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!
As we all know, for the last five years, Denver has been deep into a seller’s market in the single family home category. The problem isn’t selling the home, it’s finding a replacement if you plan on staying in Denver. The Contract to Buy and Sell doesn’t have any built-in contingencies for sellers to back out of the sale, unless your real estate broker has negotiated them into your contract. In fact, the buyers are in complete control most of the way to the closing table.
There are several strategies your broker can contractually negotiate on your behalf to reduce the stress of being homeless after the sale. Every situation is unique, so make sure you communicate your concerns, expectations, and the best-case scenario for your move to your broker prior to listing your home.
Price is only one piece of the puzzle.
Bidding wars end all the time with offers that are not the highest price submitted. The key to coming out on top is asking the right questions to find out what in the transaction is most important to the seller. Working with buyers who also understand this concept is key, as they typically ask questions and shape their offer accordingly.
Contractually, what does this mean?
Here are a few techniques to increase the success of a smooth transition into your new home:
- Seller Replacement Contingency – Written correctly, this allows the seller to terminate the contract within a certain period of time prior to the negotiated date, if they are unable to find an acceptable replacement home. Be prepared to reimburse the buyer any hard costs incurred during this period (think home inspection, appraisal, etc.).
- Post Closing Occupancy Agreement – This is a fancy term for a seller rent back (sometimes free) from the buyers after closing. You can usually ask for up to a 60-day rent back (sometimes more) after closing to allow more time to purchase your replacement property.
- Buying first, selling second – Sounds easy, right? Well, the tough part is getting a seller to accept your contingent offer to buy their home before you sell yours. The “secret sauce” here is to have everything ready to go on your current home, so the only thing left to do is hit the “active” button on the MLS. Being transparent with the listing broker and implementing some of the strategies mentioned above (i.e. asking the right questions) also helps to get your new home under contract.
- Bridge Loans – This is a great strategy if you have sufficient equity in your home and you’re okay increasing the cost of your replacement home financing. This allows you to submit non-contingent offers on your replacement home before you sell your current home. There’s also a scenario where you can use this as a contingency and still pull off selling your home and buying your replacement on the same day!
While this list isn’t meant to be all-inclusive, it is meant to show you that there are ways to accomplish selling and buying in a super-competitive Denver market. The key to success is partnering with a seasoned real estate professional who can advise you of your best options.
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.
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.
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
Source: Andrew Dodson of the Denver Business Journal
Beginning this January, real estate agents will no longer be allowed to market listings as “coming soon.” The driving force behind this? Agents will try to market to their network and score both sides of the transaction. This new rule creates an even playing field for all buyers and agents, but some brokers aren’t happy with the change.
Source: the Colorado Real Estate Journal
The age old question, revisited: should I rent or should I buy? Here, the author presents statistics that illustrate Denver’s current preference of renting over buying. In the last 10 years, home prices have exceeded rental increases by 24%, requiring far less cash to execute a lease than to transfer a deed. But one thing to note: you don’t need to wait until you have 20% saved up to purchase a home — conventional home loans start with as little as 5% down! In fact, there are other loan products that can bring the down payment even lower.
Source: Aldo Svaldi of the Denver Post
If you were to search “overpricing a home” on Google, you’d find pages upon pages of articles and blog posts advising that it’s a bad idea. A year ago, one could get away with overpricing a home since putting it on the market alone would garner positive attention. Today, things have changed. Highlighting his reasoning with real time Denver market statistics, this article’s author advises slightly under-pricing a home when listing it these days. Agents and buyers not only know what the home is worth; they also know that a listing price must accurately represent the home’s worth in order to see a quick sale.
“There’s speculators buying up houses:” Denver’s East Colfax braces for transit, density and displacement
Source: Andrew Kenney of the Denver Post
Denver government and development reporter Andrew Kenney believes, “East Colfax is the next frontier.” From small-scale home-flippers, to development firms, to the City of Denver, investors have big plans for this neighborhood. The danger, as it always is with development, is displacement. Can the City of Denver and its housing market players revive this area’s businesses and public transportation? And, can they do it without destroying one of Denver’s last pockets of affordable housing? Read the full article below to learn more!
Curious what’s for sale in this neighborhood? Find out here: