About garyclarkc21

I'm a real estate junkie and blogger in Northern Colorado. Currently I'm a Realtor with Century 21 Humpal, and owner of Rooftop Property Management. For 18 years I was in the scuba diving industry with Scuba Schools International.

How HOA Payments Reduce Your Buying Power

buying powerIf you buy a condo or town home, there is almost always a homeowner’s association (HOA) that charges a monthly fee. What the fee buys you varies, but typical benefits are exterior maintenance, water, trash, and sometimes amenities such as a pool, tennis courts and club house.

The issue with HOA payments is they reduce your buying power, which is the amount of house you acquire for your monthly payment.

How You Lose Buying Power
Most people have a total monthly payment (TMP) they can afford, say $1200. If your HOA fee is $335, it takes $335 from the TMP. This leaves $865 for the rest of the TMP. If your HOA fee is $167, it leaves $1,033 for your TMP. Obviously you can borrow more with $1,033 a month than with $865, so that’s how the HOA fee impacts how much house you can buy.

Impact On Buying Power
What can you buy for $865 per month with a $335 HOA fee?

  • A $155,000 condo with 3.5% down and 4.5% interest creates a monthly payment of $840.18 (Principle + Interest + Mortgage Insurance)
  • You also need $77.83 for taxes and about $20 for insurance
  • $335 HOA fee
  • TMP = $1264

What can you buy for $1,033 per month with at $167 HOA fee?

  • A $175,000 house with 3.5% down and 4.5% interest creates a monthly payment of $948.55 (PI + MI)
  • You need $88.92 for taxes and about $20 for insurance
  • $167 HOA fee
  • TMT = $1,165.87

As a seller with a high HOA fee, you are competing against properties that are 11% higher priced, most likely with more features, more square footage, perhaps newer, or in better locations. As a buyer, you are bypassing properties that are 11% higher in price.

Another consideration is property appreciation. Since HOAs tend to increase over time, they put a drag on appreciation as they rise.

That being said, when a property is RIGHT for you, then that is your major consideration, not the HOA fee; it becomes something you live with to have the house you want.

Tips on Home Equity Loans

home-equity-loan-interest-rateBack in 2005, this was on the radio all the time: “take the equity out of your house and put it to use.” The announcer would tell you everything you could do with that money that was locked inside your house like a vein of gold just waiting to be mined.

Only here’s what they didn’t tell you: you weren’t “taking out equity;” you were taking out a loan, and loans must be paid back.

What is EQUITY?
Equity is the difference between your home’s fair market value and the outstanding balance of your mortgage. In other words, it’s the amount of the house that you own, rather than the bank. For example, if you have 20% equity in your $200,000 home, then the bank owns the remaining 80% of the house.

If you “take out the equity” – or give up your 20% ownership – where does the money come from? A BANK! A bank loans you the money and your debt increases by that amount. Bankers call them Home Equity Loans.

Smart Tips on Home Equity Loans
Kim Martin, a very experienced banker with Capital West Bank in Fort Collins, has some home equity loan tips for you.

  • Start with a HIGH amount of equity in your home – don’t do it if you have less than than 20% equity in house
  • Keep at least 20% equity in your house – don’t borrow more than that
  • Pay yourself back ASAP – in a couple of years, if possible

Interest Rates on Home Equity Loans
Many people are not aware that you pay higher interest rates on home equity loans than mortgages. For that reason, the price tag on home equity loans adds up fast. For example, let’s say you borrow $10,000 at 6% for 10 years. Amortized over the term of the loan, you will pay $3,322 in interest.

Because it is expensive money, Kim Martin recommends that you be very careful with home equity loans. Only take them out for really good reasons.

Good Reasons For Home Equity Loans
Here are a couple of good uses for home equity loans.

  • Sensible Remodel Projects – Kitchen and bath remodels are best because you get dollar for dollar payback, or close to it. Make sure the projects are in keeping with your neighborhood.
  • Investment Property – Use your equity for down payments on rental property. This is “good debt” because your tenants pay the mortgage for you (assuming your investment cash flows).

Dumb Uses of Home Equity Loans
Back in the 2000’s, people would take out home equity loans for all manner of bad reasons:

  • Vacations
  • Toys – boats, motorcycles, trucks, campers
  • Home Over-improvements – “dream projects” beyond the scope of the neighborhood, such as pools, spas, professional-grade shops, lavish bathrooms and kitchens, tricked-out basements
  • Risky Investments – stocks, businesses
  • Loans to family members

The best rule of thumb is, if you can’t pay cash for vacations and toys, don’t buy them. Wait until you save the money; don’t mortgage your home and your future on a trip to Mexico.

Maybe There Is No Other Option
Sometimes people find themselves in really tough situations and they turn to their home equity when there is no other option. Common reasons are huge medical bills and college tuition. If you find yourself painted into a corner, just be very cautious because, for many people, such moves only delay the inevitable; often they lead to bankruptcies and financial disasters.

When Home Equity Loans Catch Up With You
All good things must come to an end, so they say, and it’s true with home equity loans. It catches up with you when you sell your house; the loans come due and must be paid off. I’ve sold several houses where people had zero or very little equity. Usually the sellers come to the Closing with a check to settle their debts.

So be careful when you hear ads on the radio touting what all you can do with that equity in your house. If it sounds too good to be true, it probably is.

What Makes Mortgage Rates Rise And Fall? 10-Year Treasuries

mortgage-rates2-300x249Homebuyers are always interested in mortgage interest rates because it makes a difference in their monthly payments and their buying power. A 1% increase in mortgage interest rates can decrease buying power by 10%! That’s the difference between buying a $180,000 house or a $200,000 house.

Why do mortgage rates fluctuate? Mortgage rates are directly impacted by the rates offered on 10-year US Treasury Bonds.

When rates on 10-year treasuries rise, then mortgage rates rise. When 10-year treasury rates fall, then your mortgage rate falls along with it. And the change is almost instantaneous.

Why Are Mortgage Rates and US Treasury Rates So Tightly Connected?
Home mortgages are bundled by Mortgage Aggregators (mostly Freddie Mac, Fannie Mae, Ginnie Mae) into investments called Mortgage Backed Securities. These investments have an implied government backing (which means safety) so they get a AAA rating. This AAA rating puts Mortgage Backed Securities in competition with US Treasury Bonds.

10-year US Treasury Bills and Mortgage Backed Securities compete head-to-head for investors who want safe, secure medium-term investments. Therefore the two investments must offer competitive returns to attract the investor’s money.

Mortgage rates follow treasury rates. So watch the 10-year US Treasury Bond rates and you’ll know which way mortgage rates are going.

Why Do Mortgages Compete with 10-year Treasuries and Not 30-year?
Investors compare 30-year home mortgages to10-year treasuries and not 30-year treasuries because statistics show that most home mortgages only last for seven years. Homeowners sell the house or refinance the loan, which results in a payoff of the mortgage. Therefore the best correlation is the 10-year US Treasury Bond.

Mortgage Interest Rates Since 2008 and Beyond
Since 2008, mortgage interest rates have been historically low. In 2013, rates were only 3.5%! In 2014, rates have risen to 4.5% or so. However, consider that in the 1980’s, mortgages were as high as 18%…so the 4.5% looks really good by comparison, right?

Since 2010 the Federal Reserve has spent $85 million per month, much of it on 10-year Treasuries. The effect of these purchases is to artificially push down treasury rates, and thus mortgage rates. In 2014 the FED began slowing down their Treasury note purchases, driving up treasury interest rates, so it’s logical that mortgage rates will increase as well. How high will mortgage rates go? No one has a crystal ball to tell us the answer.

My advice is to take advantage of the artificially low mortgage rate environment while you can, if you are in the market to buy a house or refinance. You don’t want to be the person in 10 years who is complaining about missing the opportunity for a cheap loan.

Appraisals

Real-Estate-AppraisalWhen you buy a house, your lender will require an appraisal on the property before they will complete your loan. Why is an appraisal necessary? Because the bank wants to know that they are not loaning more than the property is worth.

What’s an Appraisal?
Appraisals are completed a week to ten days before the closing. Even though lenders require appraisals, you get to pay for them. The cost is $400 to $500.

Appraisals are conducted by – believe it not – appraisers! These are professionals who specialize in determining the “actual value” of properties. The actual value is based on past sales, features, condition, location, and other factors. Appraisers attempt to remove biases and simply look at facts and numbers.

Appraisers vs Real Estate Agents
Instead of “actual value,” real estate agents determine the “market value” of properties. Market value is the price that buyers will pay for a house in the current market. Market value is based on supply and demand, marketing plans, buyer emotion, and market trends. If a market is active and buyers are frenzied, they will often pay higher prices than past sales appear to support.

What to Look For in an Appraisal
From a buyer perspective, your objective is for the appraised price to be at least as high as the purchase price; anything higher is a bonus. You don’t want it to come back lower than the purchase price. The reason is that lenders loan you money based off the appraised value.

For example, if you are buying a $200,000 house with an FHA loan (borrow 96.5%), and the appraisal comes back at $195,000, then the bank will only loan you $188,175 not $193,000.

If the appraisal comes back too low, you have a couple of options. First, make up the difference out of your own pocket. In the previous example, that means you come up with $11,825 down payment (5.9%) rather than $7,000 (3.5%). Another option is to have the seller lower the purchase price to match the appraised value. Your third option is to terminate the contract and walk away.

Summary
Think of your appraisal as a reality-check on the price you agreed to pay the seller. It’s nice when a third party agrees that your new home is a good value – or warns you that the house is over-priced.

Homeowner’s Insurance: How Much Coverage Do You Need?

insurance-agentWhen you buy a new home, you are required by the lender to have homeowner’s insurance (aka “hazard insurance”). The question is, how much coverage do you need?

Daryl Alexander, an agent in Fort Collins with State Farm, recommends that you “make sure your home is insured for at least 100% of its estimated REPLACEMENT cost. “

What does Daryl mean by “replacement” cost?

The Difference Between MARKET VALUE and REPLACEMENT COST
Market value is the amount a buyer would pay for a home. Replacement cost is the rebuilding cost necessary to repair or replace the entire home.

Over the years, the cost of materials and labor increase, sometimes faster than the market value of a property. If you have a fire, water leak or hail claim, and you’ve owned your house for many years, the cost to repair your house could be really high.

Cost of Premium
It sounds like replacement cost is the way to go, right? Then why would anyone get market value insurance?

The premium for market value insurance is lower than replacement insurance, which is why many homeowners buy it.

That’s being penny-wise and pound-foolish, as the expression goes. For the minimal increase in cost, replacement insurance gives you the coverage you’ll need in case of a disaster. Remember, you are buying peace-of-mind that your family and possessions are protected.

Review Your Policy Occasionally
As the years go by, it’s a good idea to get together with your insurance agent to ensure you still have the right coverage for your home. This is particularly true if you have remodeled bathrooms and kitchens, finished basements, or added on rooms or living spaces.

The worst time to find out you DON’T have enough insurance is when a disaster occurs. Avoid the heartache and trauma of insufficient coverage; find a trustworthy, reputable insurance agent, listen to his/her advice, and buy the coverage he/she recommends.

If you would like a referral to some trustworthy insurance agents, please contact Gary Clark.

How Does The Home Inspection Process Work?

home-inspection-2After you negotiate the price and terms of your contract to buy real estate, you have the right to inspect the property.

You hire an inspector to “check under the hood” of the property. This will cost between $200 and $500. The inspector produces a report with everything he/she finds. Inspectors go through the house with a fine-toothed comb, so they find lots of stuff, big and small. You and your agent look through the report and determine what you can’t live with, such as unsafe radon levels in the basement, for instance. If there’s more than you can handle, you have the option of terminating the contract.

If you want to move forward, you submit an Inspection Objection document to the seller with all the issues you want fixed before you purchase the house. How much should you ask for? While everyone has their own negotiating style, I prefer to ask for a reasonable number of items, rather than everything in the report. No house is perfect, even brand new ones, so it’s not logical for the seller to fix everything. Instead, look for safety issues, items that should be expected to work, and things not working due to neglected maintenance.

Inspection Objection items are negotiable, so you and the seller will debate what will be fixed: all, some, or none. To me, this is the advantage of asking for a reasonable number of items; you are more likely to get what you want if you are reasonable.

After you and the seller agree on what will be fixed, one of the agents prepares an Inspection Resolution, which you and the seller sign. This binds the seller to address the items on the Resolution.

The last step is to verify the work was done. You can hire the inspector to re-inspect the property. You can ask for reciepts to show the work was done. You can also walk-through the property yourself.

Inspections are a necesarry part of home buying (and home selling) process to ensure that peace of mind when you take over your new home.

For a list of qualified inspectors, please contact Gary Clark. 

Brewpubs in Northern Colorado

Photo from Fort Collins Coloradoan

Photo from Fort Collins Coloradoan

Northern Colorado a hotspot in the national craft beer scene, home to numerous microbreweries and brew pubs. There are so many you could probably throw a rock from one to the other, and more open up every year.

This is a follow up article to an article I wrote in October 2012, called “Microbreweries in Fort Collins.” The difference between a “microbrewery” and a “brewpub” is that a microbrewery is a beer “manufacturer” who sells their product to bars and liquor stores. A brewpub is a restaurant that makes and resells its own beer. These definitions are my own and not official terms, at least that I know of.

Here is a list of brewpubs in Fort Collins and Loveland. While Fort Collins has a well-deserved reputation for its abundance of brewpubs, Loveland has quietly come on as a legitimate brewpub destination. Please let me know if I missed any restaurants that make their own beer and I will gladly add them to the list.

Fort Collins
BJ’s Restaurant and Brewhouse
2670 E. Harmony Rd

Black Bottle Brewery
1611 S. College Ave. Ste 1609

Coopersmiths Pub and Brewery
No. 5 Old Town Square

C.B. & Potts
1427 West Elizabeth Street

Gravity 1020
1020 East Lincoln Avenue

Old Colorado Brewing
320 Link Lane

Equinox Brewing
133 Remington

Tap and Handle
1900 East Lincoln

Loveland
Grimm Brothers Brewhouse
623 Denver Ave

Loveland Ale Works
118 W 4th St

Opie’s Brewing
411 North Railroad Avenue

Rock Bottom Brewery
6025 Sky Pond Dr