amount of tax you have to pay when you sell your own home. Married couples who file jointly will be able to avoid income tax on up to $500,000 in profit when they sell their primary residence (if they lived in it for two of the last five years).

Single filers can avoid income tax on up to $250,000 in profit, with the same limit applied to married couples who make the decision to file separately.

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This discussion on various deductions and credits is general in nature and is not intended as tax advice. The tax laws are complex, and the application of each law will depend on your individual situation.  As always, we recommend that you consult with your tax advisor regarding your individual circumstances.

As 2018 begins there are a number of significant changes in the mortgage world that are noteworthy.

MAXIMUM MORTGAGE AMOUNTS

The maximum loan amount has been increased for Conventional mortgages, FHA mortgage, and VA mortgages. This is beneficial as prices have increased in the Metro Denver area.  This will ensure that these mortgage programs continue to be widely available and not force borrowers into Jumbo mortgages, which are generally harder to qualify for.

The maximum mortgage amounts in Colorado for Conventional mortgages are as follows:

  1. $529,000 in Adams, Arapahoe, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson, and Park counties.
  2. $578,450 in Boulder County;
  3. $625,500 in Lake, Routt, San Miguel and Summit counties;
  4. $636,150 in Eagle County;
  5. $679,650 in Garfield and Pitkin County; and
  6. $453,100 in every other county in Colorado.

The maximum FHA mortgage amounts in 2018 are

  1.  $529,000 in Adams, Arapahoe, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson, and Park counties
  1. $578,450 in Boulder County
  2. $634,800 in Routt County
  3. $679,650 in Eagle, Garfield, Pitkin, San Miguel and Summit
  4. In other counties the limits range from $294,515 to $425,000

The maximum VA mortgage amount in 2018 is that same as for conventional mortgages. However, with a sufficient down payment it is possible to exceed the VA maximum mortgage amount.

STUDENT LOANS

There have been several changes to the way student loans are treated. One of the biggest changes is to allow income based payments to be used in underwriting even if they are nominal. Formerly it was required that the payments used in underwriting had to equal 1% of the loan balance. This is a positive change for borrowers.

DEBTS PAID BY A THIRD PARTY

Previously if the monthly payment on a debt was paid by someone other than the borrower it was still required that the payment be counted against the borrower unless it was for a mortgage or a car loan. This rule has been changed so that beginning in 2018 if documentation is provided to show that a person other than the borrower has been making payments for the previous 12 months then the payment does not have to be counted against the borrower. This is a positive change as well.

APPRAISAL WAIVERS

AS 2017 progressed appraisal waivers became more common on certain types of transactions. When granted these waivers save the borrower the cost of the appraisal ($500 to $700) in Colorado and the save time.  The processing time for a mortgage is shorter when an appraisal waiver has been granted.

The situations where appraisal waivers are more common are situations where the borrower has a down payment of 20% or more on a purchase or the borrower is doing a rate and term refinance (no cash back) and they have a current conventional mortgage. The other factor that is hard to quantify is how much date Freddie Mac and Fannie Mae have on the property being financed.

The determination of whether a property is eligible for an appraisal waiver is determined at the beginning of the underwriting process.

A Quick Look Back

Home prices declined in the Denver metro area from 2007 through 2011. However, the real estate market in Colorado and the Denver metro area has been on a tear since 2012. Honestly, the real estate market has performed better than most people realize.

For anyone who purchased residential real estate during this period made an excellent investment, not to mention that, in most cases, they are also purchasing a place to live.

Similarly, the cost to rent increased over 40% during the past five years. However, in the last six months of 2017, rental rates declined slightly, yet they remain at all-time highs.

For most, owning a property has clearly been a better option when it comes to building wealth over the past five years.

Where Do We Go Now?

During 2017, the rate of appreciation in the Denver metro area slowed. At the end of September 2017, the annual rate of appreciation had slowed to 6.83%. Based on anecdotal data, the market was somewhat flat during the 4th quarter of 2017, with inventories hitting all-time lows along with the holiday season.

The current forecasts for the national real estate market are very optimistic, largely based on the accelerating economic growth in the U.S. economy and the U.S. employment market. The forecasts for the local real estate market are a little mixed.

Some believe that 2018 will look a lot like the second half of 2017, with more modest price increases, in the 5% range, and more in balance between buyers and sellers. Under this scenario, the market is still healthy, but not as crazy as 2016 and the first part of 2017.

There is another group of market analysts that believe the price appreciation in the Metro Denver housing market are based on fundamentals that have been in place for the past five years. The fundamentals are still in place at the beginning of 2018 and in some cases are more pronounced. For example:

  1. Inventories of houses on the market remain at the lowest levels in recorded history;
  2. People are still moving to Denver;
  3. The economy is healthy with substantial job and income growth;
  4. Interest rates, although rising, are still near historic lows;
  5. The rental market is not favorable, since monthly rents are very high and the vacancy rates are in the 5% range, even after all of the new building;
  6. There is an imbalance in the market between the types of houses available for sale or that are being built (high-end) versus the types of houses people would like to purchase (low-to-moderate-priced housing). This tends to put upward pressure on the low-to-moderate price ranges.

I am in the camp that believes that fundamental such as supply and demand are the real drive for the real estate market in Metro-Denver. Therefore, I believe the market will perform in a manner similar to 2017 barring any changes to the current economic outlook either locally or nationally.

Interest Rate Forecast

Conventional mortgage rates ended 2017 at approximately 4% for a 30-year, fixed-rate mortgage. Rates are down from where they started in 2017, even though the Federal Reserve increased the short-term rate three times last year. It is expected that the Federal Reserve will raise the federal funds rate by a quarter point three times in 2018. Most projections right now estimate that 30-year mortgage rates will end the year in the 4.5% range after the increases by the Federal Reserve and assuming there are no other surprises or unexpected events that affect the economy or expectation regarding inflation.These rising rates should force anyone who currently has an adjustable-rate mortgage to seriously consider refinancing to a fixed-rate mortgage and, where possible, go to a shorter term in order to get a better interest rate.

Other Mortgage and Real Estate News

The new tax bill that was passed in December will impact the real estate and the mortgage industry in the following ways

  1. The increase in the standard deduction means fewer people will itemize deductions, thereby decreasing the benefit of the mortgage deduction;
  2. The tax deduction for property taxes is capped at $10,000;
  3. The amount of mortgage interest that is deductible is limited to the first $750,000 of mortgage debt (under prior law the limit was $1,000,000);
  4. The mortgage deduction for a Home Equity Line of Credit has been eliminated beginning in January of 2018. Going forward, accessing the existing equity in a property may be more efficient to do in one mortgage and, in many cases, it may make sense to consolidate an existing Home Equity Line of Credit with a new first mortgage.

Lastly, Fannie Mae and Freddie Mac increased the conforming limit in the Denver metro area to $529,000 starting January 1, 2018, making it easier to stay out of jumbo loan guidelines, which can be tighter and not as flexible as conventional mortgage guidelines.