All mortgages can be divided into two main categories: conventional and government loans. Additionally, each of the various mortgage programs can be classified as fixed rate loans, adjustable rate loans, or a combination of the two. In this technical bulletin, we’ll discuss government and conventional loans, including conforming vs. non-conforming loans.
Government vs. Conventional Loans: About 20% of all home loans in the U.S. are insured or guaranteed by an agency of the federal government and are considered government loans. The remaining 80% of residential mortgages are referred to as conventional loans. GOVERNMENT LOANS FHA Loans: The Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD), was established in 1934 during the Depression in order to stimulate the U.S. housing market. The FHA administers various mortgage loan programs, although the FHA is not a money lender; instead it issues federal insurance against losses to FHA-approved lenders who make FHA loans. FHA loans have lower down payment requirements and are easier to qualify for than most conventional loans. FHA loans cannot exceed the statutory limit, which is set for each county. For example, the legal limit for an FHA loan in the Denver metro area, currently (2020) ranges from $575,000 for 1 living-unit homes to $1,105,800 for 4 living-units. VA Loans: Like the FHA, the VA does not lend money of its own. VA loans are guaranteed by U.S. Department of Veterans Affairs, which allows veterans and service persons to obtain home loans with favorable loan terms (usually without a down payment), thanks to provisions in the GI Bill of Rights passed in 1944. It is easier to qualify for a VA loan than a conventional loan, and lenders generally limit the the maximum amount of a VA loan. VA determines a borrower’s eligibility, and, if a borrower is qualified, VA will issue a certificate of eligibility to be used in applying for a VA loan. VA-guaranteed loans are obtained by making application to private lending institutions. RHS Loan Programs The Rural Housing Service (RHS) of the U.S. Department of Agriculture guarantees loans for rural residents with minimal closing costs and no down payment. The RHS is part of the USDA’s Rural Development Program, which came about as part of the Farmers Home Administration (FmHA) reorganization in 1995. Ginnie Mae, which is part of HUD, guarantees securities backed by pools of mortgage loans insured by these three federal agencies— FHA, or VA, or RHS. Securities are sold through financial institutions that trade government securities. State and Local Housing Programs In addition to the federal government, many states, counties, and cities provide low to moderate housing finance programs, down payment assistance programs, or programs tailored specifically for a first time buyer. These programs are typically more lenient on the qualification guidelines and often designed with lower upfront fees. Also, there are often loan assistance programs offered at the local or state level such as MCC (Mortgage Credit Certificate) which allows a tax credit for part of the interest payment. Most of these programs are fixed rate mortgages and have interest rates lower than the current market. Conforming: Conventional loans may be conforming or non-conforming (while virtually all government loans are considered conforming). Conforming loans have terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac. These two stock holder owned corporations purchase mortgage loans complying with the guidelines from mortgage lending institutions, package the mortgages into securities, then sell the securities to investors. By doing so, Fannie Mae and Freddie Mac, like Ginnie Mae, provide a continuous flow of affordable funds for home financing that results in the availability of mortgage credit for Americans. Fannie Mae and Freddie Mac guidelines establish the maximum loan amount, borrower credit and income requirements, down payment, and suitable properties. Fannie Mae and Freddie Mac announces new loan limits every year. The conforming loan limit in 2020 for a single-family residence is $575,000. (By comparison, the single-family loan limit in 2002 was $300,700.) The two-family loan limit is set at $736,100 in 2020.The 2020 three family and four-family limits are $889,800 and $1105,800, respectively. Properties with five or more units are considered commercial properties and are handled under different rules. The maximum loan amount is 50 percent higher in Alaska, Hawaii, and the U.S. Virgin Islands. Non-Conforming Loans: Although it may have a negative ring to it, a non-conforming loan may be the ticket to homeownership for many with unusual circumstances. Non-conforming loans are for buyers whose situations do not “conform”to strict Fannie Mae/Freddie Mac underwriting guidelines. Not long ago, non-conforming loans were considered riskier than conforming loans and therefore borrowers were subjected to higher interest rates and larger down payments. However, this traditional way of thinking has changed in many lending circles, and now many lenders find it more attractive to offer non-conforming loans. Because jumbo loans are bought and sold on a much smaller scale, they still often have a slightly higher interest rate than conforming, but the spread between the two varies with the economy. Jumbo Loans: The most important difference between conforming and non-conforming loans is loan limits. First lien mortgages above the maximum loan amount eligible for purchase by Fannie Mae and Freddie Mac—currently $575,000—are known as “jumbo” loans. Jumbo loans are often subject to an interest rate pricing premium as well as to some additional underwriting restrictions. Because they are larger and more involved, jumbo loans also are usually governed by stricter standards than conforming loans. It is not uncommon for jumbo loans to have unique income and mortgage insurance requirements. All types of loans (fixed-rate, ARMs, and balloon) are available in jumbo loans. Subprime Loans Loans that do not conform because they do not meet the borrower credit requirements of Fannie Mae and Freddie Mac are called subprime loans, also known as “B,” “C,” and “D” paper loans (vs. “A” paper conforming loans). The good news is that credit specifications for B/C loans can be more lenient than other types of financing. This makes them an attractive choice for borrowers who are self-employed, have complicated tax returns, do not wish to disclose or document income, want to recoup equity from their homestead, have recently filed for bankruptcy or foreclosure, or have had late payments on their credit reports. Subprime loans offer temporary financing to these applicants until they can qualify for conforming “A” financing. The interest rates and programs vary, based upon many factors of the borrower’s financial situation and credit history. These loans often close faster, have reduced or no reserve requirements, allow for expanded use of loan proceeds, and provide higher levels of cash out for debt consolidation.
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Colorado’s system of real property taxation can leave homeowners confused and frustrated. This may be especially true if a homeowner receives a Notice of Valuation reflecting an unexpected increase in the value of his or her home which results in an increase in taxes owed. This article will provide an overview of the process by which property values are determined for the purposes of taxation and the options for homeowners who believe their properties have been incorrectly valued. Colorado has a two year cycle for valuing real property for the purposes of assessing property taxes. In odd years, properties are revalued; even years are considered “intervening years” and properties are generally considered to have the same value as in the prior year. In intervening years, notice of the value of property is often contained in a short form along with the property tax statement issued in January. However, in odd years assessors are required to mail a Notice of Valuation, or NOV, to taxpayers by May 1. The NOV must include the actual value of the property as determined by the assessor’s office and the assessment rate that applies to the property (explained in further detail below). It may also include an estimate of the taxes owed for the current tax year.How does the county assessor determine the amount of property taxes owed?The amount of taxes owed is determined by using a statutory formula. First, the assessor must determine the actual value of the property. To do this, the assessor estimates the market value as of the appraisal date, a date that is set by statute as June 30th of the prior year. The market value is determined by reviewing property sales taking place within the “study period” — generally the 2 year period prior to the appraisal date. For the 2015 tax year, for example, the study period is from July 1, 2012 through June 30, 2014, and no sales that took place outside this timeframe are considered in the valuation of the property. Once the actual value is established, the following formula is used to determine the amount of taxes owed: (Actual Value x Assessment Percentage) x Mill Levy = Taxes Owed The assessment percentage is determined by how the property is classified — for residential property, the percentage is currently 7.96% and for commercial property it is 29%. For further explanation and some examples of this calculation, please see this useful link from Douglas County. Errors may occur in any of the three numbers used to determine the taxes owed. For example, if there has been a change in use for a particular property, the assessor may use the 29% assessment percentage in calculating the value of property that is actually residential and should be assessed at the 7.96% rate. Less commonly, an incorrect mill levy may be used in the formula. However, it is most common for property owners to contest the actual value of the property as determined by the assessor.What can I do if I think the valuation is incorrect?There are two routes that taxpayers may take if they believe there was an error in determining the amount of taxes due. A taxpayer may follow the protest procedure or the abatement procedure, each of which is described in more detail below. Protest Procedure. Under the protest procedure, a taxpayer who receives an NOV that he or she believes to be an error may file a protest with the assessor no later than June 1 of the year that the NOV was received. The assessor has until the last working day of June (or August if the county has opted for an extended appeal process) to issue a decision, called a Notice of Determination (NOD). If the taxpayer disagrees with the NOD, he or she can then appeal to the County Board of Equalization (CBOE) by July 1 (or September 15 under extended appeal process). The CBOE usually consists of the County Commissioners for the county in which the property is located; however, some larger counties use hearing officers rather than the Commissioners for this process. An informal hearing, usually less than 30 minutes, is held and a decision is made by August 5 (November 1 for extended appeal process). The taxpayer then has 3 options for appealing the CBOE decision. An appeal may be filed in district court, with the Board of Assessment Appeals (BAA), or through binding arbitration. About 90% of these appeals go to the BAA, and appeals to the BAA must be filed no later than 30 days after the CBOE decision was mailed to the taxpayer. Abatement Process. In lieu of the protest procedure, a taxpayer can file an abatement petition with the Board of County Commissioners for a prior tax year. Generally speaking, a taxpayer has 2 years from the year in which the taxes were levied to file an abatement petition. (for the 2015 tax year, file no later than January 2, 2018). If the request is for an abatement of over $1,000, the Board of County Commissioners must hold a hearing and act on the petition within 6 months. If the petition is granted for over $1,000, the taxpayer will get an abatement (a reduction of taxes owed) or a refund of taxes already paid along with statutory interest (currently 12%). If the petition is denied, the taxpayer may appeal to the BAA within 30 days of the decision, but does not have the options of arbitration or an appeal to district court which are available under the protest process. If the basis for the abatement is overvaluation, the taxpayer can NOT file an abatement petition if a protest was filed. It is important at the outset to carefully consider which process to follow; if a protest is filed and denied, a taxpayer will be unable to later file an abatement petition.Which option is better — protest or abatement?Each process has its own benefits and downsides which must be considered in making a decision about which route to follow. Generally speaking, the protest procedure is “forward-looking” in that it focuses on taxes that have not yet been paid but that will be due in the future. Under the protest process, taxpayers may choose among three different appeal options if the initial protest is denied, while there is only one process for appeal (BAA) under the abatement process. In addition, the protest process can allow for a quick resolution of issues before a tax bill is mailed, giving certainty and finality to the taxpayer before taxes are even due. Finally, if a taxpayer files a protest and it is denied, the taxpayer is precluded from later using the abatement process to recover overpayment of taxes with interest. In contrast, the abatement process is “backward-looking” and deals with the abatement or refund of taxes already due and often already paid by the taxpayer. The abatement process gives taxpayers two years post-assessment for the abatement or refund of taxes, while a protest must be filed within a very short time of receiving an NOV. In addition, if the abatement process is used, taxpayers may have the added benefit of collecting statutory interest if taxes have already been paid and are refunded, and this can be a considerable amount of money in some circumstances.ConclusionThere is no one-size-fits-all solution for all taxpayers regarding the best way to address a valuation that is considered incorrect. Taxpayers should consider their circumstances carefully in making a decision about which option would be best. The brief overview provided in this article is intended to provide general information only and does not constitute legal advice. In making these important decisions for yourself, it may be helpful to consult with a professional for advice. Please feel free to contact me for assistance in choosing a route for disputing an incorrect valuation or other issues related to your property taxes. References: Gunning, Robert R. Property Tax Litigation Before the Board of Assessment Appeals, 35-AUG Colo. Law. 87 (2006). For questions regarding this article please contact Jon Goodman. Updated and unique ranch in Lakewood. Close to the highway and the hills. 1197 Sq feet, 3Bd, 2Ba on the main floor, plus a full open basement. New roof, Newer 220V Electric Panel, Newer windows and patio door, Newer Furnace, Sprinklers, A/C. Beautiful refinished Hardwood floor, new paint in/out, new interior doors, nice kitchen with quartz counters and stainless appliances. 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12511 W Dakota Dr. Lakewood, CO 80228 As the weather starts to heat up each Spring, so too does the housing market. Spring is an optimal time to get your house ready to sell. The first thing that potential buyers will see of your home is the landscaping, so make a great first impression with beautiful outdoor spaces. An investment in landscaping can help sell your home faster and for more money. There are simple projects at every price point that can help you achieve great curb-appeal.
Inexpensive $ 1. Keep the Lawn Well-Manicured The easiest and most obvious landscape project when hoping to sell your home is to get your lawn looking its best. Spring is a great season to try to sell because your lawn is helped by Mother Nature. Wet, mild Spring weather will help the lawn stay green with less effort. To show off that green lawn, make sure to mow and edge it often. 2. Keep Your Yard Weed Free It may not cost much, but it will require some time and effort to control the weeds around your property. Spray or pull weeds in flowerbeds, on property borders, and along the driveway. A weed-free yard will help potential buyers feel confident that the home is well cared for, which can create an overall positive impression of your home. 3. Add Flower Pots Near Your Front Door A splash of color in the yard is a great way to highlight your home. If you are looking to sell quickly, it might be too late to do major yard improvements since new flowers and plants will not have adequate time to grow and mature, but a few beautiful pots of flowers strategically placed near your front door can have a similar effect without requiring a lot of time and maintenance. Moderate $$ 4. Add Outdoor lighting Outdoor lighting has become a trendy feature that buyers have embraced. Lighting can add interest to your yard, highlight areas of beautiful landscaping, and make your home stand out at all times of the day. Solar lights are particularly easy to use because they will recharge during the day and automatically come on in the evening to illuminate your home. 5. Install Curbing/Edging If you have a little extra money to spend, consider adding curbing or edging around your yard. It helps the landscaping appear crisp and clean, and makes the lawn easier to mow and trim. Savvy buyers will appreciate the ease of maintenance and the defined spaces that curbing creates. 6. Hire a Lawn or Pest Control Company It is important when selling a home to make sure that their aren't any obvious problems. If your lawn is dead or patchy or you have pest problems like spiders, mice, etc, you will need to get those under control. Some of these projects are beyond the scope of what an individual without training can quickly achieve and should be left to professionals. Lawn care companies and exterminators can assess the issues you may have and recommend treatments. This may even be limited to a one time visit that can quickly improve the chances of selling your home. High-End $$$ 7. Create Outdoor Living Areas If you have money to invest in your home, high-end landscaping projects can increase your bottom-line and draw attention from buyers looking for upgrades. Extra living area outside of your home is a huge attention grabber that attracts buyers. This could range from simple patios staged with outdoor furniture, to screened in porches, to full outdoor kitchen areas. Depending on your location, these upgrades may or may not be worth the investment, so do your research before proceeding. 8. Replace or Update Fencing Fences provide a safe place for children and pets and also give homeowners a feeling of privacy, so they are highly sought after. Fencing is also one of the first things people see when coming to your home. If your fence is an eyesore, it will be worth it to make the effort to have it replaced or fixed up. A new fence is quite an investment, so first determine if your fence can be spruced up with some nails and a new coat of paint. 9. Hire a Professional Landscaper If you are serious about creating a stunning yard, a professional landscaper can add massive amounts of curb appeal to make your home one of a kind. A landscaper can help you add impressive things like paving stone walkways, decorative retaining walls, and water features. Outdoor improvements definitely increase house values, but it is always good to know what the market will support in your area before moving forward. No matter how much money you have to invest in your home's landscaping, there are projects you can do this Spring to improve your home's curb appeal and get it noticed by buyers. Flipping a house means buying a home with the intention of fixing it up and selling it within six months for a profit. Americans flipped 26,947 single-family homes in Q3 2014, accounting for 4 percent of all home sales in that period, according to real estate data firm Realtytrac. The average gross return for investors was $75,990 per home, up 2 percent from Q2. Flipping houses can be profitable, particularly when home values are rising and interest rates remain at historically low levels. The Federal Housing Administration stopped enforcing anti-flipping regulations—which prohibited insuring any home for less than 90 days—in 2010. If you're looking to get into the home flipping business, follow these four guidelines for the best chance of success. Build a Bankroll Everything in life requires money, and house flipping is no exception. You could take out loans to buy properties, but then you are just creating debt in the hopes of making money. A smart house flipper who wants to profit immediately and often will use his or her own money. The best way to build a bankroll is by saving over time. Consider selling your own home if the proceeds will pay off the mortgage and leave you with enough to get started. Those currently receiving regular payments from a structured settlement or annuity can consider selling their future payments to a company like J.G. Wentworth for a lump sum of cash now. Make sacrifices like selling off an extra vehicle, disconnecting cable television and giving up the $5 lattes in the morning to pad your bankroll further. Buy at Discount You'll make the most money if you buy a house for less than its actual value at the time of purchase. The best way to do this is by seeking out motivated sellers. These are people who need to sell quickly to relocate for a job or simply need to make fast money. Use your social media networks to generate referrals. Inform friends and followers that you are looking to buy properties. Knocking on doors in prime neighborhoods can also generate leads—target homes with "for sale" signs and distressed properties that appear neglected. Location, Location The total value of all homes in the U.S. was $27.5 trillion at the end of 2014, according to data compiled by Zillow. That represents a 6.7 percent increase from 2013 and the third consecutive year of positive gains. But certain markets are doing even better. Denver, Miami, Atlanta, Houston, Orlando and Las Vegas experienced the largest gains for 2014, with each up at least 11.5 percent on the year. These markets offer the largest margin for error for those flipping homes, particularly with a major housing market correction being predicted by several economists for 2015. This is mostly due to the Federal Reserve ceasing its quantitative easing program and no longer artificially inflating the markets. A good rule of thumb when buying in areas that experienced low or negative year-over-year home value change (i.e., Indianapolis and Phoenix) is to only purchase homes at 10 percent or more below current market value. DIY Where Possible You'll likely need to hire plumbers, electricians and other contractors to tackle major home improvements. But the more you do yourself, the higher your profits will be. You and a few friends can install new sinks and countertops and even shingle a roof. Youtube has hundreds of instructional videos that cover everything from replacing water heaters to installing shower faucets. Creative landscaping can increase the value of a property by 13 percent, according to a study by Virginia Tech University. The DIY Network has several ideas for easy landscaping projects that anybody with a little ambition can complete. House flipping is a cyclical endeavor that is only profitable when economic conditions are positive. Now is a great time to get started. |
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