Everyone knows that buying a home costs money. But how much exactly? While the purchase price of the home makes up the largest component, here are other costs homebuyers should be prepared to pay:
This is essentially a down payment or deposit on your new home! It shows the seller that you are a serious buyer by putting some skin in the game, so to speak. Should you terminate your contract in good faith, you will get that money back. And should you make it to the closing table, the money will go towards your down payment. Earnest Money will typically be between 1%-3% of your purchase price, so make sure you have the funds readily available once you start writing offers!
This is the time to have a home’s nooks, crannies, roof, sewer, and so on inspected by a qualified home inspector. Home inspection pricing can vary from company to company, but you can typically plan for $300- $1,000 depending on the types of inspections you order (sewer, radon test, general inspection, etc.).
If you’re like 87% of buyers that are financing their home purchase with a mortgage, your lender will need an appraisal (Property Valuation) done on the home. This ensures that they are not loaning you more money than the house is worth. Price can vary depending on the company, but you can typically plan for $500-$750 for the appraisal report.
The amount of a down payment typically starts around 3% of the purchase price and goes as high as you are comfortable spending or can afford. Twenty percent down is the sweet spot, where you’re no longer required to pay Private Mortgage Insurance (at less than 20% down, you’ll pay for this). You’ll want to discuss your down payment options with your lender!
Closing Costs and Prepaids
The majority of your closing costs are charged by your lender for the financing of your new home. Every lender packages their fees differently, so be sure to have them explain every charge in detail to ensure you are comfortable with them. There will be prepaid items that will be required to set up your escrow account (three months of insurance and taxes), so that the account will be solvent to pay the first bills when they arrive to the escrow servicing company.
And Of Course, Commission
Your real estate broker should disclose their commission amount and how it is paid before you submit any offers. In Colorado, it’s pretty common for the listing broker to negotiate a commission with the seller, and then advertise a co-op fee to pay the buyer’s broker’s commission. In those instances, the amount you go under contract for is the amount you pay at the closing table. Your broker’s hard work will be rewarded from the closing proceeds and reduce the amount paid to the seller.
Budgeting for closing costs is an important part of your home purchasing game plan. Unanticipated expenses right before closing is never a fun problem to deal with!
By LYH broker Rhyan Diller
I’m often asked when the best time to buy is. There are always pros and cons to buying at any time of year, and while there is no exact answer, the best time is NOW.
Picture this. Leslie decides she’s ready to buy a home in the summer of 2019. She looks and looks and finds the perfect single-family home for $485,450 (the median sale price in Denver for August 2019). She puts down 5% and gets the average interest rate of 3.62%, and ends up with a monthly payment of around $2,730 per month.
Meanwhile, Ron is also thinking of buying a home in August of 2019, but he decides he wants to wait so that he can save up a bigger down payment for the ideal 20% down (which by the way, is not needed to buy!). Via his friend Leslie, Ron knows that most houses in August of 2019 are around $485,450, so he needs to save up $97,090 for his down payment. Easy! Right?
One year later, Leslie decides she wants to buy the identical house next door to her. She talks to her trusted realtor and learns that this identical house is for sale at $525,000 (the median sale price in Denver for August 2020). Confused, she asks why an identical house to hers is so much more now than when she bought one year ago.
Her realtor explains how the average home price has increased 8% since just last year! And then congratulates her, because the first house she owns already has almost $40,000 in equity — just for owning it for one year. She then learns that rates are now wildly low and refinances on her first house, taking advantage of the current 2.9% interest rates.
Meanwhile, Ron is still working on saving up $97,090, only to realize that to put 20% down, he now needs to save $105,000 (even though that’s not necessary), since the house he wanted last year is now $525,000. He paid upwards of $2,000 per month in rent in Denver, essentially helping to pay down someone else’s mortgage with no equity to be had.
We know buying a house in Denver is not easy. Most well-priced homes will sell in a matter of days, and you’ll likely be competing against multiple buyers for the “perfect” home. But if you’re waiting for the stars to align — for rates to drop even lower, for more inventory, to save for a higher down payment, or (our personal favorite) for the “bubble to burst,” you will continue missing out on earning an average of 8% year over year in appreciation for simply buying a home. No full remodel, no sweat equity, just ownership.
Overall, Denver is setting home sales records for soaring median sales prices, low inventory, and the number of homes sold. Tell that to someone who’s trying to sell a condo downtown†, and you’ll probably be met with a puzzled look! Since COVID-19 swept the headlines, living downtown has become less popular. The psyche of buyers looking to call downtown home have changed, and the statistics are backing that up. The downtown real estate market comprises a small percent of Denver’s overall monthly activity, so it’s getting buried by all of the records the rest of the city is experiencing. Here are a few stats we pulled from the downtown condo/loft market for September:
- Median sale price is down 14.2% to $485,000, from $565,000 in September 2019.
- The number of sales for September is down 60% from September 2019.
- There was 4.3 months of inventory, up 21% from September 2019.
Just like the stock market, our housing market has sectors that are down while the overall market remains strong. Can someone say opportunity? Market reports are great, but keep in mind: they are broad in scope and usually give you the 30,000 foot view. The statistics that really matter are the ones for the neighborhood you’re looking to call home!
Want more detailed information about the market in your neighborhood? Please reach out!
† In this article, Downtown Denver includes the neighborhoods of Union Station (LoDo) and Central Business District.
By LYH broker Rhyan Diller
Being a homeowner, whether new or seasoned, comes with its responsibilities! These are some of our recommendations to make sure your home and investment stays in tip-top shape.
Service Your HVAC
It is typically recommended to have an HVAC (heating, ventilation, and air conditioning) contractor clean and service both systems annually. This will help ensure the longevity and efficiency of your HVAC system. Scheduling this in the fall before you find your heat isn’t working (or in the spring before you find the a/c isn’t kicking in) will save some discomfort (and possibly some cash).
Winterize Your Sprinklers
If you own a home in Colorado and have a sprinkler system, you need to get it winterized! If your sprinkler system does not get winterized, you run the risk that water will freeze in the irrigation valves, pipes, and sprinkler heads, which could lead to a hefty repair bill. In Colorado, it’s best to winterize your system a few weeks before the first freeze/snow is expected. It is typically easiest to hire a professional landscaper to winterize your system if you are not familiar with how to do so.
Clean Your Gutters
If your gutters are clogged, water will not be able to properly divert from your home, which can lead to a number of issues. It is typically recommended to clean your gutters twice per year, once in the late spring and once in the early fall. However, if you have lots of trees and foliage, you may need to clean them more often. Gutter guards can be installed to prevent gutters from clogging in the first place, which will reduce your maintenance costs and clean-up time.
Check Your Downspouts
While you’re cleaning your gutters, check in on your downspouts. They play an important role in protecting your foundation by diverting water from your home. Make sure that your downspouts are diverting the water at least three feet away from the home. If your downspouts are pouring out directly on the side of your home, purchase some downspout extensions from your local hardware store.
Change Your Furnace Filter
A good rule of thumb is to change the filter in your furnace at least every three months or whenever the filter is visibly dirty. If you have household pets who shed a lot or have had poor air quality due to wildfires, you may need to do this more often!
Check Your Smoke Alarm and Carbon Monoxide Detectors
Test to make sure all smoke alarms and carbon monoxide detectors are in good working order, with fresh batteries, at least quarterly! Colorado law states that homes must have a carbon monoxide detector on each level of a home and within 15 feet of an entrance to each bedroom. Smoke detectors are required in every bedroom, outside each sleeping area, and on every level of the home including the basement.
Over 4 million Americans have put their loans into forbearance.
Up until recently, there has been a lot of uncertainty about what it means when a borrower’s loan goes into forbearance. Will there be a huge lump sum owed at the end of the forbearance period? Will it have an impact on credit? Will people be able to purchase or refinance in the future if a loan has gone into forbearance? Initially, the CARES Act did not provide clear guidelines or statements regarding any of those questions, resulting in many borrowers unable to take advantage of record low rates and uncertain if the forbearance policies in place would cause more harm than good.
Now for the good news. On Tuesday, May 19th, the Federal Housing Agency (Fannie Mae and Freddie Mac) provided clarity regarding what forbearance means to borrowers, and gave guidance on how Fannie Mae and Freddie Mac loans will handle repayment, as well as how it will affect a borrower in the future.
Here’s what it means for you.
Let us start by saying, if you’ve not been impacted financially by COVID-19 and can keep paying your payments on time and in full, you should. Forbearance or deferment is not forgiveness, and that money does not go away. So, if you can still pay, that is your best option.
Can you purchase or refinance in the future? Yes! Fannie Mae and Freddie Mac borrowers will be allowed to purchase a new home or refinance their current mortgage even if a loan has gone into forbearance. The borrower must show three consecutive months of payments after the forbearance period has ended. Additionally, if your loan has gone into forbearance accidentally (many Fannie Mae and Freddie Mac loans were being placed into forbearance, if a borrower even breathed the word), you can purchase or refinance immediately if your payments are up to date, without having to wait the three-month period.
Will you have to owe a lump sum at the end of your forbearance period? Not unless you want to. Here are a few ways borrowers can exit a forbearance plan:
- A borrower can pay the sum of the missed payments in full when their forbearance period ends.
- A borrower can defer the payments to the end of the loan. For example, if you were in forbearance for six months, you could tack those six months onto the end of your loan, adding an additional six months of payments before maturity. You can do this for up to 12 months, per the Federal Housing Finance Agency.
- A borrower can use a repayment plan. They can pay the amount due or missed payments, over the course of 36 months or until they are up to date on their payments.
At Love Your Hood, we’re committed to being a resource for you and all of your housing needs. Please don’t hesitate to reach out to one of our trusted realtors if you have any questions regarding forbearance, or buying and selling in the current climate.
Our New Normal
COVID-19 has sent our market into uncharted territory. Since the start of increased COVID-19 precautions a few weeks ago, we have seen a significant decrease in showings in the Denver Metro area. This is in part due to buyers, sellers, and agents alike staying home to help slow the spread of the virus. With individuals and families facing financial hardships, we are also seeing buyers have to put their home-buying process on hold or even terminate on homes that were under contract due to loss of job or income.
Many sellers are also pausing all business until this subsides in the hope of slowing the spread, but also out of concern that showings will decrease given the situation at hand.
Governor Polis has issued “Stay at Home” orders for all non-essential businesses in the State of Colorado. For those of you who either have to buy or sell immediately, all real estate professionals have been deemed “essential” and are allowed to continue operating business while maintaining COVID-19 precautions.
There are many new guidelines being implemented by companies to ensure the buying and selling process can keep moving forward while also maintaining social distancing. Fannie Mae and Freddie Mac have issued new temporary appraisal requirements, allowing for desktop or drive-by appraisals. Many title companies are also implementing ways to close at home and electronically, or even “drive up” closings where there’s no need to get out of your car.
A Light at the End of the Tunnel
The federal reserve learned a hard lesson back in 2008, and that was the need to act quickly during times like this. Luckily, they did this time. The federal reserve is currently throwing everything they have to combat this. They have dropped the federal rate to 0, added another $700 billion in purchases, and have announced that they are going limitless. This means they will spend as much as it takes to keep businesses afloat. However, the most important factor is the containment of the virus. The sooner that happens, the sooner the economy can begin to recover and all of society can return to normal.
While we certainly don’t have a crystal ball, through all of this the Denver real estate market seems to remain strong. Many sellers are still receiving multiple offers, buyers are still actively searching, and Denver still has incredibly low inventory. These factors, alongside incredibly low rates, are still pushing Denver’s market forward.
What You Can Do
If you have to buy or sell due to personal circumstances (death, divorce, finances, etc.), if you are a renter who has received notice to vacate, if you have already bought a home and need to sell your current home, or if you have already sold your home and need to purchase your next home, you are still able to move forward with your buying or selling plans. Please feel free to reach out to any Love Your Hood broker to discuss your buying or selling needs and how to best navigate them at this time.
And of course, please stay home, and abide by government-issued precautions if you must leave your home.
If you or someone you know is struggling financially during this time and own a home, it is possible you have equity in your home that you could tap into. Talk to your financial advisor, lender and realtor about your options to refinance, take out a HELOC, or to sell if you need to. If you are having trouble making payments, talk to your mortgagee about payment forbearance as soon as possible.
Rest assured, Love Your Hood is taking COVID-19 precautions very seriously. Our heart goes out to all of the individuals and families who have been personally affected by this. At Love Your Hood, we truly love our neighborhood and those within it. If there is any way that we can support you or someone you know during this time, please reach out. We are happy to help.
All the best,
Your neighbors at Love Your Hood
Let’s address the elephant in the real-estate-market-room: the Federal Reserve dropped interest rates to zero.
So… What does that mean?
The reason the Fed has dropped rates to zero is to support the economy during the nation’s current self-quarantine. It’s looking like COVID-19 is not going away anytime soon, and the economy is feeling that impact in several ways.
With everyone holed up to avoid the virus, consumer spending is down. Making up 70% of the GDP, consumer spending’s dip is negatively affecting industries such as travel, entertainment, hospitality, and dining. This loss of business may lead to the laying off of workers in those industries, in turn creating a further lack of spending. Last week, we shifted from a bull market to a bear market, meaning stock markets are down at least 20% from recent highs. Investors are converting to cash and to other, safer investments due to this consumer spending concern.
The drop to zero is also to provide easier access to business and personal borrowing to weather this financial storm. It will provide businesses the opportunity to acquire short-term loans to help maintain payroll, keep employees, and keep doors open.
It’s important to note that mortgage interest rates are not necessarily directly correlated with the Fed’s rates. While mortgage rates are still at an all-time low, this doesn’t mean they will continue decreasing (however, this is still possible).
The good news in this is that the housing market remains strong. We ended February with a supply of 4,835 homes on the market (attached and detached). To add context to this, the record high for February was back in 2006, where we ended with 25,484 active homes on the market, while heading into a recession! So, demand is still high, and supply is still very low.
The buyer side of the market continues to be competitive, often with multiple offers over list price. With COVID-19 spreading, we anticipate a buyer slowdown as buyers avoid public places, like open house tours. However, this also presents an opportunity to continue (or begin) your home search in a less competitive environment, at least temporarily. Once the virus begins to stabilize and financial markets start to recover, you can bet it will be a mad dash to start touring listings.
Sellers remain in the power seat in this market in almost all price points — this is with the exception of homes over one million, where buyers are able to take back the process a bit more.
So, with the safety of our clients and our employees as our priority at this time, all Love Your Hood Brokers will be taking the recommended precautions against COVID-19. If anyone at Love Your Hood becomes sick, you can rest easy knowing they will be home, and another one of our amazing (and healthy!) team members will assist you with any property tours. We are also available to do virtual video tours of properties for you while you stay safely at home — please reach out to us to schedule one.
Here are the precautionary measures we will be taking to ensure that your home buying and/or selling journey is not affected:
- We will carry disinfectant wipes to clean all surface areas — particularly lockboxes, keys, and doorknobs.
- We will ask you to please refrain from touching any surfaces when touring homes.
- If you’re showing signs of illness, please let us know. We can do a video tour on any available home.
- Our entire team will be working from home as much as possible to do our part in slowing the spread of the virus and flattening the curve.
- All meetings will be done via conference calls or virtual video chat.
We encourage you to visit the Centers for Disease Control and Prevention website for additional information regarding COVID-19.
With regards (and washed hands),
Your neighbors at Love Your Hood