Double Bottom? Appears that we have reached bottom on housing starts and prices.

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.

In search of an honest man

Similar to Diogenes’ search for an honest man, homeowners want someone to do quality repairs at a fair price.  The task appears reasonably easy but if you’ve ever tried to locate someone to fix something, you know just how difficult it is.

Finding a list of companies from a phone book doesn’t mean they’ll be reasonable and reliable, it just means they have a phone and are willing to pay for an ad.  Searching on the Internet may direct you to a website that appears to be a local company but really is a marketing company who will sell the lead to a repairman or company who will pay a referral fee.

There are consumer organizations like Angie’s list who rate repairmen and contractors but they usually require an annual membership fee to be able to access the information.  There are also services like Renovation Experts or Service Magic that are registries for contractors but they may not be the most competitively priced.  

Your best recommendations are going to come from friends, family and neighbors you trust who have actually used the repairmen before and would use them again.  The problem here is that you might have to make multiple calls before you can find a friend who can recommend the type contractor you need.

Repairs are a normal part of selling homes and we certainly come in contact with lots of contractors.  This experience leads us to understand who is reputable and reasonable as well as who to avoid.  As part of our commitment to helping you be a better homeowner from the time you buy your home until you sell it, we’re more than happy to make a recommendation of good repairmen or other professionals you might need.  Give us a call…we want to help.

Deductible Is the Point

Points refer to prepaid interest on a home mortgage and can be fully deductible by the buyer in the year paid if the right conditions exist. The points must be used to buy, build or improve a taxpayer's principal residence but not all fees charged by the lender are necessarily deductible.

According to IRS Publication 936, "The term 'points' is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. A borrower is treated as paying any points that a home seller pays for the borrower's mortgage."

If you purchased a home in 2011, have your tax professional evaluate your closing statement to see if there are loan fees that may be used as a deduction on your tax return regardless of whether you or the seller paid them.

Refinancing a principal residence or purchasing an investment or income property require that points must be deducted ratably over the term of the mortgage rather than deducting them fully in the year paid. Borrowers in these situations should consider the benefits of lower interest rates from paying point to higher interest rates without points.

This article is meant to provide information that can be discussed with your tax professional about your specific situation and is not to be considered tax advice.

Boulder County Real Estate Market: Supply and Demand

The latest statistics released by the Boulder Area Realtors Association show a broad trend that may have an effect on the spring market. There is a significant decrease in the number of listings in all areas, except Superior which is up slightly. Even minimal demand and prices have only one way to go.

Boulder                -12.7%

Lafayette             -26%

Louisville             -29%

Broomfield          -28.8%

Longmont           -26.3%

Erie                       -23.5%

Suburban plains  -16.3%

Longmont, CO Market Trend

A review of single family homes sold in the Meadowview subdivision in SW Longmont, CO is a microcosm of our Boulder-area market locally. It shows that prices basically held up pretty well post-crash 2008 and into 2009. The downturn in prices are reflected in sales in 2010. Prices are down around 8% in SW Longmont, single family homes, or a little less than Longmont as a whole. And there were no sales in 2011 in this neighborhood! Why sell if you don't have to move and will lose money?

It will be interesting to see what happens in the new year. I think/expect/hope that prices will be a little stronger but it really depends on the employment market. If local companies start hiring, things could pick up in a hurry as there are so few listings. 

Choose Your Deduction

One third of all U.S. households, 75% of households with more than $75,000 income and most homeowners itemize their deduction on their federal income tax returns. It makes sense because the interest paid on their mortgage and their property taxes probably exceeds the allowable standard deduction.

However, with interest rates as low as they have been in the last two years and the price of homes having come down considerably, it is possible that the standard deduction may be the better choice.

Each year, the taxpayer can compare the total of the itemized deductions to the standard deduction to select which method will result in the most benefits. The 2011 standard deduction is $11,600 for married couple filing jointly and $5,800 for single filers.

The Housing and Economic Recovery Act of 2008 allows homeowners to take the standard deduction and the lesser of their actual property taxes of $1,000 if filing their return married jointly. For more information, see Schedule L found on www.IRS.gov and consult your tax advisor.