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Remodeling information for those who can't afford a new home

by Allison Simson & Joyce Nenninger

Question: We had thought about buying a new home but just cannot find anything in our price range. Our next option is to do some remodeling. We don’t know how much remodeling we can do and still expect to get that money out of the property when we sell. Do you have any information?

 

Answer: Baby boomers are finding it difficult to find new homes in some markets, so they are instead investing their money in their existing residence.

Before homeowners indulge themselves on expensive upgrades, though, they should consider several factors.

First, keep local building codes in mind and consult their city planning or building department to find out what kind of changes are allowed and disallowed. Some areas also have architectural committees that approve architectural drawings.

The next step is to assess their investment realistically. They should build within the value of their neighborhood, keeping long-term resale values in mind.

It is important to note that while homes represent a considerable economic investment, most major remodeling projects return no more than 80 cents to every dollar spent. Homeowners should consider the personal enjoyment they would get from upgrading their property, however, as well as the economic return. Whatever the case, homeowners should know that it almost never pays to own the most expensive house in their neighborhood. On the other hand, if the home is comparably smaller, a large remodel can be worthwhile.

 

Basements are probably the best area in a home to consider for those who may want to remodel, or expand, their living quarters. The cost of remodeling existing basements start at about $20 per square foot--far less than what it costs to build an addition or enlarge second-floor space.

Not every basement is prime for conversions, however. Controlling moisture; adding ventilation and light; and finding a way around hanging drain tiles, ductwork, and wiring are all key factors in determining the practicality of conversion.

The first consideration for a basement conversion is flooding. A variety of solutions will address this, depending on severity. Simpler solutions include repairing cracks, clearing the gutter of clogs, and sloping the ground away from the house. If the problem persists, installing or repairing foundation drains is in order. The presence of radon is also a consideration when converting a basement. A simple test can reveal the level of radon in the basement; and, usually, the gas be collected and vented to the outside. Building codes are also important to consider when remodeling. Lowered ceilings, altered staircases, and emergency exits must all be accounted for--advisably before the project takes place. Basement walls can create a problem because of excessive moisture. Contractors have methods to handle this problem, usually a seal-tight wall or a looser one that allows the wall to breathe. Flooring is usually a more tolerant area, as most anything will work.

Lighting can be a problem for sub-level basements. It is important to utilize all existing natural light by removing shrubbery near windows and adding glass doors in place of solid ones. Recessed incandescent lighting is the most practical solution, as it is unobtrusive and generally more flexible than other options. Moreover, adding other amenities can drain existing electrical pads; so upgrading to a 200-amp panel is advisable, albeit more expensive. Issues concerning ventilation are, again, best addressed beforehand with an inspector rather then afterwards, when it may be too late. Fresh air is just as important to boilers, furnaces, and gas-fired water heaters as it is to people. Humidifiers or air exchangers are good solutions to regulate and maintain fresh air. Converting a basement may require some time and planning; but considering the alternatives, it is also the most economic and rewarding.

 

 

For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - [email protected] or visit their web site at www.SummitRealEstate.com. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field.  Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  

 

Help for first-time homebuyers with financing terminology

by Allison Simson & Joyce Nenninger

Question: We are buying our first home and are very confused about the financing terminology. Could you give us some help?

 

Answer: First-time homebuyers might find financing terminology to be very confusing. One of the most important elements of mortgage finance for borrowers to understand is the interest rate, which is the number that is multiplied by the loan balance to calculate the interest payment owed to the lender. Although the rate quoted on a mortgage is an annual rate, it is applied monthly.

With a fixed-rate mortgage, the interest rate is set for the lifetime of the loan. On an adjustable-rate mortgage (ARM), however, the rate is set for an initial period of one month to 10 years, after which it may change. ARM borrowers have some special considerations when shopping for a mortgage. The fully indexed rate for ARMs, equivalent to the sum of the interest rate index used by the ARM and the fixed margin of profit added on by the lender, tells lenders where the rate will go in a stable interest rate environment. Should interest rates suddenly jump, meanwhile, the maximum rate limits how high the ARM percentage can rise. The second component in the price of a mortgage is points. Each of these upfront fees is expressed as one percent of the loan amount. Points are paid in exchange for a discount on the interest rate. Conversely, rebates are points paid by the lender for high-rate loans and then used by the borrower to, perhaps, offset the costs of settlement.

Finally, mortgage borrowers should recognize that origination fees are imposed by lenders to disguise higher rates. For borrowers, points and origination fees are essentially the same--except that points are tax deductible and origination fees are not. "Junk fees" is a term used to describe any of a bevy of other upfront charges, expressed as a dollar amount of the loan, levied by the lender or mortgage broker.

For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - [email protected] or visit their web site at www.SummitRealEstate.com. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field.  Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  

 

Internest sites tthat compare different loan scenarios

by Allison Simson & Joyce Nenninger

Question: We are shopping for a loan and would like to be able to compare different loan scenarios. We want to establish the true cost of the different loans that are available. Do you know of any site on the Internet where we could do this?

 

Answer: Fannie Mae has introduced the latest version of its true cost calculator, an online tool providing consumers with an easy way to weigh various mortgage options. The release of true cost calculator 2.0 features the ability to create a file and save multiple loan scenarios for comparison purposes without needing to re-key data.

The technology helps consumers calculate the costs of getting a mortgage, including interest rate and points, mortgage insurance premiums, appraisal and title insurance fees, and other settlement charges. The
True Cost Calculator at HomePath.com also provides a more precise estimate by factoring in how long the consumer actually plans to keep the loan. The tool provides an analysis using four key measures: the true cost rate, which is the true cost of the mortgage, expressed as an annual percentage; the true cost rate after taking into account the borrower's potential tax savings; the monthly mortgage payments; and the estimated equity the borrower can expect to amass during the anticipated loan term.

For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - [email protected] or visit their web site at www.SummitRealEstate.com. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field.  Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  



Cash-Outs Trade Money for Equity

by Allison Simson & Joyce Nenninger

Question: We are interested in doing a “cash out” refinance on our home. Are there any risks involved with this type of refinancing?

 

Answer: Cash-outs involve refinancing an existing mortgage and trading in home equity for cash. This option is especially popular when interest rates are down, because it allows homeowners to refinance at lower rates while gaining access to extra cash. Even better, their monthly mortgage payment usually remains the same or even goes down.

The benefits of cashing out include stretching the term of the loan to access more money at a lower rate, the ability to replace high-cost debt, and avoiding the need to cash in taxable investments.

Cashing out does involve some risks--including possibly renewing a mortgage for its full life and incurring a higher total interest cost for financing and reducing home equity. It can be detrimental if housing prices decline; homeowners who have little equity in a declining market could find that they owe more on their property than what it is worth. Also, homeowners must manage their finances carefully, using the cash-out funds to handle expenses and then keeping spending under control. Qualifying for a cash-out is also difficult. Because this type of borrowing eats into equity, it raises the risks to lenders, who, in turn, will want to carefully scrutinize applicants.

An alternative to cash-outs is the home equity line of credit, which allows a consumer to borrow on a revolving basis. Homeowners need only pay interest on the amount borrowed and will not have to reapply and pay service charges to gain access to more money. This option is most appropriate for borrowers whose cash-out will not reduce their mortgage payment and also for homeowners who want an extra source of cash for ongoing projects, rather than for a specific purpose.

For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - [email protected] or visit their web site at www.SummitRealEstate.com. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field.  Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  

 

 

What Fed cuts really mean for mortgages

by Allison Simson & Joyce Nenninger
Commentary: Average rates on mortgages unchanged in recent surveys

According to Lou Barnes with Inman News, contrary to the conviction of deeply confused civilians and reports by lazy news media, mortgage rates are unchanged, about 5.75 percent for the lowest-fee 30-year paper.

Barnes says, if you don't believe me, visit www.freddiemac.com and its weekly survey. It is unbiased by sales jive, although it suffers from "survey lag" (early-week data released on Thursdays always misses real-time reality), and assumes a fractional origination fee. Last week's "5.48 percent" captured the one-day hysterical bottom when the industry could not log onto rate-lock Web sites. Yesterday's "5.68 percent plus 0.4 percent origination" is still about right, and all but identical to the prior week's "5.69 percent plus 0.5 percent."

Yet, the media refer constantly to "dramatically lower mortgage rates." They are better, but ... drama? Freddie's average for the whole of 2007 was 6.34 percent. A half-percent drop is nice for buyers, and a help to a few refinancers, but no fire sale.

"How can it be the same ... !?!" says the client, after a cumulative 1.25 percent cut at the Fed in only eight days? Answers follow.

Brand-new January economic data are not that bad. They're not bad enough to justify the Fed's panic, let alone to anticipate more cuts. Payroll growth slipped to flat in January (negative 17,000 is within the huge range of error and revision), unemployment down to 4.9 percent in a workforce statistical quirk -- soft, but hardly a recession. The purchasing managers reported their first gain in six months, likewise soft, but with persistent strength in foreign orders. Fourth-quarter GDP grew by a mere 0.6 percent; however, aside from a temporary drawdown of business, inventories grew at 2 percent.

The Fed's form is disturbing to long-term investors. Central banking is not figure skating, but Fed Chairman Ben Bernanke has departed his predecessor's 17 years of gradualism for lurching on the rink. A Fed that will lurch down will lurch up.

Investors bought long Treasurys and mortgages at these levels 2002-2004 because former Fed Chairman Alan Greenspan said after every meeting into 2006: Excessive monetary stimulus most likely will be "removed at a measured pace." Translation: You're safe for now, and we'll give you time to get out before we kill you.

In those late Greenspan years, deflation was the problem. Today, inflation is rising all over the world: Australia at a 16-year-high of 3.8 percent core; Europe at a 14-year-high of 3.2 percent; U.K. at 2.6 percent core; China at 6 percent-plus; and an economy completely out of control beginning to export inflation to us. Each time the Fed has lurched to a catch-up ease, all the way back to August, it has rescued stocks, commodities, oil, gold, and tanked the dollar.

I have chewed on the Fed for its inaction and credit-wreck oblivion. However, this situation is NOT a monetary problem: It is a banking-system near-insolvency that may morph into a recession, each making the other worse. The crying need for six months has been transparency of credit loss and bad-asset firewall. Cuts in the overnight cost of money may intercept recession, but inflation means that these cuts cannot be maintained or removed at a measured pace.

A central bank chairman must be prepared for the ultimate sacrifice: No tough inflation problem was ever solved by slow growth. It takes a recession. It takes higher unemployment and crushing the commodity spiral. To get long-term rates down, Bernanke must get the good out of this slowdown: He must let it get ugly. Instead, he has rescued inflation-pushing markets again and again.

Two non-Fed forces holding up mortgage rates: Credit fear about Fannie and Freddie has the spread between mortgages and the all-defining 10-year Treasury (3.57 percent today) over 2 percent for the first time ever. Second, somebody by accident may arrive at an effective credit-wreck bailout: The giant bond insurers, Ambac and MBIA, may be resolved in days. If no collapse, then credit fear will give way to inflation fear.

The Fed's cuts have had a dramatic effect on ARM adjustments, and should revise estimates of housing doom to the better -- also reducing bond-market fear. This month, common one-year Libor-floating loans will adjust DOWN to 5.125 percent.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at [email protected].

 

 

For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - [email protected] or visit their web site at www.SummitRealEstate.com. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field.  Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  

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Summit Real Estate
The Bright Choice
330 Dillon Ridge Way, Suite 10
Dillon CO 80435
970-468-6800
800-262-8442
Fax: 970-468-2195

Allison Simson, Owner/Broker, is a licensed Colorado Real Estate Broker